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DealMaker sues auto manufacturer for $110m over failed Potsdam location

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Two affiliate companies of Watertown’s DealMaker Auto Group filed a $110 million federal lawsuit Friday against a car manufacturer they claim forced DealMaker to open its Potsdam dealership before it was ready.

V.M. Paolozzi Imports Inc., doing business as DealMaker Honda of Watertown, and DealMaker of Potsdam LLC, doing business as DealMaker Honda of Potsdam, filed action in U.S. District Court, Syracuse, against American Honda Motor Co. Inc., Torrance, Calif., claiming that DealMaker was forced to open the Route 56 dealership at a time when “the national economy and national car sales were in a state of recession and collapse.”

The suit is a something of an extension of ongoing legal action among DealMaker, Honda Motor and American Honda Finance Corp. over DealMaker’s now-closed Honda dealerships in Watertown and Potsdam. In April, a federal judge awarded Honda Finance a $3.6 million judgment after determining that DealMaker had violated its floor-plan financing agreement. A $16 million breach-of-contract counterclaim filed by DealMaker was dismissed, although the company has an appeal pending in the U.S. Court of Appeals for the Second Circuit.

Honda Motor also has sued DealMaker in federal court, with the primary issue being the removal of Honda’s trademarks from the closed locations in Potsdam and Watertown, most of which have been removed. DealMaker has filed a $48 million counterclaim in that action alleging, among other items, Honda Motor’s collusion with Honda Financing in terminating its dealerships agreements.

The allegations in Friday’s action mirror, but expand upon, DealMaker’s claims in its countersuit against American Honda. In addition to the DealMaker Honda entities, P.J. Simao, co-owner of DealMaker Auto Group, and two of his development companies, Onondaga Development LLC and Prime LLC, which own the real estate in Watertown and Potsdam, respectively, are included as plaintiffs.

According to court documents, Honda and DealMaker Potsdam entered into a dealer sales and service agreement in June 2008. A 19,000-sqare-foot dealership was built by Prime and leased to DealMaker. In 2008, in addition to the struggling economy that was affecting the automotive business, DealMaker’s financial and management situation was in turmoil and Mr. Simao wanted to postpone opening the new dealership.

According to the lawsuit, in October 2008, “Honda threatened to revoke the dealership unless it opened in November.” With the risk of a building designed specifically as a Honda dealership sitting empty and with Prime carrying a mortgage on the property, Mr. Simao proceeded to open the dealership Nov. 18, 2008, despite his alleged objections.

Honda Finance supplied floor-plan financing for the dealership’s vehicles, with DealMaker struggling to make payments. According to the suit, Mr. Simao had an arrangement to sell the Watertown location to a “reputable existing” dealer, but stopped negotiations on the sale based on a claimed promise that Honda Finance would work with DealMaker to help it get through its financial difficulties. Mr. Simao told Honda Finance that he was prepared to sell or close all of DealMaker’s other locations to focus on the two Honda dealerships.

“By doing so, Simao was hoping to survive the unprecedented collapse in car sales and be able to find buyers for the two Honda locations,” it is claimed in the suit.

Allegedly with Honda Finance’s knowledge and at its recommendation, Mr. Simao, who previously had not been involved in the day-to-day operations of DealMaker, hired a consultant to generate a report and proposal as to how the two dealerships would continue to operate.

It is claimed that, although the consultant was recommended by representatives of Honda Finance, the company “took a very uncooperative and even hostile position” toward the consultant, allegedly giving him just a few days to develop a plan. An overview of the plan was delivered to Honda Finance in February 2010. Nine days later, “without any discussion, reaction or negotiations” concerning the proposed plan, Honda Finance initiated its legal action, it is claimed.

DealMaker contends that Honda Motor was aware of all this, although when Mr. Simao was asked to enter into a forbearance agreement with Honda Finance, Honda Motor allegedly “refused to provide any assurances” to DealMaker. DealMaker believed any forbearance agreement would be meaningless if Honda Motor subsequently terminated its franchise agreement, according to court documents. Negotiations of a forbearance agreement faltered when Honda Finance allegedly insisted that Honda Motor be released from any proposed agreement.

DealMaker further claims that it had a second potential buyer, the Carbone Group, Utica, which operates a Honda dealership, to buy the real estate in Potsdam. The sale would have allowed DealMaker to pay off Honda Finance and relieve Prime of the financial burden of its mortgage. However, it is alleged that Honda Motor refused to approve the Carbone Group for the Potsdam location.

DealMaker contends that “crushing financial obligations” on its two dealerships, Mr. Simao and his two development companies were “a direct result of Honda’s insistence on opening the Potsdam location when it did,” as well as approving too heavy a lease burden, requiring too much inventory to be purchased, refusing to cooperate on a deal with Honda Finance, inducing DealMaker to end negotiations with a potential buyer and refusing to approve a second potential buyer.

The suit lists several causes of action alleging that Honda Finance breached its “implied contractual duty” in its dealings with DealMaker, as well as other causes. In all, DealMaker presents 11 causes of action, seeking $10 million in damages for each cause.

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