The opinion
In the United States Court of Federal Claims
Nos. 10-647C, 11-100C, and 12-900C
(Filed: October 2, 2019)
CONSOLIDATED
)
COLONIAL CHEVROLET CO., )
INC., et al., )
)
Plaintiffs, )
v. ) Fifth Amendment Taking; Government
) Action Through Coercion; Economic
THE UNITED STATES, ) Value in a “But For World”
)
Defendant. )
)
********************* )
ALLEY’S OF KINGSPORT, INC., et )
al., )
)
Plaintiffs, )
v. )
)
THE UNITED STATES, )
)
Defendant. )
)
****** *************** )
UNION DODGE, INC., et al., )
)
Plaintiffs, )
v. )
)
THE UNITED STATES, )
)
Defendant. )
)
TRIAL OPINION
Roger J. Marzulla, Washington, DC, counsel for Alley’s of Kingsport, Inc., et al.,
plaintiffs, and Marquette W. Wolf, Mesquite, TX, counsel for Colonial Chevrolet Co.,
Inc., et al., plaintiffs. Nancie G. Marzulla, Washington, DC, Richard Mann, Mesquite,
TX, Leonard A. Bellavia, Mineola, NY, Thomas A. Homan, New York, NY, Stephen G.
Larson, Steven E. Bledsoe, and Lauren Wulfe, Los Angeles, CA, and Harry W. Zanville,
La Mesa, CA, of counsel.
Kenneth M. Dintzer, Civil Division, U.S. Department of Justice, Washington, DC, with
whom were Joseph H. Hunt, Assistant Attorney General, Robert E. Kirschman, Jr.,
Director, James P. Connor and Elizabeth M. Hosford, Assistant Directors, Christopher J.
Carney, Senior Litigation Counsel, for defendant. Jonathan E. Jacobson, Joshua A.
Mandlebaum, Antonia R. Soares, Zacahary J. Sullivan, and Alison S. Vicks, Washington,
DC, of counsel.
FIRESTONE, Senior Judge.
This action was brought by car dealers that had their franchise agreements with
Chrysler LLC (“Old Chrysler” or “Chrysler”) rejected when Old Chrysler went into
bankruptcy during the Great Recession in April 2009.1 These car dealer plaintiffs claim
that the United States Government (“government”) is liable for taking their franchise
agreements without just compensation in contravention of the Fifth Amendment. They
claim the government is liable because the government through its actions coerced
Chrysler into filing for bankruptcy under a government negotiated prepackaged
bankruptcy plan, which called for a reduction in Chrysler’s franchise network. The
reduction was accomplished through the rejection in the bankruptcy of 789 franchise
agreements, including plaintiffs’ agreements.2 Plaintiffs claim that had the government
not gotten involved in the Chrysler bankruptcy their franchise agreements would not have
1
The court’s use of the terms “Old Chrysler” or “Chrysler” in this opinion refer to Chrysler
before it filed for bankruptcy in 2009. The term “New Chrysler” will be used to refer to the
Chrysler that emerged after the 2009 bankruptcy. The court follows the same approach for Old
General Motors, “Old GM” or “GM,” to refer to the company before it filed for bankruptcy in
2009.
2
Under the Bankruptcy Code, 11 U.S.C. § 365, a debtor or bankruptcy trustee “may assume or
reject any executory contract . . . of the debtor.” The franchise agreements at issue in this case
are executory contracts that were rejected in bankruptcy by the debtor, Chrysler.
2
been rejected by Chrysler in bankruptcy but would have been assumed by the owner of
New Chrysler.
The taking claims addressed in this decision trace back to three separate lawsuits,
Case Nos. 10-647, 11-100 and 12-900, filed by three groups of plaintiffs that owned
franchise agreements with either Old Chrysler or Old General Motors and that had their
franchise agreements rejected in the Chrysler and GM bankruptcies. The first of these
three lawsuits, Colonial Chevrolet Co., was filed on September 27, 2010 and the
government moved to dismiss the lawsuit on January 21, 2011. On February 27, 2012 the
government’s motion to dismiss was denied and the case was certified for interlocutory
appeal. Colonial Chevrolet Co., Inc. v. United States, 103 Fed. Cl. 570 (2012); Colonial
Chevrolet Co., Inc. v. United States, 106 Fed. Cl. 619, 622 (2012). During the Federal
Circuit’s interlocutory review, two later filed cases, Alley’s of Kingsport, Inc. and Union
Dodge, Inc. (Case Nos. 11-100 and 12-900) were stayed pending the Federal Circuit’s
decision in Colonial Chevrolet Co.
On April 7, 2014, the Federal Circuit issued its decision affirming the denial of the
government’s motion to dismiss. A&D Auto Sales, Inc. v. United States, 748 F.3d 1142
(Fed. Cir. 2014). The Circuit held that the plaintiffs had alleged sufficient facts to support
potential Fifth Amendment taking claims based on a theory of coercion. The Circuit also
held, however, that the plaintiffs had failed to allege sufficient facts to show that their
franchise agreements would have had economic value in a “but for world” where the
government had not provided financial assistance to Chrysler or GM.3
3
The concept of the “but for world” is derived from the Federal Circuit’s discussion of economic
value in A&D Auto Sales. 748 F.3d at 1158-59. As the Circuit explained, in a regulatory taking
3
Regarding a taking by coercion, the Federal Circuit indicated that if the plaintiffs
could establish that Chrysler’s decision to enter bankruptcy under terms negotiated by the
government was not voluntary, a potential taking may be found. Id. at 1154. The Circuit
identified several cases where a party’s actions affecting the property of third parties was
found to be attributable to government pressure and thus a possible taking under a theory
of government coercion. Id. at 1154-55. Based on the plaintiffs’ allegations of Chrysler
and GM seeking government assistance during the Great Recession in late 2008 and early
2009, the Circuit listed several “circumstances” it deemed potentially relevant to the issue
of coercion including but not limited to (1) whether the government insisted on the
franchise terminations or targeted franchisees for termination, (2) whether the franchise
terminations would have occurred in any event, (3) whether government financing was
essential to Chrysler, and (4) whether the government had a role in creating the economic
circumstances alleged to have given rise to coercion. Id. at 1155. But the Circuit also
noted that if the government was acting only as a lender to Chrysler and GM and
negotiated bankruptcy terms necessary to protect the government’s financial interests, the
government might not be liable for a taking. Id. at 1156-57.
Regarding plaintiffs’ failure to allege that their franchise agreements had
economic value, the Circuit explained that to prove a taking the plaintiffs would need to
establish that their franchise agreements would have had value in a hypothetical “but for
world” where the government had not provided financial assistance to Chrysler or GM.
case, plaintiffs have the burden of showing what value their property would have had in the
absence of government action. Id.
4
Id. at 1157-59. If plaintiffs’ franchise agreements would not have had value in a “but for
world” without government assistance, the Circuit explained, the government did not
“take” anything of value and cannot be liable for a “taking.” Id. The Circuit remanded the
case to this court to allow plaintiffs the opportunity to amend their complaints to include
allegations of value in a “but for world” without government assistance. Id. at 1158-59.
On September 15, 2014, the plaintiffs in all three above-captioned cases filed
amended complaints in which they posited that their franchise agreements would have
had value under several “but for world” scenarios in which the government did not
provide financial assistance to Chrysler or GM. Colonial Chevrolet Co., Inc. v. United
States, 123 Fed. Cl. 134, 140-46 (2015). The government moved to dismiss the amended
complaints claiming that plaintiffs’ “but for” assumptions were either implausible or
barred by A&D Auto Sales. Id. On September 9, 2015, this court granted in part and
denied in part the government’s motion, holding that certain of plaintiffs’ “but for world”
scenarios were consistent with the Federal Circuit’s decision in A&D Auto Sales. Id. The
court also severed the GM plaintiffs from the Chrysler plaintiffs and put the GM
plaintiffs’ claims on a separate discovery time table.
