64 Terminated Chrysler Dealerships Sue U.S.

Suit Seeking at Least $130 Million Alleges Violation of Fifth Amendment Rights

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Sixty-four dealerships that were terminated during Chrysler's 2009 bankruptcy reorganization sued the U.S. Treasury Department today, seeking at least $130 million, according to a report in Automotive News.

The suit, filed in the U.S. Court of Federal Claims here, alleges the government violated the Constitution by taking the stores' franchises and their state legal rights without adequate compensation.

It contends the Obama administration violated the Fifth Amendment, which says private property shall not "be taken" for public use "without just compensation."

"It has become rather evident that the president's auto task force, as a condition of issuing the bailout funds, directed Chrysler's actions along with the dealer cuts -- which have subsequently been determined to be ill-conceived and arbitrarily implemented," said the dealers' attorney, Leonard Bellavia of Mineola, N.Y.

The suit marks a growing backlash against the federal government and its role in the dealer terminations that accompanied the back-to-back bankruptcies of Chrysler and General Motors. In September, a GM dealership in Mississippi and a Chrysler dealership in Iowa filed a similar suit against the government in the same court.

That complaint, which seeks class-action status on behalf of all terminated GM and Chrysler stores, has been joined by 68 other dealerships, said the plaintiffs' lawyer, Richard Faulkner of Richardson, Texas.

Dealer suits were also filed against the car companies following congressionally established arbitration of dealer reinstatement claims.

Spokesmen for the Treasury Department and Chrysler, which was not named as a defendant in today's suit, declined to comment.

The 64 plaintiffs -- from 30 states, including California, Texas, New York and Florida -- make up about 8% of the 789 dealerships terminated in June 2009.

'Multiple hurdles'
Eric Chase, a Florham Park, N.J., lawyer who represented more than a dozen GM and Chrysler dealers in arbitration last year, described the suit as "a high-risk, low-percentage case."

It faces "multiple hurdles," he said.

"I've never seen a court interpretation like what they're asking for," said Chase, a former assistant U.S. attorney in Newark, N.J., in the late 1970s. "The classic kind of government `taking' is when it knocks down your house because it's in the way of a highway it wants to build. This is a real stretch."

The government also is likely to argue, with some merit, that the dealerships would have shut down anyway if the government hadn't rescued Chrysler, said Chase, who described himself as a colleague and friend of Bellavia.

"The government's first move in court will likely be to move for dismissal of this case," he said.

The suit sidesteps any allegations that might conflict with U.S. bankruptcy law, Chase said.

Among the plaintiffs are Fitzgerald Auto Mall of Frederick, Md., owned by Jack Fitzgerald; Tarbox Motors of North Kingston, R.I., owned by Jim Tarbox; and Painter Sun Country Chrysler of St. George, Utah, owned by Jim Painter.

Bellavia said the number of plaintiffs could increase. He declined to disclose his fee arrangement with the dealer clients. Also representing the dealers is Roger Marzulla of Washington, who at one time headed the Justice Department's environmental and natural resources division.

Treasury's auto task force, which was then headed by financier Steven Rattner, asked Chrysler and GM to make deeper cuts in their dealership network than the companies originally planned.

The 789 Chrysler, Jeep and Dodge dealerships shuttered in June 2009 made up about a quarter of the automaker's U.S. dealer body.

For all the latest news and views on the automotive industry, visit Automotive News.

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