Sometimes Little Guys Slay the Big Guys.
Take, for example, Colombo & Colombo, P.C., a relatively small 112 year old law firm in Bloomfield Hills, Michigan, known for its unrivaled expertise in auto dealership law. With the right mix of audacity and clever resourcefulness, it proved that it could stand toe to toe with much bigger defense firms hired by one of the biggest auto manufacturers in the world and the U.S. Government – and win.
In 2009, the Auto Task Force under the U.S. Treasury Department, entered into negotiations with Chrysler as part of a “bailout” intended to save the auto industry. The auto task force, without inside knowledge of the industry, pressured the manufacturers to reduce the number of dealerships and fast tracked the government-managed bankruptcy to do just that. Chrysler filed for bankruptcy and the U.S. Treasury lent Chrysler $6 billion to fund operations while in bankruptcy. To execute this agreement, Chrysler would use Section 363 of the U.S. bankruptcy code to clear away any impediments to its successful emergence from bankruptcy.
Using what would be found out to be an arbitrary process, Chrysler designated numerous dealerships as underperforming. These dealerships became “impediments” that were terminated from the Chrysler distribution network. The following was written in an April 30, 2009 press release issued by the U.S. Department of Treasury, “It is expected that the terminated dealers will wind down their operations over time and in an orderly manner.”
In the book Bailout: How Washington Abandoned Main Street While Rescuing Wall Street, Neil Barofsky, formerly the Special Inspector General overseeing TARP for the Obama administration, wrote, “As Treasury official’s explained, federal bankruptcy had given them a ‘unique opportunity’ to trump the tough and ‘restrictive state franchise law[s]’ that otherwise governed GM and Chrysler’s agreements with their dealers.”
In total, there were 788 Chrysler dealers that became classified as underperforming, and thus received a notice of termination. Colombo & Colombo, P.C. was the law firm of record for four of these Chrysler dealers and would be called upon to challenge Chrysler’s decision to terminate their dealership. Almost overnight, Colombo & Colombo received calls from twenty-five more Chrysler dealerships that also received termination notices and wanted Colombo & Colombo to represent them. The stakes were extremely high. These were Save-the-Company cases.
David Meets Goliath
During the first meeting with the Arbitrator, two attorneys from Colombo & Colombo sat across the table from thirteen attorneys representing Chrysler – including attorneys from Chrysler’s in-house staff as well as attorneys from some of the largest law firms in New York and Detroit. The Colombo & Colombo attorneys were up against law firms with an endless supply of attorneys hired by a global automotive icon whose “business partner” was the U.S. Government. This was a classic case of David vs. Goliath.
Building the Cases
Chrysler dealerships faced a unique challenge in this arbitration process. The filings and communications from Chrysler did not state the specific criteria by which the termination of an individual dealership was based. This, along with a set of other factors, made it very difficult to develop a legal strategy when preparing for arbitration.
One of the first things requested was the criteria Chrysler used to designate a dealership as underperforming. In response, Chrysler’s defense team came up with metrics that were clearly retrofit to make their case. They showed metrics upon metrics trying to make a convincing argument that the selection of underperforming dealerships was done in an objective manner. Time and time again, Chrysler tried to show objective evidence and the Colombo & Colombo attorneys would turn around and use the same evidence against Chrysler.
It became obvious that the selection of underperforming dealerships was an arbitrary act. These dealerships were not poor performers. Many were award winning dealers, some in business for decades. Some were designated as a “Five Star Dealer”, Chrysler’s most prestigious status given to dealers that meet every high expectation set by Chrysler.
When the strategy of showing metrics did not work, Chrysler’s legal team pivoted to a strategy of providing huge amounts of data anytime something was asked for. This strategy was aimed at bleeding the dealers out of their limited financial resources by requiring the Colombo & Colombo attorneys to sift through mountains of paperwork – running up their legal fees. Having the foresight to see this coming, the Colombo & Colombo attorneys were prepared for this and it did not work in Chrysler’s favor either.
In fact, throughout the entire process the Colombo & Colombo attorneys were able to predict Chrysler’s next move and have their clients ready for it.
David Slays Goliath
Colombo & Colombo attorneys won favorable outcomes for twenty-eight of the twenty-nine Chrysler dealers they represented: Three dealers re-opened and were brought back into the Chrysler distribution network, twenty-five dealers agreed to accept higher than expected buy-outs that were negotiated by Colombo & Colombo attorneys and only one dealership was terminated.
After the arbitration hearings, Chrysler unsuccessfully appealed the verdicts all the way up to the Supreme Court of the United States, where the case was denied a hearing.
If you would like additional information, please do not hesitate to contact a member of the Dealer Practice Group at 248-645-9300 or by email:
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