Following this court’s decision granting in part and denying in part the
government’s motion to dismiss, the court, on December 4, 2015, consolidated the three
above-captioned lawsuits for the purposes of case management, discovery, and for trial
on the merits of the Chrysler plaintiffs’ taking claims. On April 6, 2016, this court denied
the Chrysler plaintiffs’ motion for class certification. Thereafter, the parties chose 10
representative Chrysler plaintiffs for purposes of discovery and trial. One of the Chrysler
5
representative plaintiffs withdrew from the litigation prior to the commencement of trial
leaving nine representative plaintiffs.
The nine representative plaintiffs were divided into two groups: the Alley’s group
with seven plaintiffs including Taylor & Sons, Inc., Cedric Theel, Inc., Whitey’s Inc.,
RFJS Company, Jim Marsh American Corp., Livonia Chrysler Jeep, Inc., Barry Dodge,
Inc., and the Colonial group with two plaintiffs including Guetterman Motors, Inc. and
Mike Finnin Motors, Inc. The two groups of plaintiffs are represented by different
attorneys and sometimes relied on different evidence to prove their taking claims.
Trial to determine principally whether there was government action through
coercion and whether plaintiffs’ franchise agreements would have had economic value in
a “but for world” without government assistance was held in Washington, D.C. between
April 8, 2019 and May 8, 2019. Post-trial arguments were held on June 19, 2019 and June
20, 2019. During trial the court heard testimony from 36 witnesses and received 542
exhibits into evidence.
Importantly, at trial the representative plaintiffs did not focus their coercion
evidence on Chrysler being forced to accept the government’s negotiated bankruptcy
terms (including a reduction in Chrysler franchises) because Chrysler needed the
government’s financial assistance, as the Federal Circuit had assumed in A&D Auto
Sales. 748 F.3d at 1155. Instead, plaintiffs presented opinion testimony to the effect that
Chrysler did not need the government’s financial assistance. Plaintiffs’ experts conceded
that Chrysler would have had to file for bankruptcy in 2009. However, they opined that
Chrysler would have had more options in bankruptcy than the one option negotiated by
the government. According to plaintiffs’ experts, Chrysler was coerced because Chrysler
6
was left with no alternative but to accept the government’s assistance after the
government took over negotiations with Chrysler’s creditors and others in early 2009.
Plaintiffs’ evidence to prove coercion by government action was somewhat
conflicting at trial. On the one hand, the plaintiffs introduced evidence to show that
Chrysler did not wish to enter bankruptcy but instead wanted the government to loan
Chrysler billions of dollars outside of bankruptcy. The plaintiffs relied on this evidence to
show (among other things) that the government, not Chrysler, wanted to use bankruptcy
to reduce Chrysler’s franchise network by rejecting plaintiffs’ franchise agreements,
rather than pursuing voluntary franchise terminations consistent with state law.
On the other hand, the plaintiffs conceded that Chrysler could not have avoided
bankruptcy in 2009 and built both their coercion and economic value theories around this
concession. The plaintiffs offered expert opinions to support a coercion theory based on
the assumption that there were many companies interested in purchasing Chrysler in late
2008 and early 2009, during the Great Recession. According to plaintiffs’ experts, these
potential purchasers would have kept Chrysler open during a Chrysler bankruptcy and
would not have had any reason to reject any franchise agreements. Plaintiffs introduced
evidence to show that the government took over negotiations with Chrysler’s creditors,
worker unions, and suppliers to accomplish the government’s public policy goals of
saving jobs and pensions. The plaintiffs asserted that their evidence demonstrated that the
decision to reduce the Chrysler franchise network involuntarily in bankruptcy was in
furtherance of these policy goals and was never part of Chrysler’s own franchise
reduction plans.
7
Plaintiffs also claimed that their franchise agreements would have had economic
value in a “but for world” where Chrysler did not accept government assistance but was
able to enter bankruptcy outside the terms negotiated by the government. Specifically,
plaintiffs presented expert valuation testimony to show that their franchise agreements
would have had value in a “but for world” without government assistance because their
franchise agreements would never have been rejected in a bankruptcy.
The Alley’s plaintiffs presented expert opinion testimony to show that if Chrysler
had entered bankruptcy without government assistance the outcome for Chrysler would
have been very similar to the bankruptcy with government assistance, but with all
franchisees remaining Chrysler franchisees. According to the evidence presented by the
Alley’s plaintiffs, franchises had value in a “but for world” because franchisees would
have had retained all their income streams, including new car sales, used car sales,
warranty and other services. They also presented expert valuation testimony to the effect
that that their income from these sources would have continued for years because any
new Chrysler owner would have assumed their franchise agreements in bankruptcy.
The Colonial plaintiffs also presented expert opinion evidence to show that their
franchise agreements would have had value in a “but for world.” The Colonial expert
also opined that franchisees would have been able to generate profits from various
income streams during a Chrysler bankruptcy without government assistance. The
Colonial plaintiffs, however, did not claim that their franchise agreements had a “fair
market value,” as the Alley’s plaintiffs’ claimed. Rather, the Colonial plaintiffs’ expert
set forth various “but for world” values based on the anticipated profits those plaintiffs
8
would have received from being able to sell their remaining Chrysler inventory and used
cars, and from performing warranty and other service work.
The government presented fact and expert evidence to refute the Alley’s and
Colonial plaintiffs’ claims of government liability based on coercion and on economic
value. The government presented evidence to show that the government did not force
Chrysler into bankruptcy or into rejecting any of the plaintiffs’ franchise agreements. The
government presented undisputed evidence to show that Chrysler had been working to
reduce its franchise network for years and that Chrysler, not the government, identified
the number and names of the franchise agreements to be rejected in bankruptcy.
The government also presented evidence from government and Chrysler witnesses
to show that Chrysler’s decision to enter bankruptcy under government negotiated
bankruptcy terms was based on Chrysler’s best business judgment after consideration of
its options. The government presented undisputed testimony from Chrysler and
government witnesses to confirm that the government did not directly threaten or force
Chrysler to accept the government’s bankruptcy plan. The undisputed evidence
established that the government was willing to allow Chrysler to pursue bankruptcy with
limited government assistance if it wished to proceed in bankruptcy on its own. In fact,
the government offered Chrysler $750 million to help finance a wind-down if Chrysler
wished to pursue other bankruptcy options. The undisputed evidence also made clear that
if all of Chrysler’s creditors had agreed to the government’s terms, the government would
have given Chrysler financial assistance outside of bankruptcy.
The government also presented undisputed testimony from Chrysler witnesses to
show that Chrysler’s financial problems pre-dated the Great Recession. The undisputed
9
evidence established that Chrysler had started to look for a partner or alliance in 2007
because Chrysler knew it was not viable without an alliance with a company having a
small car fleet. The testimony established that no car manufacturer was interested in
joining forces with Chrysler in 2007 other than Fiat, and that Fiat made clear that it was
not willing to offer Chrysler the financial assistance Chrysler needed.
The government further presented expert opinion evidence to show that the
assumptions the Alley’s and Colonial plaintiffs’ experts relied on to establish that
Chrysler could have remained open during a bankruptcy without government assistance
and would not have rejected any franchise agreements were not supported by facts. The
government presented expert evidence to establish that there were no potential purchasers
of Chrysler in 2009. The government also presented expert evidence to confirm that,
without government funding, Chrysler would not have been able to remain operational
during a bankruptcy. According to the government’s expert witnesses, Chrysler would
have faced immediate liquidation under Chapter 7 of the Bankruptcy Code if it had not
received government assistance and would have had to immediately close its factories
and reject all of its franchise agreements. Based on this evidence the government asserted
that Chrysler’s decision to accept the government’s bankruptcy plan was made
voluntarily and was not coerced.
