Chrysler Files Suit Against Dealers Who Object to Terms of Reinstatement

In an effort to gain legal support for letters of intent it gave to dealers who were reinstated through the arbitration process, Chrysler Group has brought suit against seven Detroit area dealers who have called the terms of the letters of intent unfair and onerous.

In at least 82 letters of intent issued to rejected dealers Chrysler claimed the right to withdraw its reinstatement offer if other dealers in the nearby area protest the reinstatement.

Although many rejected dealers are attempting to negotiate the terms of reinstatement offered them by the automaker, only 29 dealers have signed their letters of intent.

The dealers who have refused to sign have argued that many of the conditions of the offer, including the one by which Chrysler could withdraw its offer if reinstatement is opposed by nearby dealers, are unfair.

Other provisions are also being protested by dealers. For example, Chrysler has set minimum capital and credit levels as a condition for reinstatement. Some dealers are also being required to agree to certain showroom upgrades as a condition of their reinstatement.

Chrysler filed its lawsuit on Thursday in the U.S. District Court in Detroit. In its filing, the automaker argues that the Michigan Dealer Act trumps the federal law that requires Chrysler and General Motors to participate in third-party arbitration with their rejected dealers who want to be reinstated.

In a statement released on Friday, Chrysler said, “Chrysler Group is simply seeking clarification of the rights and legal responsibilities of the company and affected dealers.”

Two of the dealers cited in Chrysler’s suit, Fox Hills Chrysler-Jeep and Village Automotive Center, were granted reinstatement through arbitration but five other area dealerships are now contesting their reinstatement.

Attorney Eric Bowden of the Colombo & Colombo, the law firm representing both dealerships, said, “We think we have a strong argument that federal law trumps state law.”

Some Florida and Missouri dealers have filed suit against Chrysler over the terms of the letters of intent they received but Chrysler spokesman Michael Palese said Chrysler has “no plans to file elsewhere at the moment.”

As part of its bankruptcy restructuring, Chrysler rejected 789 of its U.S. dealerships. Chrysler has been successful in 70% of the 105 arbitration cases brought by rejected dealers seeking reinstatement.

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