Terminated Dealers’ Legal Fight ‘Unique’

It is billed as a one-of-a-kind legal issue, but as with many court proceedings it is becoming one thing after another.

The issue centers on suits filed by Chrysler and General Motors dealers who lost their franchises in 2009.

They contend their constitutional rights were violated when the auto makers dropped retailers as part of a government bailout and post-bankruptcy plan.

The lawsuits contend the federal government violated the Fifth Amendment, which says private property shall not be taken for public use without just compensation. 

“This case is unique, one of a kind,” says Richard Faulkner of a Texas law firm representing 96 dealers. “Nothing quite like this litigation has been pursued, because the U.S. government has never stolen people's property like this before.”

In a dealer-packed courtroom, Judge Robert H. Hodges Jr. recently denied government motions to dismiss dealer cases in the U.S. Court of Federal Claims in Washington. 

“Dealers are ecstatic,” Faulkner says of the ruling.

The court on April 12 further denied the government’s motion to reconsider the case. This means the government must answer the class action suits, dealer lawyers say.

Meanwhile in Detroit, U.S. District Judge Sean Cox ruled Chrysler dealers who lost their franchises but got them back after winning arbitration cases don’t have the right to reopen at their original locations. He also said dealers were not entitled to financial compensation for damages.

The Texas-based lawsuit seeks up to $4 billion in damages. A New York suit on behalf of 75 dealers nationwide seeks at least $200 million.

Judge Hodges’s refusal to dismiss the case “is an extremely important development,” says Leonard Bellavia, an attorney in the New York lawsuit.

Were it not for that ruling, “the case would be dead,” says Nancie Marzulla, a Washington attorney representing dealers.

She calls the case a first. “It raises the larger issue of who picks up the pieces for the losers when the federal government clearly and explicitly is picking the winners.”

Dealer lawyers expect discovery issues to take most of this year. They anticipate a possible hearing on merits by late 2012 or early 2013.

Win or lose for either side, the case could end up in federal appeals court, says California attorney Harry Zanville, who represents dealers with Faulkner.

Bellavia foresees it ultimately going before the U.S. Supreme Court. 

In his ruling, Judge Hodges says, “The question of what constitutes a ‘taking’ for purposes of the Fifth Amendment has proved to be a problem of considerable difficulty.”

He adds, “Plaintiffs should have the opportunity to develop a case that may turn out to be unique.”