On January 16, the Sixth Circuit issued a decision in an appeal by Chrysler dealerships that were closed in the process of Chrysler’s bankruptcy in 2009 but that met with success in federally-mandated arbitration aimed at reinstating and reopening those dealerships. The conflict underlying the case started when Chrysler closed 789 dealerships during its 2009 bankruptcy proceedings, which the bankruptcy court approved. In 2010, Congress responded with “§ 747,” a federal arbitration procedure (inserted into an omnibus spending bill) “for automobile dealerships to seek continuation or reinstatement of franchise agreements that had been terminated by Chrysler during its bankruptcy proceedings.” More than 400 former dealerships chose to arbitrate under § 747, and 32 prevailed against Chrysler in arbitration.

As the court noted, the present case started as a convoluted series of claims and counterclaims arising out of several dealerships’ successful arbitrations. In affirming most of the district court’s judgment the Sixth Circuit noted several important points about § 747, the case, and the arbitration. First, the Sixth Circuit affirmed the district court’s holding that § 747 merely required Chrysler to issue customary and usual “letters of intent” to the dealerships that succeeded in arbitration, and that § 747 was not a Congressional mandate to reinstate the closed dealerships automatically, as the dealerships had argued.

Perhaps most significantly, and contrary to Chrysler’s arguments, the Sixth Circuit went on to hold that § 747 preempts state dealer acts that would otherwise allow state officials to review the arbitration decisions and “would permit state officials to enjoin the reintroduction of a prevailing dealership based on a second, parallel determination regarding good cause.” In sum, the court reasoned that through § 747, Congress intended “to provide a substantial and meaningful remedy to prevailing dealers,” and so preempted state dealer protest laws because “they stand as an obstacle to Congress’s aim.”

One dealership, Fred Martin, also argued that § 747 was simply unconstitutional because it violated the separation of powers doctrine as interference with a final court judgment. Although the court held that Fred Martin had standing to assert this claim, it went on to hold that § 747 is constitutionally sound because it “neither nullifies nor reopens a prior court order; rather, it simply reverses the effects of a court order through prospective relief.”

The sole reversible error the Sixth Circuit found lay in the district court’s holdings with regards to the issuance of “customary and usual” letters of intent to dealerships victorious in arbitration pursuant to § 747. Because Chrysler’s letter to a Livonia, Michigan dealership contained an unusual site-approval provision that could allow Chrysler to nullify the contractual letter of intent, the Sixth Circuit remanded this claim for a determination by the district court as to whether this was truly a “customary and usual” letter of intent. Although there is no shortage of litigation in the wake of the TARP bailout of 2009, with this case the Sixth Circuit largely closed a long and contentious piece of that litigation.