John Michial Shumate and his wife, Jennifer, who own the Shumate Harley-Davidson motorcycle dealership here and one in the Tri-Cities, allege in newly filed court documents that Harley-Davidson Motor Co. and two affiliate companies committed unlawful acts that accelerated the financial deterioration of their business enterprises.

They make the charges in what's called an adversary proceeding they filed in U.S. Bankruptcy Court here Oct. 9 that also names Buell Distribution Co. and Harley-Davidson Credit Corp. as defendants. An adversary proceeding is a lawsuit filed within a bankruptcy case, and resembles a typical civil case filed in state court.

Last month, the Shumates and their companies—Shumate Inc., Shumate Spokane LLC, and Shumate Tri-City LLC—filed for Chapter 11 reorganization in U.S. Bankruptcy Court here, listing total debts of more than $10 million and a similar amount of assets.

In their adversary proceeding, the Shumates accuse the longtime Milwaukee, Wis.-based motorcycle manufacturer and affiliate companies of violating the Washington state Consumer Protection Act and of breaching a good-faith obligation.

A spokeswoman in Chicago for Harley-Davidson Financial Services Inc., of which Harley-Davidson Credit Corp. is a part, earlier declined to comment on the legal dispute with the Shumates, saying the company's policy is not to discuss dealer relations.

In their filing, the Shumates say Harley-Davidson disrupted their ability to carry on normal dealership operations by obtaining a temporary restraining order in August prohibiting them from selling motorcycles, parts, accessories and clothing that constitute collateral to which Harley-Davidson Credit Corp. claims it's entitled. They contend Harley-Davidson then used that temporary inability of the Shumate dealerships to operate normally as the basis for the issuance of letters announcing the manufacturer's plans to terminate its dealer contracts and franchises with them.

The Shumates also accuse Harley-Davidson Credit Corp. of wrongfully withholding from their dealerships certain dealer credits and what are called third-party payables, or financing-agreement funds that are used to cover things such as sales tax, licensing fees, and extended service plans. The withholding of those funds added to the dealerships' financial struggles, the Shumates assert.

Separately, they claim in the suit that they have lost a total of about $525,000 stemming from leases they committed to for an 11,000-square-foot store space at 551 E. Hawthorne, north of Spokane, and a secondary store space in Walla Walla, Wash. They say Harley-Davidson Motor Co. informed them after they had committed to those leases that it had declared a "moratorium" on the approval of further dealer locations and that those stores wouldn't be approved, although it later approved a new competing dealership in Coeur d'Alene.

Spokane attorney Barry Davidson, who represents the Shumates and their dealerships, says the stores aren't operating currently, but that the Shumates hope to sell the assets of the Spokane dealership and a Lewiston satellite store that also closed and have been talking with prospective buyers about that.