Pride Hyundai, Inc. v. Chrysler Financial Co.

The same person owned four car dealerships named Pride Hyundai, Blackstone Subaru, Pride Dodge, and Pride Chrysler-Plymouth (collectively, Pride) (plaintiffs). In 1995 and 1996, Pride entered into wholesale-financing agreements with Chrysler Financial Company, L.L.C. (CFC) (defendant) and gave CFC a security interest in Pride’s assets. Each of the wholesale-financing agreements contained a dragnet clause purporting to extend the security interest to unrelated debts that Pride owed to CFC, regardless of when the debts had arisen. Pride Chrysler-Plymouth had already entered into a retail-financing agreement with CFC in 1987. Pride Chrysler-Plymouth facilitated the financing of its customers’ vehicle purchases by entering into installment contracts with the customers and assigning the installment contracts to CFC in bulk for a price set forth by the retail-financing-agreement terms. The retail-financing agreement contained a chargeback provision designed to protect CFC by making Pride Chrysler-Plymouth partially liable for any unrealized profits incurred because a customer paid off the installment contract early or defaulted on payment. Although Pride Chrysler-Plymouth did not pledge any assets, the chargeback provision required Pride Chrysler-Plymouth to maintain a balance in a CFC account equal to the greater of $1,000 or 1.5 percent of the value of the installment contracts purchased by CFC. Pride fulfilled their obligations under the wholesale-financing agreements. However, CFC refused to release its security interest in Pride’s assets. Accordingly, Pride sued CFC for breach of contract and alleged unfair and deceptive practices. CFC argued that the dragnet clauses in the wholesale-financing agreements extended to the retail-purchase agreement and that, therefore, the assets continued to secure potential unrealized profits from the installment contracts and Pride was required to maintain the balance in the account. The district court ruled for CFC based on caselaw predating the July 2001 Uniform Commercial Code (UCC) Article 9 amendments. Pride appealed.