Terminated Chrysler dealers lose case against government, plan to appeal

The U.S. Court of Federal Claims has ruled against Chrysler dealers who lost their franchises during the automaker's bankruptcy, saying they failed to establish that the government forced Chrysler into using bankruptcy as a means to terminate them.

Dealers had asked the court to award them the fair value of their stores when the franchises were terminated in May 2009, with requests for damages ranging from $524,000 to $8.8 million per rooftop among the seven model plaintiffs represented by Bellavia Blatt & Crossett in Mineola, N.Y. If the dealers had succeeded, the court could have ordered the Treasury to pay as much as $850 million to the terminated dealers.

The nearly 300 dealers who joined the lawsuit waited almost a decade for the matter to go to trial. About 500 dealers chose not to participate. Len Bellavia, a lawyer for the dealers, on Monday said they plan to file an appeal later this week or early next week.

"While it was not disputed that Chrysler would have preferred for the government to have given Chrysler billions of dollars outside of bankruptcy, there was no evidence to show that Chrysler was directly forced into accepting the government's assistance when bankruptcy became Chrysler's only option," the court ruling said.

Bellavia said the dealers have always understood that this case would not end at this stage, regardless of which side prevailed at trial, and would work its way up the appellate ladder, possibly all the way to the U.S. Supreme Court.

"We feel the court erred in misunderstanding the 'coercion' argument," Bellavia said in email to Automotive News. "It was never plaintiffs' argument that the government forced it to file bankruptcy, but rather that the loan agreement drafted by the government mandated that the Chrysler dealership network be reduced. The court failed to address this key claim."

Rattner testifies

Under questioning by the dealers' lawyers in April, former auto czar Steven Rattner testified that the Obama administration's auto task force had doubts that Chrysler could be a viable company without a "more rational" dealer footprint. He said the task force required a smaller retail network as a condition of additional government financing to keep Chrysler afloat through a Chapter 11 reorganization. But he emphasized that it was Chrysler's decision whether to accept the government's financing offer and go through the bankruptcy on those terms.

"Chrysler always had all the choices as to what it did," Rattner testified. He said it was up to Chrysler to determine "whether to accept that money and file for bankruptcy," adding: "They had every choice not to and go in a different direction."

Bellavia argued that Rattner's testimony helped the dealers make their case that the government forced Chrysler's hand.

Bellavia said in April that it didn't matter that the bailout was a necessary and appropriate action for the U.S. government to take to save the economy. His argument in the suit was that when the government commits a "taking" of property for the public good, it must provide "just compensation" to the property owners.

But the court denied the "taking" claim.

Nardelli's position

The ruling pointed to testimony by former Chrysler CEO Bob Nardelli, who said the government did not force its prepackaged plan on Chrysler. Chrysler's decision, Nardelli said, to accept the bankruptcy terms negotiated by the government was voluntary on the part of the company's board and dictated by its "best business judgment."

"He explained that he believed that the government's prepackaged bankruptcy plan was the only way to ensure the continuation of the Chrysler brand," the ruling said.

The government attempted to discredit the valuation methods of the dealerships. Rattner testified that it would have been irresponsible to use taxpayer funds to compensate the dealers and that the government had no legal obligation to do so.

Government attorney Kenneth Dintzer contended that Chrysler already had shown an intent to trim its rooftops under a consolidation plan called Project Genesis. The initiative, which the dealer legal team said was a voluntary measure, called for dealerships that did not sell all three of Chrysler's brands at the time — Chrysler, Dodge and Jeep — to merge into locations selling all three.

Rattner said the task force was guided by a principle of "shared sacrifice" that would affect a range of stakeholders, including investors, lenders, dealers and Chrysler employees. The decision on which dealers to cut, Rattner said, was left to Chrysler. The government intervention "saved this industry," Rattner told reporters after his testimony.

In 2008 and 2009, the financial crisis and ensuing plunge in vehicle sales put the future of Chrysler and General Motors in jeopardy. In December 2008, the George W. Bush administration approved a preliminary bailout plan, under which the automakers obtained loans from the Treasury to help them operate as they restructured. The loans required the automakers to submit plans for cost reduction and viability, which became the basis for the Obama administration's shepherding of the companies through bankruptcy proceedings.

Hannah Lutz contributed to this report