USAlliance Wins Suit Against Leasing Firm; Suit Against CUMIS Still Pending
A state jury dismissed charges of malicious prosecution against USAlliance FCU brought by a defunct auto leasing company, and instead ordered the company, Prime Time Holdings LLC, to pay the credit union $3.75 million in damages.
"We felt very, very confident with our legal position. We felt very confident with our case," said Mitchell Pollack, an attorney who represented the credit union during the three-week trial.
The verdict is expected to bolster USAlliance's own suit against CUNA Mutual Group's CUMIS Insurance Society challenging the credit union insurer's denial of a $9-million bond claim in the case. The credit union's claim for "lack of faithful performance" surrounds the employee who supervised its relationship with Prime Time Holdings, who secretly held an option to buy 5% of the company. That employee, who eventually left the credit union to join the auto leasing firm, testified at the just-concluded trial of his secret relationship with the company.
In its suit Prime Time Holdings, a provider of auto leasing services for subprime borrowers, had claimed breach of contract, malicious prosecution, and abuse of power, and other business torts, after USAlliance filed an involuntary bankruptcy petition in 1998. The company claimed the petition prevented it from obtaining financing and forced it out of business. The credit union filed its own counter-suit, claiming breach of contract and fraud.
"The facts did not bear them out," said Pollack. "No one was prepared to lend them any money. Their theory did not hold water."
But Allan Samuels, an attorney representing Prime Time Holdings, said the U.S. Bankruptcy Court supported his client's position when it dismissed the credit union's involuntary bankruptcy petition and found that USAlliance had acted "unlawful and in bad faith." Any appeal the company may file would be based on the fact the judge did not allow the jury to see the bankruptcy court ruling, he said.
The credit union, which had a program with Prime Time Holdings from January 1997 through September 1998, moved to sever its relationship with the company after credit union officials discovered numerous improprieties, according to Pollack. They included double funding on some cars-the credit union was paying lease charges twice on some vehicles-the credit union was being billed for the wrong vehicles, collateral was overvalued, and cars were mislabeled. "There was a host of problems," said Pollack, who estimated the credit union's losses at $13 million to $14 million from the program.
When Prime Time failed to make a $1.2-million collateral payment in 1998, as required in its contract with USAlliance, the credit union decided to terminate the contract, Pollack said.
The decision effectively shut down Prime Time Holdings, because the credit union was its primary customer. At one time, Prime Time Holdings handled a portfolio of 1,215 auto leases totaling $16 million.
While it's not doubtful whether the estate of Prime Time Holdings or its principals have funds to pay the multi-million dollar jury award, Pollack said they will try to collect. "We're going to go out and try to collect our judgment," he said.