Ruling on terminated dealers keeps Chrysler case in the courts

Bellavia: A key first step
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WASHINGTON -- About 150 dealerships that lost Chrysler franchises during the company's 2009 bankruptcy won a round in federal court last week when a three-judge panel agreed to let the dealers argue why the government should compensate them for ordering Chrysler to thin its ranks of dealers.

The April 7 ruling by the U.S. Court of Appeals for the Federal Circuit orders a lower court, the U.S. Court of Federal Claims, also in Washington, to hear the case. If the dealers prevail, the U.S. Treasury could be ordered to pay millions of dollars to terminated dealers -- and a legal path could be cleared for former General Motors dealers as well.

"This is the first step toward what we think will be total vindication," said Leonard Bellavia, a New York lawyer and lead counsel of the team that represents 148 dealerships in the Chrysler case.

The case stems from actions of the White House's automotive task force, which ordered Chrysler to cut franchises as a condition of a bailout. Chrysler was "overdealered," the thinking went, cutting profits in a way that made it hard to compete.

Chrysler closed 789 of its 3,200 dealerships as part of the government-directed bankruptcy reorganization in 2009.

The terminated dealers' lawsuit, filed in 2011, says this condition of the bailout was a "taking" -- a violation of constitutional law, which says the federal government cannot take property without payment.

In its ruling, the appeals court compared the dealers' lawsuit to a 15-year-old case that stemmed from Congress' decision to offer grants to states that prevented minors from buying cigarettes. To get the money, California passed a law in 1994 banning establishments open to minors from having cigarette machines. A vending machine operator sued, calling Congress' action a "taking." The court disagreed.

"Congress may have provided the bait, but California decided to bite," it ruled.

To prevail, the former dealers must show the government didn't just provide bait and in fact coerced Chrysler into terminating franchises. They also must show the franchises would have had value had Chrysler done an ordinary bankruptcy. Their lawyers say that without the government's action, assets such as Ram pickups and the Jeep brand would have been bought, and those franchises would have retained value.

"We have to show the government bailout was not the only avenue," Bellavia says. "If they would have pursued another, those dealers would not have been terminated." c

You can reach Gabe Nelson at gnelson@crain.com.


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