Chrysler bankruptcy to enter unchartered territory!

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Ousted Chrysler dealers prepare legal fight

GANNETT

Chrysler dealers will soon launch their legal opposition to the company's plan to cut 789 dealerships in less than a month, arguing the company has asked for too much freedom from state laws protecting dealer agreements.

Michael Bernstein, an attorney with Arnold & Porter who represents the Chrysler National Dealer Council, said the dealers may offer a number of objections to the plan in U.S. bankruptcy court, and that the case will enter some uncharted legal territory.

"If there is going to be any rejection of dealers, it's in everybody interests for the transition to be as smooth and painless as possible," he said Friday, adding "anxiety and uncertainty are not productive."

The decision by Chrysler comes as part of the automaker's plan to sell most of its assets -- including the 75 percent of its dealers it wants to keep -- to a "new" Fiat-Chrysler venture.

Chrysler's request goes far beyond just ending dealer contracts. It would bar an affected dealer from selling any Chrysler vehicle or part under warranty after June 6. Any payments or damages from ending the contract would be left with the "old" Chrysler whose liquidation won't cover the liabilities it assumes.

And Chrysler wants to block dealers from appealing the decision with state authorities, and asked U.S. Bankruptcy Judge Arthur Gonzalez to rule that federal bankruptcy law supersedes all state laws over dealer contracts.

Under the laws of most states, if Chrysler wanted to end a dealer contract it would have to give the dealer several months to wind down its business, offer to buy back vehicle and parts inventory and, in some cases, offer reimbursement for a number of costs, such as remodeling.

But in bankruptcy, Chrysler contends it can avoid any such liabilities as part of the case.

Chrysler told the targeted dealers it would set up a voluntary program to shift their vehicle and parts inventory to dealers who will remain in business.

Bernstein said under bankruptcy law Chrysler would have to show how its "reasonable exercise of business judgment" led to the closing list. While the company cited a bevy of standards by which it chose dealerships, Bernstein said it was noteworthy that Chrysler didn't cite costs.

"There's no cost to Chrysler associated with dealers. Dealers are a source of revenue," Bernstein said. "A lot of people were surprised by the number of dealers Chrysler is proposing to reject."

Dealers have until May 26 to object, and the court will hear those arguments starting June 3.

Locally, the dealers selected to be cut were Schwartz Chrysler in Shrewsbury, Sansone Plaza Dodge in Neptune and Causeway Jeep in Stafford.