WASHINGTON, D.C. — On Monday, the U.S. Court of Appeals rejected arguments for the dismissal of a lawsuit filed on behalf of 148 Chrysler dealerships against the U.S. government. The dealerships were closed as part of Chrysler’s 2009 federal bailout agreement, and the dealers allege they were not fairly compensated. 

The court’s decision upholds the decision of a federal district court, but it requires that the complaint be amended to include allegations that the dealerships would still have value even if the government did not bail out Chrysler.

“What we'll probably allege is that Chrysler could have filed its own bankruptcy without a federal bailout and accomplished the same thing without having to terminate these dealers,” Leonard Bellavia, senior partner of Bellavia Blatt Andron & Crossett P.C., told F&I and Showroom. The firm filed the lawsuit in February 2011.

“They could have sold it to Fiat or anybody else who was interested,” Bellavia added. “And they didn't need the government to bail it out because a traditional Chapter 11 filing does not involve the U.S. government.”

As part of its bailout agreement, Chrysler was required to terminate 25% of its dealerships, or 789 stores. A later report issued by the special investigator general concluded that the dealership closures were unnecessary.

“The government assumed wrongfully that the dealerships represented an overhead expense for Chrysler,” Bellavia explained. “They didn't understand or appreciate at the time — it was all happening so quickly — that the dealerships paid 100% of their own expenses.”

The law firm is arguing that the dealership closures amount to a “taking” under the Fifth Amendment. “Under the Fifth Amendment of the Constitution, it says that the government has the right to seize private property for the public benefit but it must pay responsible compensation,” Bellavia added. “We're saying here the government committed a ‘taking’ but failed to pay the dealers the reasonable value of their businesses.”

Monday’s decision means that the lawsuit is a legally viable takings case under the Fifth Amendment.

“Now that this appeal has been decided in our favor, there's really no reason why the rest of the rejected Chrysler dealers shouldn't join this case as well,” Bellavia added.