Closed Chrysler dealers win appeals court ruling

David Shepardson
Detroit News Washington Bureau

Washington — – A federal appeals court on Friday said state dealer franchise laws in Michigan and Ohio can’t prevent a handful of Chrysler dealers that were shuttered during the company’s 2009 bankruptcy from reopening.

The 29-page ruling means four former Chrysler dealers — Fox Hills Chrysler Jeep in Plymouth, Village Chrysler Jeep in Royal Oak, Livonia Chrysler Jeep Inc. and Jim Marsh Chrysler-Jeep in Las Vegas — have cleared a major hurdle in seeking to reopen after being closed for more than five years.

Chrysler spokesman Mike Palese said Friday the company was considering its legal options, but noted that the dealers can’t automatically reopen.

“FCA US is pleased the 6th Circuit affirmed the district court’s ruling that (the 2009 federal law) did not provide for reinstatement of the dealers who prevailed in arbitration, but only gave them a right to a ‘customary and usual’ letter of intent. We are in process of reviewing the decision and considering if we need to pursue any of our legal options,” said Palese.

Chrysler — now legally FCA US — is a unit of Fiat Chrysler Automobiles NV.

In 2009, Chrysler decided to close nearly a quarter of its dealers network, or 789 of its nearly 3,200 dealers, as part of its bankruptcy restructuring. The dealers had just 22 days’ notice before they were required to close.

That December, Congress passed legislation giving dealers that were closed by Chrysler and General Motors Co. the right to arbitrate their closings. President Barack Obama signed the legislation.

Chrysler offered letters of intent to 50 former Chrysler dealers before arbitration. Of more than 400 dealers who went to arbitration, Chrysler won 76 cases while 32 dealers won arbitration; the rest were settled by other means. The letter of intent didn’t reinstate a dealership, but set the framework for reaching an agreement on the terms to reopen.

In 2012, U.S. District Judge Sean Cox ruled that the law passed by Congress allows dealers who won only to receive a letter of intent to enter into a sales and service agreement and does not grant automatic reinstatement to Chrysler’s dealer network. He also ruled that the law does not pre-empt the provisions of state dealer laws governing the establishment of additional like-line dealers in nearby areas.

But the federal appeals court reversed Cox’s ruling and said the 2009 federal law did in fact pre-empt state dealer franchise laws in Nevada and Michigan. An Ohio dealer’s lawyers didn’t raise that issue on appeal, so the appeals court didn’t apply the ruling to Ohio.

“Contrary to the district court’s conclusion, however, the state acts provide for redetermination of factors directly addressed in federally-mandated arbitrations closely related to a major federal government bailout,” said the unanimous opinion written by Judge John M. Rogers. He was joined by Judge Richard Allen Griffin, from Michigan, and Judge Gregory F. Van Tatenhove. All three were appointed by President George W. Bush.

The ruling means the closed dealers are closer to reopening. But the law requires Chrysler “should meaningfully facilitate incorporation of prevailing dealerships back into the network.” The court warned that the letter of intent can’t contain “onerous provisions or conditions that a voluntarily entered into contract would not contain.”

The appeals court also ruled in favor of Livonia Chrysler Jeep, which said Chrysler had sought a veto over its location if it reopened.

By the time dealers won arbitration, Chrysler had offered franchises to some dealers in the areas where some shuttered dealers operated — and then argued that state dealer franchise laws prevented them from allowing some closed dealerships to reopen.

Eight of those dealers sued in 2010 to force Chrysler to immediately allow them to reopen.

Chrysler Group was created in 2009 as a government-sponsored company from the sale of old Chrysler’s good assets. The former dealers now face the hurdle of state laws that provide certain protections for existing dealers and allow them to challenge a manufacturer’s decision to establish or relocate another dealer into a given area.

To date, about 44 Chrysler dealers have reopened as part of the new Chrysler network, Palese said.