In the aftermath of the 2009 bankruptcies of Chrysler LLC (“Old Chrysler”) and General Motors Corporation (“Old GM”), Congress enacted Section 747 of the Consolidated Appropriations Act of 2010, Pub. L. No. 111-117 (“Section 747”).  Section 747 grants certain arbitration rights to dealerships that had their sales and services agreements rejected or terminated in connection with the Chrysler and GM bankruptcies.  Several dealerships who had their contracts rejected by Old Chrysler and subsequently prevailed in Section 747 arbitrations with Chrysler Group LLC (“New Chrysler”) initiated litigation in the Eastern District of Michigan, in 2010, over disagreements about the effect of Section 747 arbitration determinations.  A second group of dealers also sued New Chrysler (becoming part of a consolidated action) and opposed New Chrysler establishing or relocating dealers who had prevailed in Section 747 arbitrations in their area of operation without complying with various state-law dealer acts.

The principal issues decided by the district court included the relief available for a prevailing dealer under Section 747 and whether Section 747 preempts state-law dealer acts.  Chrysler Group LLC v. South Holland Dodge , Case Nos. 10,12984, 10-13290, 10-13908 (E.D. Mich. Mar. 27, 2012)(Chrysler Group.pdf).  In resolving these questions, the district court looked to the plain language of Section 747.  In so doing, the court determined that the sole remedy for a dealership that had prevailed in Section 747 arbitrations with New Chrysler after having its contract rejected by Old Chrysler was a letter of intent to enter into a sales and service agreement with New Chrysler.  The court determined that monetary damages were not available under Section 747 because the statute expressly prohibits awards of “compensatory, punitive, or exemplary damages to any party.”  § 747(e).  The court also found that Section 747 did not permit the reinstatement of dealer contracts rejected by Old Chrysler, even for dealers prevailing in Section 747 arbitrations with New Chrysler.  This conclusion was based on the fact that New Chrysler is “a legally distinct entity from Old Chrysler.”  Because the dealers never had franchise agreements with New Chrysler, continuation and reinstatement were unavailable.

In other rulings, the court held that in Section 747, Congress did not provide any mechanism for a party to appeal, seek to vacate, confirm, enjoin or stay an arbitrator’s decision.  Further, the court held that the Federal Arbitration Act (“FAA”) and the Commercial Rules of the American Arbitration Association (“AAA”) did not apply to Section 747 proceedings and do not authorize confirmation of an arbitrator’s determination. 

Finally, the Court addressed the dealers’ argument that Section 747 preempts state-dealer acts.  The dealers relied exclusively on conflict preemption which “arises when compliance with both federal and state regulation is a physical impossibility.”  In rejecting the dealer’s preemption argument, the Court found that the purpose of Section 747 was “not to reinstate or unconditionally require New Chrysler” to enter into sales and service agreements with dealers prevailing in Section 747 arbitrations.  Rather, the Court agreed with New Chrysler that by enacting Section 747, Congress merely intended to provide dealers who had their agreements rejected by Old Chrysler the opportunity to be added to New Chrysler’s dealer network through letters of intent.  Thus compliance with Section 747 and state-dealer acts was not impossible.  The court further agreed with New Chrysler that Section 747’s “limited remedy was carefully crafted by Congress such that it would not conflict with the State Dealer Acts that have governed this area for decades.” 

The Sixth Circuit’s eventual decision will have significant ramifications on the rights and remedies available to GM and Chrysler dealers who had their sales and service agreements rejected prior to or in the aftermath of GM and Chrysler’s 2009 bankruptcies.  Of particular importance, the Court will have to determine whether Section 747 authorizes an award of monetary damages and whether it preempts state-law dealer acts.  We will continue to monitor this case as it makes its way up to the Sixth Circuit.