By admin | November 25, 2008
By Richard Allen
HMS Holdings, the arm of Rick Hendrick’s enterprise which operates the Hendrick Motorsports engine shop, is bringing suit against Dale Earnhardt, Inc. for $1.5 million.
The lawsuit stems from DEI’s 2007 takeover of Ginn Racing. At that time HMS was supplying Ginn with its racing engines. Since DEI builds its own engines there was no need to continue the agreement. So, the two sides arranged for a termination agreement, or in other words a buyout.
DEI was to pay Hendrick $1.754 million by July 31, 2007 and $1.5 million by November 15, 2008 to satisfy the financial obligations of the Ginn/Hendrick contract. The first payment was made but the second was not, according to court documents.
Perhaps the most intriguing aspect of this suit is the speed with which it has occurred. The payment was due on November 15th and the suit was filed very shortly thereafter. It would seem that a grace period or a time for discussion between the two sides would have been allowed for.
It almost seems as though HMS did not anticipate ever being paid or they believe there is a real danger of not receiving payment should they wait for very long.
Word has it that DEI is about to merge its efforts with Ganassi Racing. With no legal training whatsoever, I can only speculate that HMS might have wanted to get its payment before the complications of a merger were added to the situation.
However, there is another possibility to have crossed my mind. It is no secret that DEI is facing an uphill financial battle. They have lost key sponsorship deals with the U.S. Army and Menard’s in recent weeks with no announcements of deals to replace those lost. Perhaps Hendrick is moving to collect while there is still something to collect.
The fact that payment was not made on time says something about DEI. They obviously agreed with the initial deal because they made the first payment. Had they not agreed with that arrangement it would seem logical that they would not have made any payment, especially one of $1.754 million.
The fact that this case has gone this far reveals that something is going on at DEI. It could be that they are consumed with their possible pending merger and put this payment on the back burner. Or, it could be that there are financial issues of some sort to prevent payment from being made.
If DEI goes ahead and pays the amount it owes it will show that the company is on firm financial footing. However, if this is allowed to drag on for an extended period of time without payment being made or an agreement being reached it may reveal there is significant weakness in the company’s finances.
Richard Allen is a member of the National Motorsports Press Association. His weekly column appears in The Mountain Press every Wednesday.
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