Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Supreme Court asked to review constitutionality of federal auto dealer reinstatement law, (Jun 18, 2015)

By Linda O’Brien, J.D., LL.M.

A Chrysler automobile dealer has asked the U.S. Supreme Court to review a decision of the U.S. Court of Appeals in Cincinnati that Section 747 of the Consolidated Appropriations Act, which provides for arbitration by terminated dealers seeking reinstatement of their franchise agreement, did not violate the separation of powers doctrine because the provision did not interfere with a final court judgment. The petition for certiorari was filed on June 11, 2015 (Fred Martin Motor Company v. Spitzer Autoworld Akron, LLC, Dkt. 14-1455).

After sustaining declining sales and having an overextended network of dealerships, in 2009, Chrysler sought assistance from the federal government and filed a Chapter 11 bankruptcy petition. As part of the reorganization, a new company was formed that acquired many of the former company’s assets. Chrysler also sought to streamline its business operations and requested approval to terminate the sales and service agreements with 790 of its dealerships in the U.S. The bankruptcy court approved the terminations 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.

Three terminated dealers, including Spitzer Autoworld, sought arbitration and obtained an award against Chrysler to issue a “customary and usual” letter of intent. Fred Martin Motor Company is a Chrysler dealer in Akron, Ohio that was not terminated in the bankruptcy proceeding and whose market area would overlap with Spitzer if Spitzer were reinstated. Fred Martin filed cross-claims, seeking declarations that Section 747 was invalid and unconstitutional or, in the alternative, that Section 747 did not preempt the state dealer protest laws that grant existing dealerships certain rights to protest the installation of competing dealerships in the same vicinity.

In denying Fred Martin’s motion for partial summary judgment, the district court determined that Section 747 did not constitute an unconstitutional legislative reversal of a federal court judgment. The Sixth Circuit affirmed the district court order and found that Section 747 did not violate the separation of powers doctrine and was therefore constitutionally sound. The appellate court acknowledged that the Constitution forbids congressional or executive interference with the final judgments of courts and that the purpose of Section 747 was to retroactively reverse the effects of the dealers’ terminations. However, the Sixth Circuit reasoned that Section 747 did not nullify or reopen a prior court order; rather it simply reversed the effects of a prior court order through prospective relief.

The petitioner presented the question: Whether, by reopening the final order of a federal bankruptcy court and permitting a private arbitrator to reverse that order, Section 747 of the Consolidated Appropriations Act of 2010 is unconstitutional?

Attorneys: Jay F. McKirahan (MacMurray Petersen & Shuster LLP), Lawrence R. Bach (Roderick Linton Befance LLP), and Kannon K. Shanmugam (Williams & Connolly LLP) for Fred Martin Motor Company.

Companies: Fred Martin Motor Company; Spitzer Autoworld Akron, LLC; Fox Hills Motor Sales, Inc.; Village Chrysler Jeep Incorporated; Jim Marsh American Corporation; Livonia Chrysler Jeep, Inc.; Chrysler Group, LLC

News: FranchisingDistribution