Yale King, a rejected Jeep dealer in suburban Denver, was startled in February when he opened his local newspaper.
A dealership was advertising Jeeps from a newly granted franchise just three miles from his former store, which Chrysler had rejected last spring.
King is one of three dealers in the Denver area arbitrating to retrieve their dealerships -- but with competitors recently appointed by Chrysler in their backyards. The dealers say Chrysler rushed to award the franchises to beat legal deadlines.
Reacting to anger in Colorado and other states, Chrysler Group last week said it would make a gesture of "good faith" and not appoint any more dealers until arbitration is complete. The gesture doesn't help dealers in areas where Chrysler already has awarded a franchise.
Last year U.S. Bankruptcy Court approved Chrysler's decision to cut 789 dealerships. The company said the cuts left some open points, and it is filling many with large Chrysler-Dodge-Jeep-Ram stores, often by adding franchises to existing dealerships.
But rejected dealers and their lawyers say Chrysler has created a thicket of legal conflicts in Colorado and other states. Judges and lawyers will have to sort out which laws will apply if two dealerships occupy the same territory:
-- Federal bankruptcy law, under which Chrysler cut the dealerships last year.
-- State franchise laws, which typically prohibit factories from granting franchises close together. In Colorado, the limit is five miles.
-- The arbitration law signed by President Barack Obama in December, which gives rejected dealers a chance to retrieve their franchises. Some preliminary arbitration proceedings have started.
"The backfilling in certain markets could cause total chaos," says Raleigh, N.C., lawyer Shawn Mercer, whose firm, Bass Sox Mercer, is handling 17 Chrysler arbitration cases around the country. "Depending on state law, the newly appointed dealer could challenge the issuance of a license to the dealer who wins in arbitration."
Chrysler's decision to appoint another dealer in what he considers his territory "has certainly put artificial handcuffs on the arbitrator," says King, owner of the former King Jeep in Longmont, a Denver suburb. "How do you rule it's going to be viable to put two points in one town?"
King also is applying for arbitration for his Buick-Pontiac-GMC dealership.
Tim Jackson, president of the Colorado Automobile Dealers Association, says Chrysler has been "very aggressive in reallocating those stores." Chrysler rejected seven dealerships in the Denver area and 14 in Colorado, Jackson said.
In fact, Colorado lawmakers, taking up the cause of the rejected dealers, passed legislation this month to give rejected dealers the right of first refusal if a manufacturer decides to fill an open point.
The legislation passed the Colorado House 60-4 on Feb. 1 and was introduced in the Senate Feb. 4, less than a week before Chrysler opened franchises in territories of two rejected dealerships.
The bill "was going through like a locomotive, and [Chrysler] knew it," says Jim Fynes, one of the rejected dealers.
Kathy Graham, a Chrysler spokeswoman, declined to discuss when individual franchises were awarded. She said Chrysler had been in discussions with some dealers about awarding them franchises before the company imposed its first moratorium on adding new points Sept. 30. That moratorium lasted until Dec. 10.
Without referring to individual cases, she said: "Negotiations were going for a long time before they actually opened in February. Things don't happen over night."
On March 9, the Colorado Senate passed the bill 34-0 and on Friday it was awaiting Gov. Bill Ritter's signature.
Robert Miller, Yale King's arbitration lawyer, says: "The $64,000 question is, what do you get if you win? If he [King] wins, the law says the remedy is to give him back his dealership. Then somebody has to decide what to do with the one that's three miles away."
Roger Weibel, owner of Prestige Chrysler-Dodge-Jeep, which received the Jeep franchise three miles from King, declined to comment.
Chrysler's Graham says the arbitration law drastically changed the game after bankruptcy, leaving the automaker in an awkward position.
With the blessing of the Obama auto task force, Judge Arthur Gonzalez of U.S. Bankruptcy Court in New York allowed Chrysler to cut the 789 dealerships last spring. In some markets Chrysler didn't just reduce the network. It started appointing dealers to replace ones whose stores had been rejected, in some cases combining franchises from rejected dealers with those held by newly appointed ones.
Then Congress passed and Obama signed the arbitration legislation.
Graham said: "We went from playing baseball to playing cricket. They changed the rules on us. We are adapting as well as we can on rules we have to operate under. The company did what they did during bankruptcy to get the dealer network in the appropriate size. As part of that trial, there were open points. Both federal and state courts have said we were within our rights to assign open points."