Regarding economic value, the government’s experts opined that, in the “but for
world” without government assistance, all of Chrysler’s factories and parts depots would
have closed. The experts opined that in the “but for world” there would have been no new
cars to sell, paid warranty work or Chrysler parts. According to the government’s experts,
in the “but for world” without government assistance, Chrysler would have been forced
10
into liquidation and the bankruptcy trustee would have rejected all Chrysler franchises.
As such, the government’s experts concluded, none of Chrysler’s franchise agreements
would have had economic value.
As discussed in the opinion that follows, the court finds, after considering all of
the fact and expert evidence, that the plaintiffs failed to establish by a preponderance of
the evidence that the United States by its actions coerced Chrysler into filing for
bankruptcy under the government’s negotiated bankruptcy terms or into rejecting any of
the plaintiffs’ Chrysler franchise agreements in the Chrysler bankruptcy.4 The evidence
established that the government did not force Chrysler to accept its bankruptcy terms.
The evidence established that the government was willing to give $750 million to
Chrysler if Chrysler wished to proceed to bankruptcy alone.
The government’s evidence also established that the government through its
actions did not interfere with potential acquirers from coming forward to purchase
Chrysler in bankruptcy. The evidence established that none of the potential acquirers the
plaintiffs’ identified were interested or capable of purchasing Chrysler in April 2009. The
evidence established that Chrysler accepted the government’s prepackaged bankruptcy
plan based on Chrysler’s best business judgment after consideration of its options. The
evidence further established that had the government not provided financial assistance to
Chrysler, Chrysler would have been forced into liquidation under Chapter 7 of the
Bankruptcy Code and that, in that circumstance, all of plaintiffs’ franchise agreements
4
The plaintiffs conceded that Chrysler was not acting as the government’s agent in this case.
Tr.4821:25-4822:5. Thus their entire case hinged on their proving the government by its actions
coerced Chrysler into entering bankruptcy under prepackaged terms negotiated by the
government.
11
would have been rejected by the bankruptcy trustee. The evidence thus established that
Chrysler’s decision to accept the government’s prepackaged bankruptcy terms was a
voluntary decision and not coerced.
Because the evidence established that Chrysler would have faced immediate
liquidation in a Chapter 7 bankruptcy without government assistance, the court also finds
that plaintiffs failed to prove their franchise agreements would have had value in a “but
for world” without government assistance. The evidence established that in a Chapter 7
bankruptcy all of Chrysler’s franchise agreements would have been rejected by the
bankruptcy trustee to preserve the assets of the bankruptcy estate and that plaintiffs’
franchise agreements would have had no economic value in that circumstance. Thus,
plaintiffs failed to prove that any property of value was “taken” from them.5
In reaching these conclusions, as discussed in the opinion, the court is mindful of
the testimony it heard from the owners of each representative franchise and appreciates
the sense of betrayal they felt when they learned that Chrysler had decided to reject their
franchise agreements in the April 2009 Chrysler bankruptcy. The court sympathizes with
many of these owners who testified as to how the loss of their franchise agreements
devastated not only their businesses but their lives. Nonetheless, the court was tasked
with deciding whether the plaintiffs proved that the United States coerced Chrysler into
rejecting their franchise agreements and whether their franchise agreements would have
5
Because the court reaches these conclusions, the court does not discuss in this opinion other
issues presented at trial as to whether the taking alleged by the plaintiffs was a per se taking or
should be evaluated under the Penn Central factors. See A&D Auto Sales, 748 F.3d at 1151,
1159.
12
had any value during the Great Recession in a “but for world” without the government’s
financial assistance. For the reasons discussed below, the court was compelled to find
that the plaintiffs did not meet their burden and it is for those reasons that plaintiffs’
taking claims have been rejected.
The court’s opinion begins with a lengthy summary of the evidence presented
followed by detailed findings of fact and conclusions of law as follows: (I) Summary of
the Individual Plaintiffs’ Testimony and Claims, (II) Summary of the Plaintiffs’
Evidence, (III) Summary of the Government’s Evidence, and, finally, (IV) Findings of
Fact and Conclusions of Law.
I. SUMMARY OF INDIVIDUAL PLAINTIFFS’ TESTIMONY AND CLAIMS
Based on the evidence summarized below, the court has made the following
findings regarding the terms of the plaintiffs’ franchise agreements, the profitability of
their franchises before their Chrysler franchise agreements were rejected in the Chrysler
bankruptcy, Chrysler’s justification for rejecting their franchise agreements in
bankruptcy, and their participation or decision not to participate in an arbitration program
established by Congress after the Chrysler bankruptcy to allow Chrysler franchisees to
seek reinstatement as New Chrysler franchisees. The court also summarizes the amount
each plaintiff claims as just compensation based on their experts’ valuations.
A. Taylor & Sons Inc.
Gregory Taylor testified on behalf of the Taylor & Sons, Inc. (“Taylor”)
dealership, which for the years at issue was located at 300 Cedar Street in Sandpoint,
Idaho. Taylor was incorporated under Idaho state law. The dealership included Chrysler,
Dodge, and Jeep franchises at the time of the alleged taking. Taylor also had a GM
13
franchise allowing it to sell Chevrolet vehicles at the time of the alleged taking of its
Chrysler franchises. Taylor operated its Chrysler/Dodge/Jeep and Chevrolet dealership
under the same roof from 1988 until 2009. Taylor continues to sell Chevrolet vehicles
under its franchise agreement with New GM.
Taylor was formed in August 1988 and when it purchased a majority interest in an
existing Chevrolet, Oldsmobile, Chrysler, Dodge, and Plymouth dealership. In September
1988, Taylor was awarded a new Chrysler franchise agreement, a new Plymouth
franchise agreement,6 and a new Dodge franchise agreement. PX162 (Chrysler,
Plymouth, and Dodge Agreements). In June 1998, Taylor was awarded a Jeep franchise
which was subject to the same terms as the Chrysler, Plymouth, and Dodge franchise
agreements. DX39 (Jeep Agreement).
The Chrysler, Dodge, and Jeep franchise agreements Taylor entered into with
Chrysler were virtually identical. Entitled “Sales and Service Agreements,” the franchise
agreements provided Taylor with the “right to order and purchase from [Chrysler] and to
sell at retail . . . those specific models of [Chrysler] vehicles . . . listed on the Motor
Vehicle Addendum[.]” PX162 (Chrysler and Dodge Agreements), DX39 (Jeep
Agreement). The Motor Vehicle Addendum (“MVA”) to Taylor’s Chrysler franchise
agreement allowed it to sell “[a]ll passenger cars of the Chrysler line-make.” PX162. The
6
Chrysler stopped producing Plymouth cars in 2001 and terminated all Plymouth franchises,
including the Taylor franchise, on September 30, 2001. Taylor, along with all other Plymouth
franchise holders, received a letter from Chrysler on September 19, 2000, a year before the
termination, informing them that the Plymouth line would end with the 2001 model year. In
these letters, Chrysler agreed, consistent with the terms of the Plymouth franchise agreements, to
buy back all new vehicles, parts, accessories, and signs from terminated Plymouth franchise
holders.
14
MVA to the Dodge franchise agreement allowed it to sell “[a]ll passenger cars of the
Dodge line-make” and “[a]ll trucks of the Dodge line-make.” PX162. The MVA for the
Jeep dealership allowed Taylor to sell “all trucks in the Jeep Line-make.” DX39.
In addition to allowing Taylor to sell the above-mentioned Chrysler vehicles, the
agreement also contained a “Sales Locality” provision which identified the “territory of
DEALER’s responsibility for the sale of [Chrysler, Dodge or Jeep] vehicles, vehicle parts
and accessories.” PX162; DX39. Taylor’s sales locality ranged from twenty-five to
seventy-five miles from its dealership depending on the direction and county boundaries.
In the same Sales and Service Agreement, Taylor agreed to build a facility in a specific
area meeting the requirements set forth by Chrysler for “new and used vehicle display
areas, salesrooms, service areas, parts and accessories areas, building exterior and
grounds [that would be] satisfactory to [Chrysler] as to appearance and layout, and [that
would] be maintained and used as set forth in the Dealership Facilities and Location
Addendum.” DX1424.
