LAWYER UP! Dealers adding in-house counsel
For many dealership groups, move saves money amid heavy regulation
Dealership exec Michael Brown: An in-house lawyer will make the operation more efficient and will deliver “a six-figure savings.”
Auto dealership exec Michael Brown says he had "a bulldog" on his back.
Brown had to navigate legal issues daily while running store operations. So on Dec. 3 Brown hired lawyer John Gentile as the Atlantic Automotive Group's first in-house counsel.
That freed Brown, a tenacious New Yorker with rapid-fire speech, to focus on dealership operations and hunt for acquisitions. He'll also save money by paying the salary of Gentile -- who delivers each sentence with thoughtful consideration -- rather than pricey hourly legal fees.
"There's a six-figure savings," says Brown, vice president of operations at Atlantic Automotive Group in West Islip, N.Y., which sells about 40,000 new and used vehicles annually. "That was reason enough. But it's the benefit of having a guy on the ground and focused on your group."
Many other large dealership groups have hired in-house lawyers or are beginning to consider doing so. Many dealers say the growing number of complex federal regulations, state laws, employee benefit laws and factory contracts creates a compelling need for daily legal advice. And the annual cost savings can be substantial, given that outside lawyers typically charge from $150 to $600 an hour, depending on the market.
"We'll continue to utilize some of the outside law firms we did in the past, but it'll be more organized and more efficient," Brown says.
The National Association of Dealer Counsel, a nationwide organization of attorneys who represent vehicle dealers, has had membership in its "in-house counsel" category steadily rise over the past few years, says Erin Murphy, executive director in Washington.
Murphy could not provide data to quantify the growth. She says at least 100 of the organization's 450 attorney members are in-house lawyers, adding, "It definitely is one of our largest growing categories."
For years, in-house lawyers have been fixtures at all large U.S. public dealership groups and many big private groups.
Sheehy Auto Stores, a private group in Fairfax, Va., is about to consider hiring an in-house lawyer.
"We will certainly contemplate that over the next five years," President Vince Sheehy says. "We use an outside firm now for all our needs. He's practically on-call."
Sheehy Auto Stores ranks No. 31 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 15,669 new vehicles in 2011.
An experienced in-house lawyer who can handle a range of legal issues could command an annual salary of $150,000 to $200,000, says Norris Bishton, partner in the Bishton Gubernick law firm in Los Angeles and majority owner of Noarus Auto Group in Garden Grove, Calif.
But that salary could be a bargain because some outside law firms, such as Bishton's, can charge a top rate of $600 an hour for certain services, Bishton says.
Noarus ranks 119th on Automotive News' list of the top 125 U.S. dealership groups with retail sales of 5,650 new vehicles in 2011.
Bishton is his own in-house counsel and he's the counsel for two other dealerships.
"I don't know how you can be a dealer and not be a lawyer today," Bishton says. "Every aspect of your dealership is regulated. It's difficult to be a dealer and not be alert to all the laws and regulations."
Bishton says dealers should still use an outside law firm to handle serious litigation. The in-house lawyer should mainly be a resource.
Lawyer Michael Charapp spent 12 years as an in-house counsel for Rosenthal Automotive Organization in Arlington, Va.
"Our days were spent dealing with the day-to-day issues in running several car dealerships. There were tax issues, state issues. And with serious personnel issues, I'd call outside counsel," Charapp says.
Charapp is now a partner in Charapp & Weiss in McLean, Va., but he's not worried about losing business as more dealerships hire in-house lawyers.
"I have more confidence now that dealers who call me are getting the right guidance and someone to protect them when the bigger issues come along," Charapp says.
David Wilson, who owns David Wilson Automotive Group in Orange, Calif., has three law firms on retainer. Not long ago Wilson considered hiring an in-house lawyer but changed his mind. He says too many legal problems require specialists, and he prefers to farm out his legal issues to the appropriate specialized law firm rather than pay an annual salary to an in-house counsel to do essentially the same thing.
Fitzgerald Auto Malls has had an in-house lawyer for 10 years, but President Jack Fitzgerald says he uses an outside firm for certain issues.
"You need both," Fitzgerald says. "It's a troubled world we live in, there are regulations you have to understand and there are issues with manufacturers that you have to understand."
Fitzgerald Auto Malls, in Kensington, Md., ranks No. 38 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 14,722 new vehicles in 2011.
Keyes Automotive Group Inc., in Van Nuys, Calif., hired an in-house lawyer five years ago to consistently audit the group's 13 dealerships and make sure they comply with all laws, says Howard Tenenbaum, group vice president.
Compliance "is a big part of our business. We have about 1,200 employees and it's good to have our arms around that. It wasn't a money saving thing to hire a lawyer. That wasn't a big driver. But everything we do is scrutinized and it's good to have someone there making sure we're following the guidelines."
Keyes ranks No. 22 on Automotive News' list of top 125 U.S. dealership groups with retail sales of 17,939 new vehicles in 2011.
An in-house lawyer can also help dealership groups that want to make acquisitions.
Atlantic acquired two stores in 2012, bringing its total to 21 stores in Long Island.
But dealership exec Brown wants to buy more stores. He says having Gentile on staff mitigates the risk of an acquisition deal falling apart because of stalled legalities.
"Now, if we have a deal we want to look at, we just grab our attorney and say let's get going. We're ready to roll," Brown says.
Brown stops short of blaming outside counsel for any past failed deals, but he says, "It caused enough heartburn to say this is a smarter way to do it."
Gentile had recently turned 50 when Atlantic made him a financial offer he could not refuse, he says. He had been the group's outside counsel for 21 years as a partner at Bellavia Gentile & Associates.
Gentile says that besides helping complete acquisitions, his other duty is to keep Atlantic out of litigation. And that's a huge stress reliever for Brown.
"I walked around with heavy shoulders. I felt there was a bulldog on my back every second, but that's the world we live in," Brown says. "So let's try to be proactive and see what we can do to avoid these things because once you get into a lawsuit, it's a waste of time, energy and money."
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