HOLBROOK — It’s fair to say that Tate’s Auto Group is finished.
The legal jeopardy entangling the four companies the public has come to know as the Tate dealerships has now ensnared Linda Tate and her son, Richard Berry and his wife, Amy, as individuals.
In March 2019, Tate Ford-Lincoln Mercury, Inc., Tate’s Auto Center of Gallup, Inc., Tate’s Automotive, Inc. and Tate’s Auto Center of Winslow, Inc. filed for bankruptcy protection seeking to reorganize its debts in a combined Chapter 11 proceeding in Tuscon Bankruptcy Court. The filing came just weeks after the companies and others were sued in the Navajo County Superior Court by Ford Motor Credit Company, LLC, for about $22 million.
The Ford suit was the latest in a series of Tate’s legal troubles — a total of three lawsuits.
The Federal Trade Commission in July, 2018, sued the companies and Berry alleging they had, since at least 2014, falsified financing applications submitted by customers, falsified down payment information and “disseminated deceptive advertisements,” according to the FTC complaint.
The bankruptcy case stopped, or “stayed” all the lawsuits — the idea is to allow a struggling enterprise to reorganize its affairs and become profitable again. Berry was in charge of the companies through the reorganization.
But the reorganization never happened. In July, Bankruptcy Judge Brenda Whinery converted the cases from a reorganization to a liquidation (under Chapter 7 of the bankruptcy code) noting the lack of transparency, the failure to file required monthly reports with the court, and the lack of “leadership at the helm” of the reorganization. The final report of the Chapter 11 trustee says that the companies’ “balances turned over to the (new Chapter 7) Trustee” was around $891,000.
From that, accountants, appraisers, the debtors’ lawyers, the trustee and his lawyers, and other administrative expenses will be paid first; if there is anything left it will go to various classes of creditors in an order set by law.
All the debts that are not paid will be “discharged,” or go away. Not so for the debts of Linda Tate and Richard Berry to Ford.
In a new twist in the Tate’s saga, an amended complaint was allowed by the Navajo County Court in August. The first time around, Ford Motor Credit made claims — amounting to some $20 million — against the individuals based on their personally guaranteeing the debts of the Tate companies. That includes the mortgages on the land and buildings the Tate dealerships in Arizona operated out of. Ford foreclosed on those properties through a deed of trust sale on July 17.
Many of the cars one sees at a dealership come from the manufacturer, in this case, say, Ford Motor Company. The dealership buys them with money advanced by Ford Credit and gives a lien to Ford Credit for each vehicle, and the dealership pays off the lien as each vehicle is sold. It’s called a trust agreement, because some of the money the customer pays the dealership is held in trust, to pay off the loan to Ford Credit.
But at least 97 times, the suit alleges, Tate dealerships sold vehicles “out of trust,” as its called, and didn’t pay Ford Credit for liens Ford did, or should have had on them. Not only that, it is alleged that Tate dealerships also gave liens to other lenders, like Nissan Motors Acceptance Corporation, on the same vehicles they had given Ford liens on.
This so-called “double financing” practice, says the suit, was, upon Ford’s information and belief, “authorized, directed, or caused” by Mr. Berry and that Berry also “failed to exercise reasonable care” regarding the Tate dealerships’ representations to Ford Credit that certain information about the vehicles in question, called a certificate of origin, was false.
Richard and Amy Berry have both denied the allegations.
No trial date has yet been set.