Taylor’s franchise agreements with Chrysler also required that it agree to “service
[Chrysler] vehicles actively and effectively and provide and maintain, for servicing
[Chrysler] vehicles, adequate facilities equipped with the basic tools common to the trade
and with special tools and equipment peculiar to [Chrysler] products and necessary for
servicing and repairing specified [Chrysler] vehicles proper, efficiently, and
competitively.” Id. As part of its service obligation to Chrysler, Taylor was further
required to “cause its service personnel to receive such training from time to time
required by [Chrysler] to maintain their technical expertise to render competent customer
service, including the use of improved methods of repair, or the repair of new parts or
15
systems, developed by [Chrysler].” Id. Furthermore, the franchise agreements required
Taylor to “at all times keep on hand . . . the number and assortment of [] parts that in
[Chrysler’s] judgment is necessary to meet the service requirements and to meet all of
[the] obligations” under the franchise agreement. Taylor’s franchise agreements also
required franchisees to “submit to [Chrysler], in such manner, in such form, and at such
times as [Chrysler] may reasonably request, complete and accurate reports of sales and
stocks of new and used vehicles on hand and other reports, including monthly financial
statements and operating reports.” Id. These reports were admitted into evidence as
exhibits PX181, PX187, PX188, PX189, PX182, PX184 for the years between 2004 and
2009 and included information on each of the following income streams: (1) new car
sales, (2) used car sales, (3) warranty service work, (4) customer pay service work, (5)
miscellaneous (body shop, finance and insurance, etc.).
Finally, each of Taylor’s franchise agreements identified standardized additional
terms regarding Chrysler and Taylor’s rights in the event of termination. Paragraph 28
describes the various ways in which Chrysler and a dealer can terminate the franchise:
(a) DEALER may terminate this Agreement on not less
than thirty (30) days written notice. (b) [Chrysler] may
terminate this Agreement on not less than (60) days
written notice for the following reasons: . . . failure of
DEALER to meet its minimum service satisfaction
requirements . . . failure of DEALER to perform fully any
of DEALER’s undertakings or obligations as set forth in
this Agreement . . . the conviction of DEALER . . . of any
crime . . . impairment of the reputation or financial
standing of DEALER . . . (c) Notwithstanding the
provision above this Agreement will terminate
automatically without notice from either party on: . . . (v)
the discontinuance by [Chrysler] of the production or
16
distribution of all [Chrysler] vehicles listed on the Motor
Vehicle Addendum[.]
DX1424.
Under the agreements, if Chrysler terminates a franchise pursuant to Paragraph 28,
Chrysler agreed
to buy and DEALER agrees to sell, free and clear of any liens
and encumbrances, within ninety (90) days after the effective
date of any termination under Paragraph 28: (a) All new,
unused and unsold specified [Chrysler] vehicles . . . (b) All
new, unused and undamaged [Chrysler] parts that are priced
and identified as eligible for return . . .(c) All new, unused
and undamaged [Chrysler] accessories or accessories
packages for the yearly model current at the effective date of
termination . . . (d) All signs of a type required by [Chrysler]
belonging to DEALER, showing the name ‘Chrysler
Corporation’ or one of the designated trade names applicable
only to [Chrysler] products or [Chrysler’s] affiliated
companies. . . (e) Special tools (in complete sets), of a type
recommended by [Chrysler], adapted only to the servicing of
[CHRYSLER] vehicles and purchased by DEALER during
the thirty-six (36) months immediately preceding the effective
date of termination at a price and under terms and conditions
to be agreed upon by [Chrysler] and DEALER.
Id.
Mr. Taylor and each of the other plaintiffs who testified explained that they
understood that, regardless of the above-cited termination provisions in the franchise
agreements, each of their franchise agreements were also subject to state laws precluding
the termination of dealerships under state law unless certain criteria were met.7
7
Idaho state law provides that “a manufacturer shall not cancel, terminate or fail to renew any
franchise agreement with a dealer unless the manufacturer has satisfied the notice requirement of
subsection (2) of this section and has good cause for cancellation, termination or nonrenewal.”
Idaho Code Ann. § 49-1614(1) (West 2009). Specifically, Idaho law provides that
“[n]otwithstanding the terms, provisions or conditions of any franchise agreement or of any
waiver, good cause shall exist for the purposes of termination, cancellation or nonrenewal when
there is a failure by the dealer to comply with a provision of the franchise agreement, where the
17
On May 13, 2009, after Chrysler had filed for bankruptcy on April 30, 2009,
Taylor received a letter from Chrysler stating that all three of its Chrysler franchise
agreements would be rejected in bankruptcy. The letter stated in full:
As you know, we are in the process of seeking
approval of the sale of our primary operating assets to a new
company. The unprecedented decline in the industry has had
a significant impact upon sales and requires the new company
to reduce production levels to better match ongoing demand.
With the downsizing of operations following the sale and
reduction of plants and production, similar reductions must be
made in the size of the dealer body.
With regret, this letter is to inform you that on May
14th, 2009, we are filing a motion in bankruptcy court
rejecting the Sales and Service Agreement(s) between
Chrysler Motors LLC and the dealership listed above. Upon
approval from the court, your agreement will be rejected on
or about June 9, 2009.
We intend to maintain “business as usual” with you
until the rejection takes place. We intend to honor warranty
and incentive payments, during the period that you remain an
active dealer subject to available financing. It is necessary to
work together to make this transition as seamless as possible
to your customers. After rejection, we want to work with you
to assist in the redistribution of new vehicles and parts to ease
the burden on you. Attached to this letter, please find further
details regarding the transition period. Your business center
will be in touch to offer assistance.
These are extraordinary times, and they call for
extraordinary efforts. It is with a sense of profound sadness
provision is both reasonable and of material significance to the franchise agreement relationship,
and provided that the dealer has been notified in writing of the failure within one hundred eighty
(180) days prior to termination, cancellation or nonrenewal. A protest may be filed in accordance
with the provision of section 49-1617, Idaho Code.” Idaho Code Ann. § 49-1614(4). However,
the Idaho Code provides that a franchise agreement cannot be terminated because its owner has a
franchise agreement with another automobile manufacturer. Idaho Code Ann. § 49-1614(5).
Furthermore, Idaho law provides that “[t]he manufacturer shall have the burden of proof under
this section concerning the issue of good cause, which shall include, but not be limited to,
termination, nonrenewal or cancellation of any franchise agreement by the manufacturer for
insolvency, license revocation, conviction of a felony, fraud by a dealer or failure by a dealer to
comply with a provision of the franchise agreement, where the provision is both reasonable and
of material significance to the franchise agreement relationship.” Idaho Code Ann. § 49-1614(6).
18
that we must take this step and reject some of our dealer Sales
and Service Agreement(s), but it’s a necessary step in the
process of pursuing and completing the sale of our assets to
the new company. We wish there was a better way, but there
isn’t.
We are grateful for the support you and your company
have provided Chrysler over the years and we wish you the
best under these circumstances.
PX178.
The justification for rejecting Taylor’s Chrysler franchises in bankruptcy were
explained by Peter Grady, Chrysler’s Director of Dealer Operations at the time of the
Chrysler bankruptcy. In his testimony, Mr. Grady explained that Chrysler examined
several criteria in selecting which franchisees to reject in bankruptcy. These criteria, he
further explained, grew out of an earlier voluntary effort by Chrysler to rationalize or
reduce its dealership network under a program called “Project Genesis.” Project Genesis,
which is discussed in greater detail later in the opinion, identified several criteria which
Chrysler employed in an effort to get all of its dealers to sell all Chrysler brands under
one roof and to ensure that each such dealer would have sufficient market share to
maximize profitability. The Project Genesis criteria were modified in the month leading
up to the Chrysler bankruptcy when the option of rejecting franchise agreements in
bankruptcy without regard to state law became more likely.
