NewsdayÂ’s Executive Suite column features Leonard Bellavia, founding partner of Bellavia, Blatt, Andron & Crossett PC, in Mineola. Mr. Bellavia describes how he got into the business of practicing franchise law and answers questions on auto dealer legalities and how to be recognized in todayÂ’s large pool of lawyers.
Attorneys for Eagle Auto Mall, Terry Morris Chrysler-Jeep and Chrysler Group are scheduled to meet Thursday, Oct. 11, in a final pre-trial conference to hammer out a settlement or set a court date in a lawsuit that stems from when the dealerships were rejected during Chrysler’s bankruptcy. U.S. District Judge Leonard D. Wexler on Sept. 28 denied Chrysler’s motion for a summary judgment and ordered the pre-trial conference.
After opening several stores without much pushback, Elon Musk’s ambition to replicate the Apple experience in Tesla factory stores is now facing potential roadblocks. Dealer associations in a handful of states, and state regulators in at least one case, say Tesla’s stores violate state franchise laws that prohibit factory ownership of dealerships. Electric-vehicle maker Tesla now operates 17 stores in 10 states and the District of Columbia, most in shopping malls. Another six are scheduled to open this fall.
As a joint initiative between MarineLab and the Marine Retailers Association of the Americas, MarineLab Warranty Processing was recently launched to meet the growing needs of marine retailers that are looking for a more profitable way to process warranty reimbursements from manufacturers.
On September 27-30, 2012, attorney Leonard Bellavia, of Bellavia Gentile & Associates, will be recapping the efforts and successes in the retail reimbursement for parts that many of our members have established. He will also participate in discussions of the 2013 NMADA legislative agenda that will be pursued in the upcoming legislative session.
Leonard A. Bellavia of Bellavia Gentile & Associates will be speaking about “Dealership Law & Business Operations Compliance” on September 9, 2012.
MARIADA Conference – Dealer Education & Training Conference.
When & Where: Sunday and Monday, September 9 and 10, 2012, at Trump Taj Mahal Resort, Atlantic City, New Jersey.
PIADA is accepting registrations for MARIADA. Call Pennsylvania IADA (“PIADA”) to Register at 717.238.9002 to register by telephone. Ask for Arie or Shannon. For Hotel Reservations: 800.825.8888 Group Code AINDA12. See www.piada.org and www.mariadaconference.org for details.
Janet Reuther-Schopp doesn’t like to remember what happened to Reuther Automotive Group three years ago this week.
Her family’s 53-relationship with the Chrysler and Jeep brands came to an abrupt end during Chrysler’s government-orchestrated bankruptcy. Thinking about it still makes Reuther-Schopp sad and angry, so she’d rather talk about the positive things that have happened since May 14, 2009.
The former new-car dealership in Creve Coeur has remade itself as a used car sales and service business. Reuther has found new sources for financing and parts and has built relationships with nearby employers, which authorize it to pick up employees’ vehicles for service. It also has relied on longtime niche businesses like snowplow maintenance.
The business has 19 employees, down from 100 in the new-car days. “We’re getting by, which is better than some of the dealers in our situation,” Reuther-Schopp says. “I just get up each morning and say, ‘Today is a new day; let’s see where this one goes.’”
Not that she and three business-partner siblings are ready to let go of the past. Their father, Leo Reuther Sr., began selling Jeeps when they were used more as farm trucks than as commuter vehicles, and his children are fighting to be compensated for the loss of that legacy.
Reuther Automotive is one of 140 former Chrysler dealers pursuing a lawsuit against the federal government. They’re relying on the Fifth Amendment, which says private property can’t be taken for public use without just compensation.
Leonard Bellavia, a Mineola, N.Y., attorney who represents the dealers, says his clients lost more than $500 million.
“The government controlled the Chrysler bankruptcy, in that they made the bailout contingent on filing for bankruptcy and terminating 25 percent of the dealers,” Bellavia said. “The government was using Chrysler as its agent to facilitate the governmental taking of private property.”
