Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Bankr. S.D. Iowa: Ford, GM dealerships blocked from assuming, assigning agreements, (Aug 18, 2015)

By Greg Hammond, J.D.

The owner and operator of Ford and GM auto dealerships could not assume and assign its franchise agreements with Ford Motor Company and GM Motors, LLC in Chapter 11 bankruptcy proceedings. The federal bankruptcy court in Des Moines, Iowa determined that the owner was in breach of the franchise agreements and there was no adequate assurance of future performance under the contracts’ terms (In the Matter of Jointly Administered Gretter Autoland, Inc., August 17, 2015, Shodeen, A.).

Gretter Autoland, Inc., Gretter Ford Mercury, Inc., and Gretter Chevrolet Co. filed voluntary Chapter 11 petitions that are being jointly administered. At auction of Gretter’s assets, Edwards Auto Plaza, Inc.’s bid was approved under the terms of the Amended Asset Purchase Agreement (APA). Gretter consequently moved to assume and assign the contracts identified in the APA so that the sale transaction could be concluded. Ford and GM objected.

In order to obtain approval for the assumption and assignment of its franchise agreements, Gretter was required to meet two conditions: (1) it must assume the Ford and GM franchise agreements in accordance with 11 U.S.C. § 365(b) and (2) it must provide adequate assurance of future performance under those contracts’ terms. Gretter, however, failed to meet either requirement.

First, the court determined that Gretter failed to comply with various terms of the Ford and GM franchise agreements by moving the Ford dealership without Ford’s consent; placing the Ford dealership at an exclusive GM location; and commingling the space by placing both Ford and GM vehicle lines at the same dealership. Because there was no evidence that Gretter has either the intent or the ability to cure the identified defaults, Gretter failed to meet the conditions of 11 U.S.C. § 365(b)(1) to obtain approval of the assumption of the Ford and GM franchise agreements.

Second, Edwards stated its intention to continue to operate the dual facility—which is contrary to the terms of the franchise agreements as they relate to brand exclusivity, trademark usage, and location and space requirements. Thus, neither Edwards nor Gretter met the burden of demonstrating adequate assurance of future performance under the terms of the Ford and GM franchise agreements.

In an attempt to salvage the motions to assume and assign the franchise agreements, Gretter and Edwards argued that the court should apply Iowa Code Chapter 322A, which was designed to assure that franchisors would not, without good cause, terminate or discontinue dealerships in any Iowa community. However, the court determined that application of Iowa Code Chapter 322A would be misplaced for two reasons: (1) neither Ford nor GM took action to terminate or discontinue their respective franchises and (2) Gretter filed bankruptcy with the intent of liquidating its assets and to take advantage of the protections afforded in that process. The court concluded that to now apply state law would be inappropriate. Rather, Gretter’s election to file a chapter 11 in order to avail itself of its benefits and protections comes with the consequences of application of 11 U.S.C. § 365 for treatment of the assignment and assumption of the franchise agreements, the court concluded. The motions to assign and assume the franchise agreements were therefore denied.

The case numbers are 14-02831-als11, 14-02832-als11, and 14-02833-als11.

Attorneys: Bradley R. Kruse (Brown, Winick, Graves, Gross, Baskerville and Schoenebaum, PLC) for Gretter Autoland, Inc., Gretter Ford Mercury, Inc., and Gretter Chevrolet Co. James L. Snyder, U.S. Department of Justice. Jeffrey D. Goetz (Bradshaw, Fowler, Proctor & Fairgrave, PC) for Creditor Committee.

Companies: Gretter Autoland, Inc.; Gretter Ford Mercury, Inc.; Gretter Chevrolet Co.

Cases: FranchisingDistribution IowaNews