As discussed in more detail infra by the plaintiffs’ bankruptcy expert Judge
Fitzgerald and the government’s bankruptcy expert Judge Gerber, under the Bankruptcy
Code, executory contracts can be rejected in bankruptcy without regard to state law in
order to preserve estate assets. Judge Fitzgerald and Judge Gerber also explained that
rejecting a franchise agreement in bankruptcy is legally distinct from terminating a
19
franchise agreement. Rejection excuses the party filing for bankruptcy from having to
continue performance under the contract. To the extent the contracting party has a breach
of contract claim arising from the rejection of the agreement, the contracting party, here
the franchisee, has an unsecured claim in the bankruptcy.
According to Mr. Grady, Chrysler consulted with Fiat, the New Chrysler owner, to
determine which franchisees out of the total number of 3100 should have their franchise
agreements rejected in bankruptcy. Eventually Chrysler selected 789 franchisees for
rejection. In determining which 789 franchisees to reject in bankruptcy, Mr. Grady
testified that Chrysler examined the following: (1) whether the franchise was meeting its
Minimum Sale Responsibility (“MSR”)8, (2) the franchise’s Scorecard for Sales,9 Share,
Shipments, Warranty, etc., (3) whether the franchise facility had adequate capacity and
met Chrysler’s standards, (4) the franchise location, (5) the franchise’s financial strength,
(6) the franchise’s management, (7) whether the franchise had a “dual” or competitor’s
dealership under the same roof, and (8) whether it was a single point franchise, meaning
it did not have all three Chrysler brands under one roof. Tr.3598:8-3602:21.
8
Each franchise agreement required franchisees to meet MSR. Steven Landry, Chrysler’s
Executive Vice President of sales and marketing, explained that the MSR was calculated by
taking the number of new Chrysler vehicles registered in a state and comparing that number to
the number of total new vehicles registered in that state to determine the market share for
Chrysler vehicles in that location. Tr.3471:14-3472:19. An MSR was then set based on the
number of new vehicles the franchisee would need to sell for Chrysler to maintain its market
share. Id. Put another way, the MSR was used to determine if a dealership held the same market
share in its sales locality as Chrysler held either on the state or national level. Id.
9
Mr. Grady explained that each dealer received a scorecard which was “made up of a total of
1000 points, and the detail within the scorecard mainly focused on sales versus targets, market
share within the dealer’s geographic area, shipments versus targets, and then customer profile
targets,” customer satisfaction, and warranty work. Tr.3599:7-3600:2.
20
Mr. Grady explained that Taylor’s three franchises were rejected by Chrysler in
bankruptcy because together they had only met 36% of its MSR, sold less than 100 new
Chrysler vehicles the previous year, and were co-located under one roof with a Chevrolet
franchise. Tr.3809:23-3810:23; DX1315.
After Taylor received the May 13, 2009 letter informing it that all of its Chrysler
franchise agreements would be rejected, Taylor sold its remaining new Chrysler brand
vehicles either “a few thousand dollars over net . . .[but] for far less than [Taylor] paid
Chrysler to purchase them[,]” “for net cost, meaning that [Taylor] made no profit on them
despite housing and advertising the vehicles for months[,]” or by “trad[ing] [the]
remaining Chrysler new inventory, Chrysler for GM, with another dealer who had been
notified that his GM franchise would be terminated.” Tr.294:13-25. Regarding the
Chrysler parts Taylor had in stock, Taylor explained that the dealership “traded some
parts to the same terminated General Motors dealer, to the extent [it] could, and used
some of the parts on Chrysler vehicles that [it] continued to service. [Taylor] eventually
threw the remaining parts in the dumpster.” Tr.295:4-8. Finally, Taylor disposed of
Chrysler specialized tools and equipment in an auction “but could only earn pennies on
the dollar.” Tr.295:11-13.
In December 2009, eight months after Chrysler had filed for bankruptcy, Congress
enacted Section 747 of the Consolidated Appropriations Act of 2010, Pub. L. 111-117
(“Section 747”) to allow dealerships to seek a franchise with New Chrysler under an
arbitration program. If a dealer won in arbitration it would receive a customary and usual
letter of intent to enter into a franchise agreement with New Chrysler. Taylor elected not
to participate in the arbitration program “because there was nothing left and [Taylor]
21
would have had to buy something [it] previously owned, and it would have cost a lot of
money.” Tr.326:14-17.
Taylor’s 2010 financial statement for its Chevrolet franchise showed that Taylor
received a net income of $94,122 from that dealership. DX614. As noted, Taylor
continues to operate as a Chevrolet dealer to the present day. Tr.299:10-13.
Taylor claims that the rejection of its three Chrysler franchise agreements in the
Chrysler bankruptcy amounts to a taking because the government coerced Chrysler into
bankruptcy with a plan that included the rejection of its franchise agreements. Taylor
claims it is entitled to just compensation. Plaintiffs’ valuation expert Diane Anderson
Murphy,10 based on instructions she received from the Alley’s plaintiffs’ counsel,
provided valuation opinions for two dates: December 2008 and April 2009. During
closing argument, counsel for the Alley’s plaintiffs stated that April 30, 2009 was the date
of any “taking” by the government and that the compensation the Alley’s plaintiffs are
seeking is based on the value of their franchise, as determined by Ms. Murphy, on that
date. See Tr.5097:23-5098:14, Tr.5109:22-5110:5. In addition to Ms. Murphy’s valuation
10
As will be described in further detail infra, Ms. Murphy is a Director with the Valuation
Services Group of Moss Adams LLP. She is the coauthor of several versions of the National
Automobile Dealers Association’s dealership valuation guide and she has managed or staffed
well over 1,500 dealership appraisal projects.
22
opinions, plaintiffs relied on the opinion testimony of the plaintiffs’ three other experts:
David Berliner,11 Judge Judith Fitzgerald,12 and Maryann Keller.13
As discussed in greater detail infra, Ms. Murphy opined that the economic loss
Taylor sustained from the rejection of its franchise agreements on either date of taking
she examined is equal to Taylor’s entire Chrysler dealership as an ongoing business.
According to Ms. Murphy, although the franchise agreement is an intangible asset, its
value is equal to all the net income generated by the dealership as well as the physical
assets associated with those income streams. Thus, in valuing the franchise agreements
on the dates selected, she considered the income streams from not only new car sales and
warranty work, which are expressly derived from Chrysler’s obligations under the
franchise agreements, but also the net income from used car sales and non-warranty
service work.
11
As will be described in further detail infra, Mr. Berliner is the partner in charge of BDO’s
Business Restructuring Services Group with advisory and consulting experience in the areas of
business restructuring, reorganizations, Section 363 sales, and debtor-in-possession financing.
He has worked on bankruptcy cases involving the liquidation of large corporations such as
Sports Authority Holdings, Malibu Lighting Corporation, Furniture Brands International,
American Home Mortgage, and Pillowtex Corporation.
12
As will be described in further detail infra, Judge Fitzgerald is a former United States
Bankruptcy Judge who sat in the Western District of Pennsylvania for over twenty-five years, the
District of Delaware for twenty years, the Eastern District of Pennsylvania for eight years and in
the District of the United States Virgin Islands for nine years. During her tenure as a Bankruptcy
Judge she presided over hundreds of Chapter 11 bankruptcies, including cases that involved the
assumption or rejection of executory contracts such as franchise agreements and licenses.
13
As will be described in further detail infra, Ms. Keller is the Principle at Maryann Keller &
Associates who provides automotive-related advisory services to companies, investors, and
professional firms. She has advised clients on issues across the automotive supply chain, from
component companies to retail sales.
