Federal government sued over closing of car dealerships

By Steve Green

Friday, Feb. 18, 2011 | 2:05 a.m.

A group of car dealers, including two in Las Vegas, who lost their businesses in Chrysler’s 2009 bankruptcy sued the federal government in Washington, D.C., on Thursday in hopes of recovering at least $130 million in damages.

The dealers say they lost their businesses without adequate compensation from the federal government and that the government is responsible because under its Troubled Asset Relief Program (TARP), it required Chrysler to slash the size of its dealership network.

“This is a suit under the Fifth Amendment by the former owners of 64 franchised Chrysler auto dealerships for the uncompensated taking of their property rights (including their franchise contracts, ongoing auto businesses, and state statutory auto dealer rights) resulting from the government-imposed requirement that Chrysler, as a condition of its restructuring, terminate approximately 25 percent of its existing franchised dealers,” the lawsuit says.

“This taking served the public purpose of promoting stability to the financial system of the United States, preventing a significant disruption of the American automotive industry that would pose a systemic risk to financial market stability and have a negative effect on the United States economy. This is a loss that should not, however, be borne by a few individual auto dealers but, by reason of its broad and salutary public purpose, must in fairness and justice be borne by the public as a whole,” the lawsuit says.

The Treasury Department declined immediate comment on the lawsuit filed in the U.S. Court of Federal Claims.

Nevada auto dealers listed as plaintiffs in the suit are:

• FT Automotive II LLC, doing business as United Dodge LLC.

• FT Automotive IV LLC, doing business as United Chrysler Jeep.

• Carson Automotive Inc., doing business as Carson Jeep in Carson City.

The suit says these three dealerships were protected in Nevada by state statutes that prohibit auto manufacturers from canceling or failing to renew a dealer’s franchise without proof of good cause submitted to the Nevada motor vehicle director, which may include proof of the extent of the dealer’s failure, if any, to comply with the terms of the franchise.

Also under Nevada law, the suit says that upon the termination of a Nevada franchise, the manufacturer must compensate the dealer for new automotive inventory, parts, equipment, furnishings, signage, special tools, and the fair rental value of the premises for at least three months.

In all, the suit says, Chrysler’s bankruptcy judge approved plans by Chrysler to eliminate 789 Chrysler dealerships, including the 64 involved in Thursday’s lawsuit.

In 2009, Congress approved legislation that allowed dealers losing their dealerships to seek them back through arbitration. The Detroit Free Press reported some 108 former Chrysler dealers pursued that process, with Chrysler winning 76 of the cases. The winning dealers have a chance to rejoin the dealership network.

Chrysler, which received about $15 billion in the government bailout, is still working on repaying the final $5.8 billion it owes the government.