Many such “takings” suits are thrown out quickly, but a judge has already rejected the government’s attempt to dismiss this one. It’s now in the discovery phase, and Bellavia says he believes that emails and other documents from the federal automotive task force will bolster his case.
He intends to subpoena task force officials, including former chairman Steven Rattner, as he seeks justice for Reuther and the other dealers.
The government’s dealership strategy was “arrogant and uncaring,” Bellavia says. “I don’t want to give you a Fourth of July speech here, but it goes against the idea of working hard and building something that you can hand down to your family.”
Family ties certainly mattered to the Reuthers, but relatives were among those who had to leave the dealership payroll.
“Having a family-run business and having to allow your children to go out and find other jobs, that’s not what we had worked all these years for,” Reuther-Schopp said.
If the Reuthers once felt privileged, with a business they expected to pass on to the next generation, they now feel like struggling entrepreneurs. The inventory of 30 or so used cars looks sparse on a five-acre lot that once held 300 vehicles.
Reuther-Schopp says the family has had offers for the land, and might sell for the right price. The current business might be more profitable on a smaller site, she said.
Usually, though, she doesn’t allow herself to think that far ahead, just as she tries not to dwell on the injustices of three years ago. “You have to keep your thoughts in the here and now,” she said.
PRESENTER: LEN BELLAVIA, ESQ. – PARTNER, BELLAVIA GENTILE & ASSOCIATES
DATE: FRIDAY, JUNE 22, 2012
TIME: 9:00 AM – 12:00 NOON
LOCATION: ROCKY HILL MARRIOTT
DOWNLOAD REGISTRATION PDF
In May of 2009 the Franchise Protection Act became law – this act greatly enhances the protections the franchise law affords Connecticut’s dealers. Our law ensures that dealers are properly and fairly compensated by the manufactures for warranty labor and parts work.
This is not a one-off benefit – dealers are allowed apply more than once but no more than twice in any calendar year. Many dealers applied for retail reimbursement when the law was originally enacted but many others did not; and even for those who did we feel that the potential for a significant revenue increase is well worth taking an initial–or another – look at.
To that end we have asked Attorney Len Bellavia of Bellavia Gentile & Associates to come speak to our members on this subject.
The law firm of Bellavia Gentile & Associates is widely regarded as a pioneer in the area of warranty reimbursement at retail and is a nationally known dealer advocacy law firm. Leonard A. Bellavia, Esq. is a recognized authority in this area and has represented hundreds of dealers in obtaining retail reimbursement.
This workshop is designed for BOTH categories of dealers: those who have and have not obtained retail reimbursement under the Connecticut statute.
Attorney Bellavia will explain common mistakes dealers make in applying for retail that cost them hundreds of thousands of dollars in lost revenue.
This workshop will take you through the process step by step while allowing you ample time to ask questions and get all the answers you need to take advantage of our improved franchise laws.
Who Should attend? Principal, General Manager, Service Manager or Parts Manager.
Seating Is Limited For This Workshop So Register Today!
U.S. government bailouts of General Motors and Chrysler became a constitutional battleground when they were pushed through bankruptcy court in 2009.
Turns out the battle isn’t over just yet.
More than 220 former car dealers are pressing their case that the Obama administration violated the U.S. Constitution when the car makers terminated franchise agreements while in bankruptcy restructuring.
More than 220 car dealers are alleging the Obama administration violated the Constitution when their franchises were terminated during the government-brokered bankruptcies of General Motors and Chrysler. Among those dealers is Herb Adcox of Chattanooga, Tenn., shown here.
They are seeking compensatory damages ranging from $500,000 to more than $5 million apiece.
Two claims, initially filed in October 2010 and February 2011, cleared the government’s motions to dismiss in February and are now heading into the pre-trial discovery phase. The dealers’ lawyers are seeking government documents that they hope will show that auto makers had to eliminate some dealerships as a condition of receiving funds from the government’s Troubled Asset Relief Program.
The cases are believed to be the first to test the constitutionality of the federal government’s $80 billion bailout of the auto industry under the Bush and Obama administrations.