23
In valuing Taylor’s franchise, Ms. Murphy also made several assumptions
regarding the fate of Chrysler in a “but for world” without government financial
assistance. Ms. Murphy assumed that all of Chrysler’s assets would have been sold in
bankruptcy to a third party. She also assumed that the new Chrysler would either (1)
continue indefinitely to produce all of Chrysler’s product lines or (2) continue
indefinitely with production of only the Chrysler trucks. She assumed production under
either scenario would not have been interrupted during the bankruptcy and that the
franchisees would have continued to receive new cars and/or trucks to sell without
significant interruption. Ms. Murphy further assumed that Taylor (and all the other
Alley’s plaintiff franchiseeships she valued) would have had their franchise agreements
assumed by any new Chrysler owner and thus would have been able to continue as
Chrysler franchisees without interruption. Ms. Murphy further testified that the terms of
the franchise agreements assumed by Chrysler’s new owner would not be altered by the
new owner. Finally, she assumed that the economy on both dates was recovering and
would grow at a healthy rate.14
Ms. Murphy based her valuations for Taylor on financial statements Taylor
submitted to Chrysler for 2004, 2005, 2006, 2007, 2008, and from January to May 2009.
PX181, PX187, PX188, PX189, PX182, PX184. These financial statements reported
income on Taylor’s three major income streams: new car sales, used car sales, and fixed
services (warranty service, customer pay service, and parts). In addition, for plaintiffs,
14
Much of Ms. Murphy’s testimony was devoted to explaining the local economy of each of the
Alley’s plaintiffs’ market and how those economic conditions were improving during the early
portion of 2009.
24
like Taylor, with franchise agreements with another automobile manufacturer, Ms.
Murphy applied a “used to new formula” to determine the proportion of new car sales,
used car sales, service, and parts that should be attributed to only to the Chrysler
franchise. Based on this “used to new formula,” Ms. Murphy calculated that Taylor’s
Chrysler franchises gave Taylor a net income of $117,514 in 2004, $75,901 in 2005,
$89,634 in 2006, $103,287 in 2007, $83,555 in 2008, and $24,200 from January to May
2009. See PX244.1B.
Using the above-cited income amounts and the assumptions she made about
Chrysler and the economy, Ms. Murphy opined that the value of Taylor’s franchise
agreements, in a “but for world” without government assistance, would have been worth:
(1) $686,000 where Chrysler enters bankruptcy but continues to produce cars and trucks
or (2) $558,000 for where Chrysler enters bankruptcy but continues to produce only
trucks. Tr.1406:6-7.
B. Cedric Theel Inc.
Cedric Theel testified on behalf of the Cedric Theel Inc. (“Theel”) dealership
which for the years at issue was located at 3955 Trenton Drive Bismarck, North Dakota.
Theel was incorporated under the laws of North Dakota. The dealership included a Dodge
franchise at the time of the alleged taking. Theel also had a Toyota franchise at the time
of the alleged taking.
Theel was incorporated in 1983 and in 1985 Theel purchased a Dodge dealership
in Bismarck, North Dakota. Tr.408:4-24. The Dodge franchise agreement that was
eventually rejected in bankruptcy was awarded to Theel on February 1, 2000. In 1990
25
Theel obtained the right to sell Mitsubishi. Tr.409:14-15. In 1992 Mr. Theel and his wife
purchased the Toyota and Hyundai dealership that was next door to the Theel Dodge
dealership and placed ownership of that dealership under a new company, Cedric Theel
Ltd. In 1995, the Dodge and Toyota dealerships were consolidated under one roof and
under the ownership of Theel. Tr.408:4-409:21.
The Dodge franchise agreement that Theel entered into in February 2000 is
identical in form and substance to the Dodge franchise agreement described and quoted
in the preceding section describing the Taylor franchise agreements and is not repeated
here. See PX191 (Dodge Agreement). Mr. Theel explained that he understood regardless
of the above-quoted termination provisions in his franchise agreement that his Dodge
franchise agreement was also subject to state law protection. 15 Tr.417:7-13.
On May 13, 2009, Theel received a letter from Chrysler stating that its Dodge
franchise agreement would be rejected in bankruptcy. The letter is identical to that
received by Taylor and the other representative plaintiffs in this case. DX449. Mr. Grady,
Director of Dealer Operations, explained that Theel’s Dodge franchise agreement was
rejected by Chrysler in bankruptcy because Theel’s MSR was only 70%, it was a single
Dodge franchise dealer, and it had a dual dealership with Toyota. Tr.3801:4-3803:14;
DX1315.
15
North Dakota law provides that a manufacturer may not “[a]ttempt or threaten to terminate,
cancel, or fail to renew or substantially change the competitive circumstances of the dealership
contracts for any reason other than failure of the automobile or truck retailer to comply with the
terms of the contract between the parties, if the attempt or threat is based on the results of a
circumstance beyond the retailer’s control, including a natural disaster in the dealership market
area or a labor dispute.” N.D. Cent. Code Ann. § 51-07-02.3(5) (West 2009).
26
After Theel received the May 13, 2009 letter informing it that its Dodge franchise
agreement would be rejected, Theel had “about 60 new Dodge vehicles on hand at the
time.” Tr.421:15. Theel sold “most of the new Dodge cars to customers at fire sale prices
. . . [and] [s]ome [other dealers] bought the remainder of [its] new Dodge inventory” all
at a loss. Tr.421:22-24. Theel also had “approximately $200,000 in Dodge parts” which it
sold “to a warehouse for 25 to 75 percent less than what [it] paid for them.” Tr.422:2-6.
Additionally, Theel “tried to convert [the] servicing area for Toyota servicing, but a lot of
the equipment was not suited for Toyotas, including all of the diesel engine service
equipment, which was for Dodge vehicles only.” Tr.422:20-23. Theel also sold a $30,000
sign that it had purchased shortly before its Dodge franchise was rejected to another
Chrysler dealer for only $16,000. Tr.423:10-13. Mr. Theel testified that he elected not to
participate in the Section 747 arbitration process because he never got an answer as to
why his Dodge franchise was terminated. Tr.452:4-8. Theel’s 2010 financial statement
for its Toyota franchise showed that Theel earned a net income of $606,447 from that
dealership. DX621. Theel’s 2011 financial statement shows that its Toyota dealership
earned a net income of $674,499. DX653. Theel continues to operate as a Toyota dealer
to the present day.
Theel claims that the rejection of its Dodge franchise agreement in the Chrysler
bankruptcy amounts to a taking and, for the same reasons as relied on by Taylor, seeks
just compensation. As with Taylor, Theel relies on Ms. Murphy to establish the value of
the franchise agreement at the time of the alleged taking. After reviewing Theel’s 2004,
2005, 2006, 2007, 2008 and January to May 2009 financial statements, DX77, DX107,
DX139, DX197, DX312, Ms. Murphy calculated that Theel’s Dodge franchise agreement
27
generated a net income of $130,323 in 2004, $175,006 in 2005, $97,377 in 2006,
$142,333 in 2007, and $69,279 in 2008. See PX244.1E.
Using these values and her assumptions, Ms. Murphy calculated the amount of just
compensation Theel is seeking for the claimed taking of its Dodge franchise agreement.
Under Ms. Murphy’s income valuation approach, the amount of just compensation Theel
is seeking for the claimed taking of the franchise agreement on April 30, 2009 is either
(1) $709,000 where Chrysler enters bankruptcy but continues to produce cars and trucks
or (2) $621,000 for where Chrysler enters bankruptcy but continues to produce only
trucks. Tr.1406:12-13.
C. Mansfield Motor Group/Whitey’s Auto Group
Dirk Schluter testified on behalf of Mansfield Motor Group, d/b/a Whitey’s Auto
Group (“Whitey’s”) which for the years at issue was located at 1493 Park Avenue West,
Mansfield, Ohio. Whitey’s was incorporated under the laws of Ohio. The dealership
included a Chrysler franchise at the time of the alleged taking. Tr.817:12-13. Whitey’s
also had a Lincoln-Mercury franchise under the same roof as the Chrysler franchise at the
time of the alleged taking. Whitey’s was incorporated in 1947 and received its first
Chrysler franchise agreement in the mid-1960s. Tr.818:14-17, 819:16-18.
