Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—9th Cir.: Dismissal of former auto dealer’s claims against Chrysler reversed, (Apr 25, 2014)

By Linda O’Brien, J.D., LL.M.

A district court improperly granted summary judgment to an automobile manufacturer, dismissing claims by a former auto dealer that the terms of the manufacturer’s letter of intent to enter into a new sales and service agreement failed to satisfy the "customary and usual" requirement of Section 747 of the Consolidated Appropriations Act of 2010, the U.S. Court of Appeals in San Francisco has ruled (Los Feliz Ford, Inc., d/b/a Star Chrysler Jeep v. Chrysler Group, LLC, April 24, 2014, Per Curiam).

After sustaining operating losses as a result of the global economic crisis, in 2008, Chrysler sought assistance from the federal government and filed a Chapter 11 bankruptcy petition. As part of the reorganization, a new company was formed which acquired many of the former company’s assets, including the assumption of 2,400 dealer sales and service agreements. Sales and services with other dealers were terminated. The bankruptcy court approved the termination in June 2009. In response to the terminated dealers’ objections, Congress enacted Section 747 of the Consolidated Appropriations Act of 2010, which provided an arbitration remedy for dealers seeking continuation or reinstatement of the franchise agreement.

Los Feliz Ford, d/b/a Star Chrysler Jeep (Star), a terminated dealer, sought arbitration and obtained an award directing Chrysler to provide Star with a customary and usual letter of intent to enter into a sales and service agreement. Chrysler delivered to Star a Letter of Intent (LOI). Star filed suit against Chrysler, alleging violations of Section 747, the California Unfair Competition Law (UCL), and the California Vehicle Code, among other claims. Star contending that the LOI contained several clauses that were so oppressive and unreasonable as to render the proposal illusory. A district court granted Chrysler’s motion for summary judgment and Star appealed.

The district court erred in granting summary judgment on Star’s claim that the LOI failed to satisfy the "customary and usual" requirement under Section 747, according to the court. Chrysler presented evidence that the LOI contained many terms commonly asked of new dealers at the start of negotiations. The court noted that the relevant inquiry in analyzing the "customary and usual" requirement was the terms of franchise agreements that new dealers actually agree to. Any other interpretation would render the requirement meaningless by allowing a manufacturer to nullify an arbitrator’s order by offering onerous terms in initial LOIs and then selectively negotiating more advantageous terms only with dealers it chose.

Chrysler presented no evidence that the terms of the unexecuted LOIs were probative of the terms of executed franchise agreements or that any dealer actually accepted terms similar to those offered to Star after an arms-length negotiation. Moreover, the opinion of Star’s expert created issues of material fact as to whether Star’s LOI was so onerous that no dealer would actually agree to the terms and that a customary and usual LOI normally contained incentives to mitigate the dealer’s burden, which were lacking in Star’s LOI, the court noted.

The district court erred in failing to analyze Star’s UCL claim to the extent it was premised on an alleged violation of Section 747. Star alleged that the LOI contained unlawful terms under Section 747 and that Chrysler failed to engage in meaningful negotiations with Star concerning the unconscionable and oppressive terms of the LOI. Since the district court erred in determining that Chrysler complied with its sole obligations to Star under Section 747, the grant of summary judgment was vacated.

However, the district court did not err in granting summary judgment on Star’s claim for reinstatement, according to the court. The arbitrator did not order reinstatement in her award. Moreover, Star only challenged the operational prerequisites required by Chrysler and not the terms of a final sales and service agreement. Finally, the court affirmed the district court grant of summary judgment on Star’s claim under the California Vehicle Code. The protest waivers included in Star’s LOI were valid and enforceable and do not constitute a violation of the statute, the court concluded.

The case is No. 12-56082.

Attorneys: Mark Emery (Fulbright & Jaworski LLP) for Los Feliz Ford, Inc., d/b/a Star Chrysler Jeep. Philip R. Cosgrove (Sedgwick LLP) and Mark T. Clouatre (Wheeler Trigg O'Donnell LLP) for Chrysler Group, LLC.

Companies: Los Feliz Ford, Inc.; Chrysler Group, LLC

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