For former Chrysler dealers, arbitration win could be a loss
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, lawyers say it's a fair bet that most of those dealers never will reopen.
Last month, 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. Cox's ruling is expected to be appealed.
If the ruling stands, those 32 dealers are still subject to state laws empowering any competitors within a given distance to legally challenge the dealers' return.
If such challenges happen, lawyers said, Chrysler 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.
Most of the dealers who prevailed in arbitration have at least one facing dealer in the same market area, and most of those facing dealers oppose reinstatement. The direct dealer-to-dealer protests likely would wait until the Detroit federal lawsuit is over -- early 2013 at the earliest, by current projections.
Lawyers for the facing dealers 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 become a hardship on the reduced network of dealers who had to expand in their competitors' absence and meet new market conditions set by post-bankruptcy Chrysler.
"Some dealers, like our clients, were given new" franchises, after the terminations, said Bob Weller of Abbott, Nicholson, Quilter, Esshaki & Youngblood of Detroit. "As a part of that, Chrysler required them to make some really extensive facility improvements," in some cases "a seven-figure investment."
Chrysler closed 789 of its 3,200 dealerships as part of its government-directed bankruptcy reorganization in 2009. But 418 of the terminated dealers brought claims in federal arbitration; Chrysler resolved 310 of them short of a hearing, leaving 108 arbitrations. The automaker prevailed in 76.
Chrysler then brought two lawsuits and Colleen McDonald, owner of Livonia Chrysler-Jeep Inc. in suburban Detroit, 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.
Those cases were consolidated before Cox, who found that dealers who prevailed were not automatically entitled to reopen their former businesses; that the federal arbitration law did not trump state dealer franchise laws in Michigan, Ohio, Nevada, California, Illinois, Florida and Wisconsin, where a majority of the prevailing dealers are; and that the dealers are not entitled to financial damages under the federal arbitration law.
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."
In two rulings a month ago, a U.S. Court of Federal Claims judge in Washington denied the government's motion to dismiss two lawsuits -- one on behalf of the terminated General Motors and Chrysler dealers that seeks class-action status, and a second group-action suit by ex-Chrysler dealers.
The suits claim that the Obama administration violated the Fifth Amendment's protection against seizure of private property for public use without just compensation.
The rulings clear the way for lawyers in both cases to obtain key documents from the administration's auto task force, which engineered the restructuring of GM and Chrysler.
Christina Rogers contributed to this report