Bankruptcy Court Rules Against Chrysler Dealers

Bankruptcy Court Rules Against Chrysler Dealers

New York bankruptcy judge Arthur Gonzalez has ruled against 11 rejected Chrysler dealers who were hoping to get their franchises back under state franchise laws. The judge ruled the U.S. Bankruptcy Code pre-empts those state franchise laws.

Dealer attorney and WANADA kindred-line member Mike Charapp says the ruling has implications for legislation that has been passed in a number of states that would give dealers rights of first refusal, or, in the alternative, money damages if their dealerships were terminated and the manufacturer attempts to replace the points. Says Charapp, the court ruling makes it very clear that such requirements are a burden on the effectiveness of the bankruptcy sale and rejection orders will not be tolerated.

Judge Gonzalez ruled that dealer rights granted under state franchise laws only apply to the former manufacturer (old Chrysler) that terminated the dealer and that any damages would be available only against that manufacturer. Those obligations cannot not be imposed on the new company (new Chrysler) which specifically did not assume them, the court said.

In so doing Gonzalez sided with New Chrysler, which had asserted that the suits violated the bankruptcy courts rulings on the sale of its assets and rejection of selected dealer agreements. The dealers, who reside in Wisconsin, Ohio and Arkansas, have been ordered to withdraw from the proceedings or face contempt of court penalties of $10,000 per day until they do so.

Efforts to restore franchises or achieve restitution for both Chrysler and GM dealers who lost their franchises in the bankruptcies of both companies continue in earnest. Since the August recess in Congress, this effort is being conducted behind the scenes and involved senior Congressional staff from the major supporters of House (HR 2743) and Senate (S 1304) legislation to restore dealer rights, NADA, NAMAD and ATAE representatives and members of the Committee to Restore Dealer Rights. In addition to the prospect of Congress passing the legislation, a concerted and now completely unified national dealer effort is underway to explore coming to terms with the Auto Task Force and reorganized companies without legislation.

Meanwhile, Chrysler dealers who lost their franchise are reminded that the deadline to file a claim in bankruptcy against Old Chrysler is September 28, 2009, and that if it is not filed by that date, any claim will be banned.