In August 2001, Whitey’s was awarded a new Chrysler agreement when Mr.
Schluter and his brother became the new owners of Whitey’s. Tr.820:5-15. The 2001
franchise agreement is the agreement that was rejected in the Chrysler bankruptcy. The
Chrysler franchise agreement that Whitey’s entered into in August 2001 is identical in
form and substance to the Chrysler franchise agreement described in the preceding
section regarding Taylor & Sons. PX224. Mr. Schluter explained that he understood that
28
regardless of the above-cited termination provisions that his franchise agreement was also
subject to state laws precluding the termination of franchise agreements under state law.16
Tr.824:15-21.
On May 13, 2009 Whitey’s received a letter from Chrysler stating that its Chrysler
franchise agreement would be rejected in bankruptcy. The letter is identical to the ones
received by other representative plaintiffs in this case. PX239. Mr. Grady, Director of
Dealer Operations, explained that Whitey’s Chrysler franchise was rejected by Chrysler
in bankruptcy because it only met 45% of its MSR, was a dual dealership with a Lincoln
franchise, and was only a single Chrysler franchise dealer. Tr.3806:21-3803:13; DX1315.
After Whitey’s received the May 13, 2009, it was able to “place[] [its] [new]
inventory with another dealer, [although it] lost money on the vehicles.” Tr.831:15-17.
Whitey’s also lost money on its “inventory of used Chrysler vehicles because [it] could
no longer sell them with a certified status of used cars and with the manufacturer
16
Ohio law provides that “no franchisor shall terminate or fail to continue or renew a franchise
except for good cause.” Ohio Rev. Code Ann. § 4517.54(A) (West 2009). Ohio law also provides
that “[i]n determining whether good cause has been established by the franchisor for terminating
or failing to continue to renew a franchise, the motor vehicle dealers board shall take into
consideration the existing circumstances, including, but not limited to: (1) The amount of retail
sales transacted by the franchisee during a five-year period immediately preceding such notice as
compared to the business available to the franchisee; (2) the investment necessarily made and
obligations incurred by the franchisee to perform its part of the franchise; (3) the permanency of
the franchisee’s investment; . . . (7) the extent and materiality of the franchisee’s failure to
comply with the terms of the franchise and the reasonableness and fairness of the franchise terms
. . . .” Ohio Rev. Code Ann. § 4517.55(A) (West 2009). Ohio law also specified that
“[n]otwithstanding the terms, conditions, or provisions of any franchise or waiver, the following
do not constitute good cause for terminating or failing to continue or renew a franchise: (1)
Refusal by the franchisee to purchase or accept delivery of any new motor vehicle, parts,
accessories, or any other commodity or service not ordered by the franchisee; (2) The fact that
the franchisee or the owner of any interest therein, owns, has an investment in, participates in the
management of, or holds a license for the sale of the same or any other line-make of new motor
vehicle; . . . (5) Failure of the franchisee to achieve any unreasonable or discriminatory
performance criteria.” Ohio Rev. Code Ann. § 4517.55(B) (West 2009).
29
warranty,” and sold them often at a loss. Tr.831:18-22. Whitey’s lost money on the
inventory of Chrysler-specific parts although it was able to use some of the parts in
customer-pay service. Tr.832:14-18. Whitey’s also “threw out the remaining Chrysler
signage, as well as the Chrysler brochures and other advertising material.” Tr.832:20-23.
Whitey’s filed a request for arbitration and received $10,000 in settlement from New
Chrysler. Tr.833:15-21.
In August of 2008 Whitey’s acquired franchise agreements to sell Volvo and
Mercedes-Benz vehicles. Whitey’s financial statement for its Lincoln, Volvo, and
Mercedes-Benz franchises showed that Whitey’s earned a net income of $157,562 in
2010, the first full year without the Chrysler franchise. Tr.891:17-19; DX1493.
Whitey’s claims that the rejection of its Chrysler franchise agreement in the
Chrysler bankruptcy amounts to a taking for the same reasons as relied on for plaintiffs
Taylor and Theel. Whitey’s relies on Ms. Murphy for the valuation of the franchise
agreement. Ms. Murphy, after reviewing Whitey’s 2005, 2006, 2007, 2008, and January
to May 2009 financial statements, PX223, PX233, calculated that Whitey’s Dodge
franchise agreement resulted in a net income of $195,853 in 2004, $127,940 in 2005,
$159,309 in 2006, $120,535 in 2007, $61,415 in 2008 and $30,292 between January and
May 2009. PX244.1D.
Using these values and her assumptions, Ms. Murphy calculated the amount of just
compensation Whitey’s is seeking for the claimed taking of the franchise agreement.
Under Ms. Murphy’s income valuation approach, the amount of just compensation
Whitey’s is seeking for the April 30, 2009 taking date is either (1) $524,000 where
30
Chrysler enters bankruptcy but continues to produce cars and trucks, or (2) $292,000 for
where Chrysler enters bankruptcy but continues to produce trucks. Tr.1406:10-11.
D. RFJS Company, LLC
Robert L. Frederick II and John Scotford Jr. testified on behalf of RFJS Company,
LLC (“RFJS”), which for the years at issue was located at 7871 Market Street Boardman,
Ohio. RFJS was incorporated under Ohio state law. Tr.967:13. The dealership at the time
of the rejection of the franchise agreements included Chrysler, Dodge, and Jeep
franchises. Tr.972:14-15. RFJS did not have any franchise agreements with other auto
manufacturers at that time. RFJS was formed in 2006. Mr. Fredrick contributed the
Dodge franchise agreement that he owned to RFJS and Mr. Scotford contributed the cash
that was used to purchase a Chrysler/Jeep dealership. Tr.966:34-967:8. The Dodge
franchise agreement that Mr. Fredrick contributed was awarded to RFJS in October 2006.
DX130. This Dodge franchise agreement was identical in form and substance to the
franchise agreements described above.
RFJS’s Chrysler and Jeep franchise agreements, however, were different from
those described above. RFJS’s “Sales and Service Agreement[s]” contained different
terms. DX131; DX132. Instead of having an indefinite franchise agreement that could
only be terminated upon specified events, RFJS’s Chrysler and Jeep franchise agreements
provided that they only continued “in effect until the expiration of 24 months after the
execution date at which time this Term Agreement will terminate automatically without
notice to or by either party.” Id. The agreements went on to state that “[i]f this Term
Agreement is not terminated as provided herein or in Paragraph 28 of said Terms and
Provisions, and thus continue in effect for the period set forth in the immediately
31
forgoing Paragraph, [Chrysler], at the expiration of such period, will enter into the
Standard Chrysler Corporation Sales and Service Agreement current at the date of said
expiration, for such specified [Chrysler] vehicles with DEALER, provided that DEALER
has fulfilled each and every condition set forth in [the Agreement].” Id. RFJS received its
Term Sales and Service Agreements for its Chrysler and Jeep franchises on October 27,
2006. Id. As part of the term franchise agreements RFJS had to build a satisfactory
dealership facility at 7870 Market Street, Boardman, Ohio within twelve months of the
execution of the Chrysler and Jeep franchise agreements. Id.
As of October 2007, RFJS had not met its obligation to build a facility at 7871
Market Street to Chrysler’s standards. On May 20, 2008, RFJS got a one-year extension
of its Chrysler and Jeep franchise agreements in order to complete the construction of a
facility at 7871 Market Street. DX253.
