In Texas, 85 rejected Chrysler and General Motors dealers are suing the federal government, charging they lost their businesses without adequate compensation when the U.S. Treasury Dept. maneuvered the two auto makers into downsizing their dealer networks in 2009.

In a New York-based group action earlier this year, 75 terminated Chrysler dealers sued the U.S. government for the alleged unconstitutional taking of their dealerships without just compensation.

At least 10 dealer names have been added since then.  Even more are expected to join, predicts Leonard Bellavia, lead attorney for the plaintiffs.
Counter motions are going back and forth between the dealers and the government, like chess moves in a tense match. In October, lawyers filed new motions in the U.S. Court of Federal Claims, which hears cases against the federal government.

As government lawyers seek to dismiss the case, Bellavia looks to add plaintiffs.

“The lure of this case is that it goes to the heart of what every entrepreneur in this country pursues, the American dream,” he tells WardsAuto. “Yet, 789 Chrysler dealers, all symbols of American entrepreneurship, had their businesses taken away” as part of the auto maker’s post-bankruptcy reorganization.

Numerous high-profile dealers have joined the two largest suits against the government. For example, rejected dealers Jack Fitzgerald, co-leader of Committee to Restore Dealer Rights in Maryland, and Patrick Painter, a state representative in Utah, are part of the New York suit.

As more dealers sign on, the amount of damages sought increases. It is at $200 million now, up from $120 million earlier.

More is at stake in the Texas class-action case. “We are seeking the full value of the terminated dealerships and the lost profits and damages for those dealers that were reinstated,” says lead plaintiff attorney Richard Faulkner, estimating claims will run as high as $4 billion. “The numbers continue to change as we are still adding dealers.”

That federal suit was initiated by the former owners of the defunct Colonial Motors, a GM store in Branchburg, MS, and Finnin Motors, a Chrysler-Jeep dealership in Dubuque, IA.

The class action says unnecessary government economic regulation propelled the dealer franchise terminations.

“This case is important because it’s the only way the terminated dealers can recover the value of their terminated dealerships,” Faulkner says. “If the dealers don’t compel the government to pay for taking their property, they will never obtain anything.”

The case could end up at the highest court in the land, he tells WardsAuto. “The unique nature of what the government did to take dealers’ businesses almost ensures that this case will go to the Supreme Court.

“The government has never behaved this way before,” Faulkner says. “The auto task force decided that it would cost too much to eliminate dealers and pay them for their property, so it manipulated the loans and bankruptcy process. The dealers were accordingly terminated – and with extreme prejudice.”

The federal task force headed by Steven Rattner insisted the massive dealership cuts were necessary to save Chrysler and GM.

Rattner has told WardsAuto the task force tried to make sure all parties involved made sacrifices. But the panel regarded dealers collectively as a single constituency.

A subsequent report from an independent investigator for the government’s Troubled Asset Relief Program said the task force overstated the importance of the wholesale dealership terminations in the effort to save the two troubled auto makers.

Potential damages awarded each dealership would be separately calculated, says Harry Zanville, a lawyer in the Texas case.

Aggrieved dealers include those who won in arbitration hearings last year but were “product-starved” and had to close or suffered damages, as well as dealers who won arbitration but didn’t reestablish relations with the auto makers because of conditions and costs imposed, he says.

Chrysler terminated dealers immediately, GM gradually over the course of several months.

Bellavia and his legal team chose not to sue GM because its “wind-down”  approach was less rash, he says. “Still, what happened to these business owners is one of the greatest atrocities in American history.”

Bellavia is a dealer’s son who worked at his father’s business to cover his law-school education.“As a product of an auto-dealership family, this case means a great deal to me,” he says.