Car Dealer Says State’s Suit Was a Bankruptcy Factor
Friendly Ford, facing a $20-million state lawsuit alleging misleading sales tactics, said Wednesday that the state action was a consideration in its decision this week to seek Chapter 11 bankruptcy protection.
“I don’t know if it’s a question of avoiding the lawsuit,” said Gregory A. Bray, a Los Angeles bankruptcy lawyer representing Friendly Ford, a Huntington Beach auto dealership. “Because of financial considerations, we need the protection, and certainly the lawsuit is a consideration.”
Friendly Ford filed the petition Monday in federal bankruptcy court in Santa Ana. The company plans to continue business as usual and is considering several alternatives, including selling the dealership to Terry York, a Santa Clarita Valley dealer, Bray said.
The bankruptcy filing listed Friendly Ford as having assets of $8.9 million and liabilities of $9.2 million. The company said its liabilities include $8.4 million in claims secured by collateral and $700,000 in unsecured claims.
Friendly Ford’s largest unsecured claimants include the Orange County Register, which is owed $80,000 for ads; Columbia National Bank in Orange, $45,000 for liability insurance; and Howard Abel of Newport Beach, $30,000 for rent on the dealership’s Huntington Beach property.
Under bankruptcy regulations, Friendly Ford is protected from creditors’ claims while it attempts to complete a plan for paying its debts.
A week ago, the state attorney general, the state Department of Motor Vehicles and the Orange County district attorney filed a civil complaint seeking $20 million in penalties for Friendly’s alleged misleading sales practices. The complaint, which also seeks restitution for victims, was filed after a two-year investigation.
The DMV has said it is also conducting a criminal investigation of Friendly Ford.
Michael R. Botwin, deputy state attorney general, said Thursday that he is not displeased by the bankruptcy action.
“It doesn’t displace the state’s actions,” he said. “Now that the litigation is under the bankruptcy court, restitution can be litigated faster because of the timetables. All it means is that some of the battles are just moved from the state court to the bankruptcy court.”
The civil suit contends that Friendly Ford, which changed its name from Wilson Ford in May, tricked buyers into paying $1,000 to $5,000 more for cars by making false statements and engaging in deceptive practices during sales negotiations.
It also alleges that the dealership, which last year had gross sales of $55 million, did not sell vehicles at the prices listed in its ads.
Friendly Ford has denied wrongdoing.
