Legal News

Is Litigation Looming Between Chrysler and its Dealers?

By Ashby Jones

The bankrupt Chrysler on Thursday made a big move, naming 789 dealerships that it plans to shut as part of its reorganization. The closure could eliminate thousands of jobs in places far from the industrial Midwest.

Sounds to us like a recipe for a lawsuit or two.

Sure enough, reports the National Law Journal, some might be on their way.

The NLJ reports that Squire, Sanders & Dempsey is representing a coalition of rejected dealers and has scheduled a meeting with President Obama’s auto task force next week to ask for federal assistance. The firm claims that the closures are unlawful and that roughly 100,000 employees stand to lose their jobs. It vows to litigate if franchise rights are ignored.

“Our hope is to resolve this without the need for extensive litigation to make sure that dealers are not disproportionately injured. However, we are fully prepared, as early as next week, to begin the litigation process because we can’t sit idly by and have these dealers’ lives ruined without the opportunity to raise the issues with the bankruptcy court in New York,” said Stephen Lerner, the chair of the firm’s bankruptcy practice.

Lerner said, however, that he is confident the White House will “fully understand the devastating impact that these closures will have on dealers.”

But of this, we’re not so sure.

In a statement released Thursday, the U.S. Treasury said Chrysler’s cuts are necessary:

“The sacrifices by the dealer community . . . are necessary for this company and the industry to succeed. And a stronger Chrysler, supported by an efficient and effective dealer network, will provide more stability for current employees and the prospect for future employment growth.”

Chrysler has said that many dealers’ sales are too low, too many stores are competing with each other, and foreign competition is too tough for many dealers. “Dealerships located in the markets at issue lack the operational, market, facility and [brand] characteristics necessary to best contribute to the ongoing dealer network under current or future ownership,” Chrysler said in court documents.

Full post as published by Law Blog - WSJ.com on May 15, 2009 (boomark / email).