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Chrysler sues 7 Detroit dealers over disputed letters of intent

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Chrysler sues 7 Detroit dealers over disputed letters of intent

Neil Roland

Automotive News -- July 30, 2010 - 3:41 pm ET

WASHINGTON -- Chrysler Group has sued seven Detroit area dealerships in an attempt to gain legal support for the letters of intent it has given dealers reinstated through arbitration. Dealers have challenged the terms of those letters as onerous and unfair.

Chrysler claims it should be allowed to withdraw a letter of intent to a dealership if nearby stores protest its reinstatement The condition has been in at least 82 letters offered to dealerships that filed arbitration claims after being closed during the company's bankruptcy last year.

Only 29 dealers have signed the letters of intent, although that number could grow because many of the others are in talks with Chrysler in an attempt to get the requirements eased.

Dealers who haven't signed have argued that several requirements in the letters -- including the one granting Chrysler withdrawal rights if a nearby store protests -- are more stringent than those in letters given to stores that weren't closed.

The letters of intent contain requirements -- such as minimum levels of capital and credit, as well as showroom upgrades -- that a dealer must agree to before being reinstated.

State vs. federal law

Chrysler's suit, filed yesterday in U.S. District Court in Detroit, contends Michigan dealer law trumps the federal law, enacted in December, that created an arbitration process for rejected Chrysler and General Motors Co. dealers.

“Chrysler Group is simply seeking clarification of the rights and legal responsibilities of the company and affected dealers,” the automaker said in a statement.

The Michigan Dealer Act requires Chrysler to notify existing dealers of its intent to establish a new store within six miles and give them the right to file a legal challenge within 30 days, the automaker's suit says.

Chrysler wouldn't say definitively whether it would file similar suits in other states but has “no plans to file elsewhere at the moment,” company spokesman Michael Palese said.

Rejected Chrysler dealers who prevailed in arbitration have filed suits in Florida and Missouri challenging the letters of intent they received.

After-arbitration disputes

Two of the dealerships named in the complaint -- Fox Hills Chrysler-Jeep in Plymouth and Village Automotive Center in Royal Oak, both in suburban Detroit -- prevailed in arbitration, then objected to the letters of intent they received.

The two stores are negotiating with Chrysler to change the terms of reinstatement.

“We think we have a strong argument that federal law trumps state law,” said lawyer Eric Bowden of Colombo & Colombo, which is representing Fox Hills Chrysler-Jeep and Village Automotive Center.

The five other defendants are stores near Fox Hills Chrysler-Jeep and Village Automotive Center that have threatened to contest reinstatement of the two stores, the suit says.

Chrysler added the existing dealerships as defendants because they "are all parties with interests in the judgment," Palese said. "We wanted to bring all interested parties together."

Chrysler prevailed in 70 percent of its 105 arbitration cases. The company closed 789 dealerships in bankruptcy last year.

‘Clarification is required'

While Chrysler asserted the supremacy of state law over the federal arbitration statute in yesterday's suit, the company has argued that state laws are pre-empted by the federal bankruptcy code in other complaints it has filed.

The U.S. arbitration law “is silent on the state franchise law question,” Palese said. “Clarification is required.”

In April, Chrysler asked the U.S. Bankruptcy Court to block Colorado's law requiring the company to offer rejected dealerships the right of first refusal if Chrysler wants to open a new point in the terminated store's old market.

Chrysler filed similar suits last December against Illinois, Oregon and Maine. In an April settlement with Chrysler, North Carolina backed down from enforcing a similar law.

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20100730/RETAIL07/100739986/1400#ixzz0vD5XhEb3

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