Union Bank v. Car Mart Auto Group, Inc.

Car Mart Auto Group, Inc. (Car Mart) (defendant) was an auto-resale business, and it relied on lender The Union Bank Company (Union Bank) (plaintiff) for multiple business loans between 2005 and 2010. The parties entered loan agreements to fund the operations of Car Mart, allow it to purchase vehicles for sale, and ultimately to build a new sales facility. The credit extended was backed by four notes with cognovit clauses, i.e., contract provisions in which a debtor consents to judgment in favor of the creditor in the event of default. The notes were also payable in full on the lender’s demand. Union Bank called the loans due in early 2010 and filed suit against Car Mart on six counts—four alleging default on the notes, the fifth claiming Car Mart had been unjustly enriched to the detriment of Union Bank, and the sixth asking that a receiver be appointed to oversee the sale of the assets and remaining business of Car Mart. Car Mart filed a counterclaim for breach of duty of good faith and a claim of lender liability under an instrumentality theory, which would hold that a dominant, controlling corporation or entity can become liable for the debts of a subservient, controlled entity. Car Mart argued that an Ohio statute (R.C. 1301.309) imparted a duty of good faith on Union Bank. The other counterclaim alleged that Union Bank had so taken over Car Mart’s business—by acts like ordering Car Mart to re-floorplan its cars every month to make aged inventory less conspicuous—that Car Mart had acted as a “mere instrumentality” of Union Bank and Union Bank itself should be liable. Union Bank moved for summary judgment on those counterclaims, and the trial court ruled in its favor. Car Mart appealed.