Mediation ordered for Ford Credit, Texas group

Citing concern for affected car buyers, a federal bankruptcy judge in Texas last week ordered Ford Motor Credit Co. into mediation with Reagor Dykes Auto Group, the dealership group that the lender last summer accused of fraud.

Hundreds of car buyers have been unable to obtain titles for the vehicles they bought from Reagor Dykes, and some have been stuck making payments on vehicles they purchased as well as those they traded in. Six Reagor Dykes stores filed for Chapter 11 bankruptcy pro- tection on Aug. 1, one day after Ford Credit filed a civil suit against the dealership group and owners Rick Dykes and Bart Reagor. Five other stores have since joined the bankruptcy.

In ordering mediation, Judge Robert Jones said he wants relief for consumers to be a primary focus. The order came after Lubbock lawyer Ed Price said in the hearing that he supported the request for mediation by Reagor Dykes because he hoped it would offer relief to vehicle buyers stuck making dual payments. Price's brother-in-law, a retired mechanic, is one of those customers, he said, and has been making payments on two vehicles since July. Price said up to 20 other people in similar situations have contacted him.

Jones said consumers have had little or no representation in the bankruptcy process until Price's court appearance last week.

Marcus Helt, a lawyer representing Reagor Dykes, told the court that the dealership group has resolved 565 car-buyer ownership issues that cropped up since the bankruptcy filing. Another 900 remain, Helt said.

Reagor Dykes sought mediation to break a "logjam" involving uncertainty around Ford Credit's participation in restructuring or liquidation plans for the group, Helt said. Mediation will get the parties together to settle their differences, he told the court.

One of the disconnects to resolve? The Reagor Dykes team said it has made at least three detailed reorganization proposals but Ford Credit has not been receptive to them, Helt said.

Ford Credit disagrees. Don Cram, Ford Credit's lawyer, said during the hearing that the company would consider a sale or liquidation proposal from Reagor Dykes, but "there hasn't been any detailed proposal for which my client has been able to consider."

He acknowledged that Reagor Dykes submitted a more detailed proposal last week that Ford Credit is considering.

"If my client believes it has legs, it has agreed a meeting might be worthwhile," Cram said. "But it opposes any court order that compels it to mediate at this point."

Nevertheless, Jones ordered Ford Credit into mediation.

In its civil suit filed July 31, Ford Credit alleged Reagor Dykes was selling vehicles an average of 55 days before telling the lender and repaying floorplan loans, a practice known as selling out of trust. Ford Credit said Reagor Dykes obtained advances under false pretenses and sold more than 1,100 vehicles without repaying $41 million advanced to fund their acquisition. Ford Credit said in that suit that it was owed more than $112 million.

The resulting bankruptcy filing marked a stunning collapse for a dealership group that had been growing rapidly.

The separate civil suit remained unresolved as of Friday, Feb. 15. Ford Credit in January asked the court in that case to rule against the dealership group and its principals without going to trial. The defendants objected.

In the bankruptcy case, Reagor Dykes in January had sought to restructure and emerge from Chapter 11 with help of a $20 million equity infusion from the newly created McDougal-Dykes-Ewing Group. The investment group, made up of Dallas-area dealer Fin Ewing, former Lubbock mayor and real estate investor Marc McDougal and Dykes, would own 90 percent of the new entity with the other 10 percent placed in a trust for unsecured creditors. In a January ruling in Ford Credit's favor, Jones said that hastily filed and "bare" proposal "does not satisfy the requirement of adequate protection."

But the latest plan would not include Dykes. The proposals were a "harder sell" to creditors with Dykes on board, Helt acknowledged, and Dykes has since decided to bow out. Ewing and McDougal are still reportedly part of the reorganization efforts, though it is unclear in what form. The latest reorganization plan was unavailable in the electronic court records at press time.

Helt said the plan sets aside $3 million to help consumers stuck with titling issues in the wake of the dealership group's financial collapse.

Meanwhile, Ford Credit has been removing its inventory from Reagor Dykes lots since the January ruling granting the lender relief from automatic stay. That meant Ford Credit did not have to wait out the bankruptcy process to begin taking back its cars and trucks. Before the mediation order, Cram told the court last week Ford Credit has been "transparent" about its plans to "liquidate its collateral" in accordance with the court's order.

Ford Credit had reclaimed most of its used vehicles, which are being sold at auctions, Cram said. It planned to turn next to new vehicles, which are still on Reagor Dykes lots. Ford Credit was the retailer's largest floorplan lender, financing a majority of vehicles for the group's stores.

Helt said 400 or so used vehicles had been taken back by Ford, and more than 1,500 new vehicles remained with Reagor Dykes. It is unclear whether mediation would halt this process.

A mediation timetable had not been set at press time, but it is expected to begin as soon as this week.