The Shumate Harley-Davidson motorcycle dealership here has largely shut down amid financial problems that include a legal battle with a factory credit provider, but a Spokane attorney for the dealership says he is confident that it and two affiliated Inland Northwest stores, in Lewiston and Kennewick, will resume full operations soon.

Michael Shumate, a Tri-Cities Harley-Davidson dealer, bought the Spokane Valley dealership at 6815 E. Trent and the Lewiston, Idaho, satellite store from George Latus five years ago.

The store here has been closed to retail customers, apparently in connection with a temporary restraining order that Spokane County Superior Court Judge Tari Eitzen issued on Aug. 22 against Shumate Spokane LLC, Shumate Harley-Davidson, Shumate Inc., Shumate Tri-City LLC, and Michael and Jennifer Shumate.

That restraining order, stemming from a lawsuit filed by Harley-Davidson Credit Corp., allows the dealerships to remain open, but prohibits the named defendants from selling motorcycles, parts, accessories, and clothing that constitute collateral to which Harley-Davidson Credit Corp. claims it is entitled.

That company, which finances dealers' purchase of goods from Harley-Davidson Motor Co. and affiliate Buell Distribution Corp., alleges in its complaint that the Shumates and their business entities have failed to repay it as required under the terms of their credit agreements.

Furthermore, it claims they've been continuing to sell motorcycles and other merchandise "out of trust," meaning without first paying it the principal it's owed. It asserts, also, that Shumate Tri-City LLC wrongfully provided inventory to Shumate Spokane LLC after Harley-Davidson Credit Corp. notified Shumate Spokane it would limit that company's credit for acquiring inventory until it paid in full the past due amount it owed.

As of Aug. 6, the amount owed by Shumate Spokane was slightly over $3 million, but Shumate Spokane continued after that date to sell merchandise without making payments to Harley-Davidson Credit Corp., court documents say.

On Aug. 24, to allow time for other possible lien holders to be notified, Judge Eitzen postponed until Sept. 10 a "show cause" hearing on why the court shouldn't issue a writ and preliminary injunction against the defendants, essentially providing for Harley-Davidson Corp. to recover its collateral. She ruled that the Shumate stores could remain open, but instructed the defendants to cooperate in the taking of an inventory of the stores' merchandise.

The latest legal action follows the filing of a warrant for unpaid taxes by the Washington state Department of Revenue against Shumate Spokane LLC in February, seeking about $152,000 in delinquent taxes, interest, and penalties, court documents show.

Spokane attorney Barry Davidson, representing all of the defendants in the Harley-Davidson Credit Corp. case, says there likely will be additional activity in the case before the Sept. 10 hearing, and predicts there will be a "dramatic reversal" in Shumate's favor.

"Shumate believes that Harley-Davidson Credit Corp. and Harley-Davidson as a manufacturer has not acted consistently with the best interest of the dealerships or their customers," Davidson says.

A woman reached by phone at the Spokane dealership late last week who works in the office there, and who said she was part of a skeleton crew still employed there, claimed that a sale of the stores here and in Lewiston is in the works. However, Davidson says, "At this time there is no ownership change pending."

A 10-year employee of the store who preferred to remain anonymous says most of the roughly 30 employees who worked there were laid off, and he said he's heard nothing about a possible new owner rehiring them or the store reopening.

Latus had operated the Harley-Davidson dealership here for 20 years and moved it in 2001 to the 27,000-square-foot building on Trent where it has been located most recently. He opened a Portland dealership in 1991 and sold the dealership here to Shumate so he could focus his attention on that operation. He said at the time, though, that he would retain ownership of the Spokane building and land, and lease the property to Shumate.

As with auto sales, motorcycle sales have slumped during the recession, perhaps even more severely since most consumers regard motorcycles as discretionary purchases. Harley-Davidson Inc. reported in July that retail sales of its motorcycles in the U.S. fell 30 percent in the second quarter, compared with the year-earlier quarter, but it said that compared favorably with a 48 percent drop in retail sales of all heavyweight motorcycles across the country.

The company, which for years had been on a baby boomer-fueled growth surge, reported net income of $19.8 million for the quarter, down sharply from $222.8 million in the year-earlier period. It has taken a number of steps to counter the weaker sales, including laying off hundreds of employees and reducing its projected shipments for the rest of this year.