Supporters say the actions saved hundreds of thousands of jobs, while critics say they artificially propped up two failing companies, however large.
Herb Adcox of Chattanooga, Tenn., says he just wants a fair price for his car lot, which he valued at some $3 million in June 2009, including property and an inventory of 150 vehicles and parts worth $250,000 when GM terminated its relationship with him. Without new GM vehicles to sell, Mr. Adcox turned to selling used cars and repairs. His sales dropped to 25 vehicles a month from more than 100 a month earlier in the year.
“I lost money in 2009,” he said, declining to provide specific dollar losses.
Mr. Adcox is party to one of two lawsuits now winding their way through the U.S. Court of Federal Claims in Washington, D.C. His case is seeking class-action status, and the plaintiff lawyers behind that case say they hope to include the claims of all Chrysler or GM dealerships that were hurt by the rejections.
The plaintiffs say that the Obama administration violated what’s known as the “takings” clause of the Fifth Amendment.
Originally written to protect citizens from uncompensated government seizure, the takings clause has long been invoked to resist government seizure of private property for large infrastructure projects.
The dealers’ claims may be a long shot because government lawyers are expected to argue that the U.S. didn’t take anyone’s property, and it was GM and Chrysler that legally terminated business relationships with these dealers.
The judge warned in February that “the theory under which plaintiffs hope to recover does not fit neatly” into a normal takings-clause case. The government has until Friday to respond to the complaints.
Some of the dealers also were involved in earlier challenges to the car maker’s bankruptcy proceedings. Government lawyers might argue that the lawsuits are essentially a second bite at the apple for those dealers.
The plaintiffs are arguing that the U.S. government’s involvement, loaning taxpayer money and overseeing GM and Chrysler’s restructuring, perverted the natural course of bankruptcy. U.S. Treasury was not just a lender, but a government actor, they say. Leonard Bellavia, a partner at Bellavia Gentile & Associates LLP in Mineola, N.Y., who is representing 125 former Chrysler dealers, aims to show that terminating the dealership contracts was “a condition of receiving funds” from Treasury.
“When the government decides to intervene in the economy and targets industries for whatever reasons, under the Fifth Amendment it must pay compensation for what it takes or destroys,” says Richard Faulkner, partner at Blume, Faulkner, Skeen & Northam, PLLC, Richardson, Texas, who is representing a group of former dealers.
Franchises, such as the Chrysler and GM dealerships, generally don’t face termination by a franchiser because they are protected by state laws. But those state laws were trumped by federal laws when the auto manufacturers filed for bankruptcy. Federal bankruptcy law gives companies wide latitude to reject undesirable contracts. Some dealers attempted to fight their rejections during the bankruptcies but they didn’t prevail.
Carl Tobias, who teaches constitutional law at the University of Richmond, said he sees the case as a difficult one. He said he doesn’t expect the government to settle because “the stakes are too high.” Apart from the cost to even partially reimburse hundreds of closed dealerships, Mr. Tobias says the government “wouldn’t want to have a precedent that this type of action is unconstitutional.”
GM spokesman Greg Martin said of 6,375 GM dealers in the U.S. at the end of 2008, only 57{f15fad3b04d89020a05738ee85256797e9759bd19fdd229b29bad9398df16913} were profitable. The company has since reduced that number to 4,407, of which 90{f15fad3b04d89020a05738ee85256797e9759bd19fdd229b29bad9398df16913} are profitable, a level the company hasn’t seen in its dealers since the 1970s, he said. “We’re not looking back,” he added.
“Chrysler Group’s optimized dealer network is contributing to improved vehicle sales and customer service and will continue to be a vital part of the company’s success,” said Michael Palese, a Chrysler spokesman. “Plans to place all of our brands under one roof, in well-located facilities, also have resulted in enhanced dealer profitability, and greater investment by existing dealerships.”
Many who lost their franchises were able to sell for other new-car manufacturers, sell used cars, open muffler shops or rental car agencies. Some say they have been struggling since 2009, even if they were able to keep their doors open by selling used cars.
