In April, dealer Tommy’s Boats filed a lawsuit against Malibu Boats that launched a legal battle between the two companies that continued as Soundings Trade Only was going to press.
The initial suit filed by the dealership alleged that Malibu Boats and then 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 fifteen (15) Tommy’s dealerships (collectively, “Tommy’s”) in order 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.”
According to the suit, beginning in late 2022, Malibu began suggesting that Tommy’s, which accounts for 33% of Malibu’s powerboat sales, increase its floorplan credit line from $50 million to $160 million to make room for 25 weeks of inventory at the turn of the next model year. Tommy’s alleges that, with 2022 incentives unpaid, Malibu “dangled incentives for 2023 and 2024 and stood firm in its own alleged market analysis in causing Tommy’s to increase its floorplan facility.”
Tommy’s, saying it relied on Malibu’s representation and promises, initially increased its floorplan from $50 million to $85 million, then to $110 million with a $20 million overlimit to satisfy what it alleges was Malibu/Springer’s goal of artificially inflating the manufacturer’s numbers.
According to the lawsuit, Malibu then began shipping an “unreasonable” amount of inventory into Tommy’s dealerships with a model mix that skewed toward the highest-priced, highest-margin, slow-moving boats in its lineup. Tommy’s alleges that Malibu then refused to pay millions of dollars in earned incentives, which forced the dealership to default on its floorplan agreement with the lender.
The lawsuit claims three counts of breach of contract, one count of quantum meruit, a count of unjust enrichment, promissory estoppel, intentional misrepresentation/fraud, and negligent misrepresentation.
The filing says Tommy’s has been a Malibu dealer for 12 years and that the company still operates under a valid dealership agreement with Malibu. According to the lawsuit, Malibu claims that it terminated its dealership agreements with all Tommy’s locations because of the default with M&T Bank, the floorplan lender.
Additionally, the lawsuit says, “While at the Miami Show, Matthew Borisch, principal for all Tommy’s dealerships, was pulled aside by three (3) Malibu stakeholders to discuss Tommy’s Dealership Agreements with Malibu.”
COURTESY MALIBU BOATSTommy’s claims that the stakeholders disclosed to Borisch what Malibu and Springer had done to the dealership and reported that “Jack would not turn the spigot off,” despite what the market was showing. Additionally, Tommy’s says, the stakeholders told Borisch that Wayne (the former CEO) left on bad terms and that they were “nervous.” The suit also says they asked Tommy’s to “hold on,” as “Jack is not going to last.” Springer announced he would be stepping down the following week. He was replaced by chief operating officer Ritchie Anderson, who was named president, and Michael Hooks, Malibu Boats chair, was named executive chair until a new CEO is announced.
The lawsuit claims three counts of breach of contract, one count of quantum meruit, a count of unjust enrichment, promissory estoppel, intentional misrepresentation/fraud, and negligent misrepresentation.
The suit says, “Tommy’s is entitled to significant money damages, including direct, indirect, consequential and punitive damages because of Malibu’s breach of conduct and wrongful conduct.”
Malibu Responds
On April 11, Malibu issued a statement promising to “vigorously defend itself” against Tommy’s claims. The builder further stated that Tommy’s, its former longtime dealer-partner, was “already mired in litigation over its default on its lending agreements.”
Malibu Boats also stated: “Any and all boats that Malibu sold to Tommy’s were ordered by Tommy’s. Malibu only sold boats to Tommy’s that Tommy’s ordered, and Malibu fulfilled its obligations under its agreements with Tommy’s. We value our relationships with our dealer partners, and we live up to our agreements.”
The manufacturer continued: “Malibu took action in light of Tommy’s sales of boats out of trust. In the fall of 2023, Malibu first became aware that Tommy’s was selling boats out of trust (selling boats that were bank collateral and not reporting the sales to the bank or repaying the bank). Upon learning that Tommy’s was selling out of trust, Malibu engaged with Tommy’s and M&T Bank, on numerous occasions, regarding Tommy’s financial position and potential paths forward. Those discussions did not result in a resolution that we believed was in the best interest of our shareholders, dealer partners and end-customers, and we therefore ended our relationship with Tommy’s.”
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.
After saying it currently doesn’t have dealership agreements with Tommy’s, Malibu stated: “Tommy’s is already mired in litigation over its default on its lending agreements. Earlier this month and in response to, among other things, Tommy’s conduct in selling boats out of trust, M&T Bank sued Tommy’s for breach of its lending agreement. M&T has filed a motion to appoint a receiver over the assets of Tommy’s.
COURTESY TOMMY'S BOATS“Malibu is working to mitigate any disruption for our partners and customers — as well as our business. We have been working with our dealership network and are in discussions with strong dealer partners to limit any service gaps in markets previously served by Tommy’s. We remain committed to serving Malibu’s end-users in all our markets.”
The Malibu Boats portfolio includes the Malibu, Axis, Cobalt, Pursuit, Cobia, Pathfinder, Maverick and Hewes brands.
M&T Bank Sues Tommy’s
In addition to the suits between Malibu and Tommy’s, documents obtained by Soundings Trade Only 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.”
COURTESY MALIBU BOATSM&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 again on March 28. 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.
COURTESY MALIBU BOATSAccording 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.
In response, Tommy’s stated: “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.”
This article was originally published in the June 2024 issue.
