AG Van Hollen: Bankruptcy court to hear Van Hollen’s objections to maneuver attempted by Chrysler LLC

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Bill Cosh 608/266-1221

MADISON – Attorney General J. B. Van Hollen has joined Ohio, Illinois and eight other states in opposing an effort by Chrysler LLC to use bankruptcy law to avoid the impact of state statutes designed to protect automobile dealers from unfair and oppressive conduct by automobile manufacturers. On June 3, 2009, Bankruptcy Judge Arthur J. Gonzalez of the United States District Court for the Southern District of New York, will conduct a hearing to consider the objections of Van Hollen and others, including representatives of hundreds of Chrysler dealers throughout the United States who have argued that bankruptcy does not allow Chrysler to avoid statutory protections enacted at the state level.

On May 14, 2009, Chrysler filed a motion asking the court to relieve it from its future contractual obligations to a number of dealers in order to facilitate its efforts to reorganize and emerge from bankruptcy. While such a tactic is common in bankruptcy proceedings, Chrysler’s motion went a step further by also asking the court to declare that it may be relieved of non-contractual obligations imposed by laws such as the Wisconsin Fair Dealership Law, Wis. Stat. ch. 135, and chapter 218 of the Wisconsin Statutes which governs motor vehicle dealers. Chrysler also asked the court to declare that any “new Chrysler” emerging from the bankruptcy would be immune from “interference” by state regulatory agencies such as those who license automobile dealerships.

Van Hollen and others objecting to Chrysler’s attempted maneuver argue that, although bankruptcy law may allow Chrysler to avoid certain contractual obligations, the same is not true of obligations and legal duties enacted by state legislatures. Van Hollen stated: “Our legislature enacted specific protections for automobile dealers precisely because they are often at a severe disadvantage when dealing with large manufacturers. When Chrysler chose to do business in our state, with Wisconsin-based dealers, it chose to accept our rules. It should not be able to reorganize itself on the backs of these small businesses—many of whom have been pillars of their communities for decades–by walking away from our laws.”

Some of the more significant protections that Chrysler may be trying to avoid are requirements that it repurchase automobile and parts inventory from terminated dealers who would no longer be authorized to sell them.