A legal fight between Malibu Boats and dealership Tommy’s Boats is continuing, with Tommy’s also facing litigation in a case filed by M&T Bank that’s due back in court April 22.

Tommy’s sued Malibu on April 10, alleging that Malibu and its CEO, Jack Springer, “engaged in an elaborate scheme to overmanufacture and pump nearly $100 million of its highest priced, highest margin, slow moving inventory” into 15 Tommy’s dealerships “to artificially inflate Malibu’s sales performance, artificially claim increased market share in the industry, and artificially inflate its stock value during an obvious downturn in the recreational powerboat industry.”

On April 11, Malibu issued a statement promising to “vigorously defend itself” against the claim. The builder further stated that Tommy’s, its former longtime dealer-partner, was “already mired in litigation over its default on its lending agreements.”

Documents obtained by Trade Only Today confirm that on April 1, M&T Bank filed a legal complaint against Tommy’s alleging that after entering into a floorplan financing arrangement, the dealership diverted at least $14 million in sales proceeds instead of remitting the money to the bank.

The M&T filing also states that Malibu terminated all dealer agreements with Tommy’s to sell Malibu, Cobalt, and Axis boats, which accounted for more than 80% of all boats that Tommy’s sold in 2022-23. The M&T complaint states that all dealer agreements had either expired June 30, 2023, or were terminated March 11, 2024. The complaint also states that Malibu told Tommy’s it did not anticipate entering into any dealership agreements with Tommy’s “for the remainder of model year 2024, model year 2025, and beyond.”

M&T’s filing describes this termination as a “material adverse change” and an “event of default.” An event of default is a prespecified condition that, if met, allows a lender or creditor to demand immediate and full repayment of a debt.

The M&T filing states that the bank demanded payment from Tommy’s on Feb. 27, and then again on March 28, 2024. The first demand followed a bank auditor’s discovery that Tommy’s was “selling boats, but then keeping them on the dealership lots in storage,” according to the court documents. “Many of the boats on-site had been sold out of trust,” the complaint adds.

Selling out of trust means a dealership sells a product that was bought with a loan, but the dealer doesn’t pass enough of the sale proceeds to the lender to pay off the loan. According to M&T’s complaint, Tommy’s was required to remit proceeds no later than 10 days after a sale, but instead “diverted the proceeds for other purposes.”

At one point, the M&T complaint alleges, the out-of-trust amounts were as high as $16 million. The complaint also alleges that Tommy’s has failed to pay more than $3.2 million in state taxes in a timely manner.

As of March 27, according to the M&T complaint, the amounts owed to the bank were more than $115.9 million in principal, plus accrued interest of more than $2.2 million. That interest continues to accrue at a rate of 13.5%.

M&T’s filing alleges that Tommy’s collateral is worth about $85 million. The bank is seeking to take immediate possession for a sale, and is asking the court to appoint Beane Associates as receiver.

UPDATE: Tommy’s Boats has responded to this story:

Tommy’s Boats recently faced rebate and manufacturing issues with a supplier, which raised concerns among our lending partners. At Tommy’s we are firmly committed to delivering exceptional service to our customers and the communities we serve and have a long history of maintaining strong professional relationships with our suppliers.

We are continuing to work with this supplier and our lending partners to resolve these issues and to continue offering our customers a premium boat buying experience and service.