They claim they fell into debt when they lost profit from the vehicles and parts they had on their lots. Many depended on those profits to cover overhead expenses like their dealership mortgages and payroll.
Jim Koehler, owner of Scotia Motors in Scotia, N.Y., and a plaintiff in the Chrysler suit, said he lost about $2 million when his Dodge franchise, started by his father in 1946, was revoked. Mr. Koehler, 67, now runs a used-car sales and service shop with his wife and daughter, but he says the business is not profitable. “I hope we are all made whole,” he says. “This has been the three worst years of my life.”
Rob Engel, 59, and his brother, Richard owned a Chrysler-Jeep dealership in Tenafly, N.J., and a Chrysler dealership in Wyckoff, N.J. They lost their franchises in 2009. The Wyckoff location also had a wholesale parts warehouse.
He entered into arbitration with Chrysler in 2010. Neither dealership was reinstated even though both were profitable, Mr. Engel says, adding that he never found out why his locations were selected.
Mr. Engel estimates he had more than $1.5 million in parts between the warehouse and the two retail locations. “We cashed out our life insurance policies to sustain mortgage payments on both buildings,” he says.
Today, Mr. Engel has a Kia Motors dealership in Tenafly and is renting the Wyckoff property to an auto body shop.
Dave Smith, 58, president of Colonial Chevrolet Company Inc., in Woodsville, Miss., says that in May 2009, GM offered $7,950 to close operations within 18 months. He refused to sign the agreement and his dealership contract was terminated.
“We’re losing money now,” he says.
New car sales used to account for 65{f15fad3b04d89020a05738ee85256797e9759bd19fdd229b29bad9398df16913} of annual profits, with the rest coming from parts and repairs. The business today is focused on repairs and a few used car sales, he says.
It is billed as a one-of-a-kind legal issue, but as with many court proceedings it is becoming one thing after another.
The issue centers on suits filed by Chrysler and General Motors dealers who lost their franchises in 2009.
They contend their constitutional rights were violated when the auto makers dropped retailers as part of a government bailout and post-bankruptcy plan.
The lawsuits contend the federal government violated the Fifth Amendment, which says private property shall not be taken for public use without just compensation.
“This case is unique, one of a kind,” says Richard Faulkner of a Texas law firm representing 96 dealers. “Nothing quite like this litigation has been pursued, because the U.S. government has never stolen people’s property like this before.”
In a dealer-packed courtroom, Judge Robert H. Hodges Jr. recently denied government motions to dismiss dealer cases in the U.S. Court of Federal Claims in Washington.
“Dealers are ecstatic,” Faulkner says of the ruling.
The court on April 12 further denied the governmentÂ’s motion to reconsider the case. This means the government must answer the class action suits, dealer lawyers say.
Meanwhile in Detroit, U.S. District Judge Sean Cox ruled Chrysler dealers who lost their franchises but got them back after winning arbitration cases donÂ’t have the right to reopen at their original locations. He also said dealers were not entitled to financial compensation for damages.
The Texas-based lawsuit seeks up to $4 billion in damages. A New York suit on behalf of 75 dealers nationwide seeks at least $200 million.
Judge Hodges’s refusal to dismiss the case “is an extremely important development,” says Leonard Bellavia, an attorney in the New York lawsuit.
Were it not for that ruling, “the case would be dead,” says Nancie Marzulla, a Washington attorney representing dealers.
She calls the case a first. “It raises the larger issue of who picks up the pieces for the losers when the federal government clearly and explicitly is picking the winners.”
Dealer lawyers expect discovery issues to take most of this year. They anticipate a possible hearing on merits by late 2012 or early 2013.
Win or lose for either side, the case could end up in federal appeals court, says California attorney Harry Zanville, who represents dealers with Faulkner.
Bellavia foresees it ultimately going before the U.S. Supreme Court.
In his ruling, Judge Hodges says, “The question of what constitutes a ‘taking’ for purposes of the Fifth Amendment has proved to be a problem of considerable difficulty.”
He adds, “Plaintiffs should have the opportunity to develop a case that may turn out to be unique.”