Win may be a loss for ex-Chrysler dealers
Ruling’s conditions could scuttle comeback tries
DETROIT -- Now that a federal judge in Detroit has ruled that prevailing in arbitration against Chrysler Group wasn’t a guarantee that former dealers could reopen their old businesses, attorneys say it’s a fair bet that most of them never will.
Last week, U.S. District Judge Sean Cox in Detroit found that the federal arbitration process did not provide automatic reinstatement for the 32 dealers who prevailed against Chrysler and that it doesn’t trump state laws governing dealer markets. The ruling is expected to be appealed.
If the ruling stands, those 32 dealers are still subject to state laws empowering any competitor within a given distance to legally challenge the dealers’ return.
If that happens, attorneys said, the automaker could withdraw the letter of intent that any given dealer won in arbitration, force the dealer to move to another market or allow the opposing dealers to settle the matter in local courts under state dealer franchise laws.
Faceoff with facing dealers
Each of the five Michigan dealers who prevailed in arbitration has at least one facing dealer in the same market area, and most of those dealers oppose reinstatement via their attorneys in court. Most of the direct dealer-to-dealer protests likely would wait until the Detroit federal lawsuit is over -- early 2013 at the earliest, by current projections -- but may follow a predetermined path in most states.
“For those dealers that would have to relocate, they would have to be incredibly well-financed, because that requirement means a new facility, new development, new floor financing for your vehicles,” said Suanne Trimmer, an attorney for four facing dealers at Dawda, Mann, Mulcahy & Sadler in suburban Detroit.
“And if you’ve been out of the market for a long time, some of these companies may have a hard time getting that backing.”
Little to show from ruling
Trimmer represents Southfield Jeep Inc. and Suburban Chrysler-Jeep-Dodge of suburban Detroit and two other facing dealers in Wisconsin and Nevada. She and shareholder attorneys Bob Weller and John Youngblood at Abbott, Nicholson, Quilter, Esshaki & Youngblood of Detroit all hailed the ruling but agreed that the fallout could leave many terminated dealers with little to show for their arbitration victories.
But reinstatements, they argue, would themselves become a hardship on the reduced network of dealers who had to expand in their competitors’ absence and struggle to meet new market conditions set by post-bankruptcy Chrysler.
“Some dealers, like our clients, were given new” franchises, after the terminations, Weller said. “As a part of that, Chrysler required them to make some really extensive facility improvements.
“And in many cases it’s a seven-figure investment they’ve made, based on an assumption about what the dealer markets will be like going forward.”
Most settle, bow out
Abbott Nicholson argued in federal court for facing dealers Dick Scott Chrysler-Dodge-Jeep-Ram and Crestwood Chrysler-Dodge-Jeep-Ram. The latter dealership was opposing the return of nearby Livonia Chrysler-Jeep Inc.
Martin Weisman, partner at suburban Detroit law firm Weisman, Young & Ruemenapp, was originally local counsel in the Detroit lawsuits for nine out-of-state dealers who prevailed in federal arbitration but now represents only three, as most clients have settled or bowed out since the federal court battle with Chrysler began.
At least one of his three clients remaining in the Detroit lawsuit -- Spitzer Autoworld Akron -- is considering taking its fight against competitors to reopen an Akron-area dealership to the Ohio state courts shortly.
“In only a couple of the cases, the dealers who prevailed actually have no facing dealers in their markets,” Weisman said. But “for everyone else, there is a state law process that covers the opposition of a facing dealer, and the dealers within the same market can ask for a [judge or administrative] ruling.
“But the concern of the prevailing dealers is that the decisions like this one by Judge Cox will be seen as the precedent, once the other judges have to craft their own decisions.”
32 dealers prevailed
Chrysler had 3,200 dealerships before a decision to close 789 as part of its government-directed bankruptcy reorganization in 2009. Of the terminated dealers, 418 brought claims in federal arbitration under the federal Consolidated Appropriations Act of 2010 -- but Chrysler resolved 310 of them short of a hearing.
That left 108 arbitrations. The automaker prevailed in 76 and the dealers in the rest by mid-2010. Five prevailing dealers were in Michigan: Bruce Campbell Dodge in Redford Township, Village Chrysler-Jeep in Royal Oak, Fox Hills Chrysler-Jeep in Plymouth, Livonia Chrysler-Jeep and Jeep dealer Orrin B. Hayes Inc. in Kalamazoo.
Chrysler then brought two lawsuits and Livonia Chrysler owner Colleen McDonald brought a third shortly after arbitration, all asking the court to decide whether Chrysler had to reinstate the prevailing dealers or simply issue a letter of intent to add them back into its dealer network.
No financial damages
Those cases were consolidated before Cox, who found last week that dealers who prevailed were not automatically entitled to reopen their former businesses, and that the federal arbitration law did not trump state dealer franchise laws governing Michigan, Ohio, Nevada, California, Illinois, Florida and Wisconsin, where a majority of the prevailing dealers are based.
The dealers also are not entitled to financial damages under the federal arbitration law, Cox found. Chrysler also had already issued new franchise agreements to other dealers in most of the same markets as the prevailing dealers, as part of an effort to convert its remaining sales network into “all-line” dealers that carry every Chrysler brand.
This means a vast majority of prevailing dealers have at least one direct competitor in their old market who can oppose their return. In Michigan that distance was six miles, but was expanded to nine miles under an August 2010 amendment to the state law. Attorneys differ on which distance would apply here because the state law change came after the arbitration results.
A waste of time?
The opposition could be grounds for Chrysler to withdraw the letter of intent, move the prevailing dealer into a market where he or she has no assets or history, or to let the dealers go to their state courts.
John Berg, an attorney for Chrysler at Detroit law firm Clark Hill, deferred comment on the lawsuit to Chrysler spokesman Michael Palese, who in turn said he would not “discuss our litigation and business strategy in the media.”
But Jeffrey Tamaroff, owner of the former Tamaroff Dodge Inc. in suburban Detroit, wrote in an e-mail that Cox’s ruling could effectively turn the arbitration process into a waste of time for most prevailing dealers if the automaker can withdraw any letter of intent.
“That was the whole point of the lawsuit” before Cox, he wrote in the e-mail. If the facing dealer that’s affected by the return protests, then the letter of intent becomes invalid, Tamaroff said. “So how would you deal with that?”
Suing the government
Tamaroff did not win reinstatement and is not part of the Cox lawsuit, but prevailing dealers McDonald of Livonia Chrysler and James Schebil of Fox Hills Chrysler-Jeep recently joined him in a separate lawsuit on behalf of more than 75 terminated dealers against the U.S. government.
Those dealers seek as much as $200 million in damages, tying the decision to terminate dealers to a directive from the federal Auto Task Force co-led by U.S. Department of Treasury Secretary Timothy Geithner, and claiming violations of federal laws against taking property without due process or just compensation.
“Even if Colleen and some of the other dealers do somehow get reinstated, there’s still been a government taking of property,” said Leonard Bellavia, partner at Bellavia Gentile & Associates and co-counsel for the dealers suing Treasury.
“Because they’ve still lost their former customer lists, assets, their employees and good will” of that former business, he said. “When they were terminated, Chrysler went directly to the former customers and told them these other [facing] dealers are your new dealers now. How do they get those assets back?”