Mr. Fredrick and Mr. Scotford testified that they understood that, despite the
above-cited termination provisions, their Chrysler, Dodge, and Jeep franchise agreements
were subject to state laws and could not be terminated or not renewed unless certain
criteria were met.17
17
Ohio law provides that “no franchisor shall terminate or fail to continue or renew a franchise
except for good cause.” Ohio Rev. Code Ann. § 4517.54(A) (West 2009). Ohio law also provides
that “[i]n determining whether good cause has been established by the franchisor for terminating
or failing to continue to renew a franchise, the motor vehicle dealers board shall take into
consideration the existing circumstances, including, but not limited to: (1) The amount of retail
sales transacted by the franchisee during a five-year period immediately preceding such notice as
compared to the business available to the franchisee; (2) the investment necessarily made and
obligations incurred by the franchisee to perform this part of the franchise; (3) the permanency of
the franchisee’s investment; . . . (7) the extent and materiality of the franchisee’s failure to
comply with the terms of the franchise and the reasonableness and fairness of the franchise terms
. . . .” Ohio Rev. Code Ann. § 4517.55(A) (West 2009). Ohio law also specified that
“[n]otwithstanding the terms, conditions, or provisions of any franchise or waiver, the following
do not constitute good cause for terminating or failing to continue or renew a franchise: (1)
32
On May 13, 2009, RFJS received a letter from Chrysler stating that its Chrysler,
Dodge, and Jeep franchise agreements would be rejected in bankruptcy. The letter is
identical to that received by the other representative plaintiffs in this case. Tr.970:17-19.
Mr. Grady, Director of Dealer Operations, explained that RFJS’s Chrysler, Dodge, and
Jeep franchise agreements were rejected by Chrysler in bankruptcy because RFJS
dealership was an excess point, i.e. a location that Chrysler determined was no longer
valuable and because the dealership was operating at a loss and had been placed on a
finance hold by Chrysler Financial.18 DX1315.
After RFJS received the May 13, 2009 letter informing it that its Chrysler, Dodge,
and Jeep franchise agreements would be rejected, “all of [its] new cars either ended up
being retailed or wholesaled to other dealers [it] had good relationships with,” but “that
really didn’t help[.]” Tr.972: 7-10. RFJS “made the best deal [it could for] parts. [Its]
tools and equipment were sold at an auction,” but it got “virtually nothing.” Tr.972:20-
Refusal by the franchisee to purchase or accept delivery of any new motor vehicle, parts,
accessories, or any other commodity or service not ordered by the franchisee; (2) The fact that
the franchisee or the owner of any interest therein, owns, has an investment in, participates in the
management of, or holds a license for the sale of the same or any other line-make of new motor
vehicle; . . . (5) Failure of the franchisee to achieve any unreasonable or discriminatory
performance criteria.” Ohio Rev. Code Ann. § 4517.55(B) (West 2009).
18
Leland Wilson, the Chief Financial Officer of Chrysler Financial between 2007 and 2010,
explained the significance of a dealer being placed on a financial hold and not being able to
obtain floor plan financing to finance their purchase of new and used cars. He explained that
floor plan financing involved dealers “order[ing] cars through Chrysler, Chrysler would ship
those cars to the dealers. Each of those dealers that [Chrysler Financial] financed would have a
dealer . . . credit line” that would be used to finance the purchase. Tr.3855:9-11. He went on to
explain that “the first lien collateral [for the loan] was the vehicle” and that when the car was
sold the proceeds were used to pay off the loan the dealer incurred to purchase the car and
allowed the dealer to continue purchasing new vehicles. Tr.3855:17-23. RFJS was one of the
Chrysler franchisees that relied on Chrysler Financial for floor plan financing. “Financial hold”
meant that Chrysler Financial was no longer willing to extend floor plan financing to RFJS and
thus it could not obtain new inventory through its Chrysler Financial credit line. Tr.3806:3-8.
33
25. Ultimately, RFJS “shut down the dealership” and “did not consider staying open as a
service and used car dealership because [its] business ran on the new car franchise.”
Tr.973:1-11. After its Chrysler, Dodge, and Jeep franchise agreements were rejected,
RFJS pursued arbitration under Section 747 and settled with New Chrysler for $200,000.
Tr.1029:13-25. Because RFJS did not continue as either a new car dealership or used car
and service dealership there are no financial statements for RFJS past June 2009.
RFJS claims that the rejection of its Chrysler, Dodge, and Jeep franchise
agreements in the Chrysler bankruptcy amounts to a taking of its franchises for the same
reasons relied on by Taylor, Theel, and Whitey’s. RFJS relies on Ms. Murphy’s valuation
as the basis for the just compensation it is seeking. Ms. Murphy, after reviewing RFJS’s
2006, 2007, 2008, and January to May 2009 financial statements, PX153, calculated that
RFJS’s Chrysler, Dodge, and Jeep franchise agreements resulted in a net income of
$104,940 in 2006, $331,375 in 2007, lost $45,125 in 2008, and earned $24,065 from
January to May 2009. PX244.1F.
Using these values and her assumptions, Ms. Murphy calculated the amount of just
compensation RFJS is seeking for the claimed taking of the franchise agreements. Under
Ms. Murphy’s income valuation approach, the amount of just compensation RFJS seeks
for the claimed taking for the April 30, 2009 date is (1) $1,766,000 where Chrysler enters
bankruptcy but continues to produce cars and trucks, or (2) $1,329,000 for where
Chrysler enters bankruptcy but continues to produce only trucks. Tr.1406:14-15.
E. Jim Marsh American Corporation
Jim Marsh testified on behalf of Jim Marsh American Corporation (“Marsh”)
which for the years at issue was located 8555 West Centennial Parkway, Las Vegas,
34
Nevada. Tr.367:7. Marsh is incorporated under the laws of Nevada. The dealership
included a Chrysler and Jeep franchise at the time of the alleged taking. In early 2009,
Marsh purchased a Kia, Suzuki, and Mitsubishi dealership. Tr.379:9-12. The Suzuki
dealership closed in 2014 when Suzuki filed for bankruptcy and Marsh sold the
Mitsubishi dealership in 2017. Tr.378:23-25. Marsh still operates a Kia dealership. The
Chrysler and Jeep franchise agreements that were rejected by Chrysler in the Chrysler
bankruptcy were awarded to Marsh on December 21, 2000. Tr.367:21-25. Prior to
receiving these franchise agreements, Marsh had other Chrysler and Jeep franchise
agreements dating back to 1995 and 1971. Tr.366:17-367:20. Marsh’s 2000 Chrysler and
Jeep franchise agreements were identical in form and substance to those of the other
representative plaintiffs in this case. DX44.
Mr. Marsh explained that he knew that state laws protected his franchise
agreements from unjust termination and testified that throughout his several decades of
experience as a new vehicle franchise owner he had never heard of an involuntary
termination of a franchise agreement other than when an owner was convicted of a felony
or some form of fraud.19 Tr.369:21-370:2.
19
Nevada state laws provide that “[n]otwithstanding the terms of the franchise, a manufacturer
or distributor shall not terminate or refuse to continue any franchise unless it has received the
written consent of the dealer or: (a) It has given written notice of its intention to the dealer and
the Director; and (b) Either the following conditions occurs: (1) The dealer does not file a protect
with the Director within the time allowed by this section; or (2) After the dealer has filed a
protest and the Director has conducted a hearing on the matter, the Director issues an order
authorizing the manufacturer or distributor to terminate the franchise or permit it to lapse.” Nev.
Rev. Stat. Ann. § 482.36352(1) (West 2009). Furthermore, Nevada state law states that “[i]n
determining whether good cause has been established for permitting a manufacturer or
distributor to terminate, refuse to continue, modify or replace a franchise, the Director shall
consider without limitation: (1) The amount of business transacted by the dealer, as compared to
the business available to the dealer . . . (2) The investment necessarily made and obligations
incurred by the dealer to perform its part of the franchise . . . (6) The extent of the dealer’s
35
On May 13, 2009, Marsh received a letter from Chrysler stating that its Chrysler
and Jeep franchise agreements would be rejected in bankruptcy. The letter is identical to
that received by the other representative plaintiffs in this case. PX147. Mr. Grady,
Director of Dealer Operations, explained that Marsh’s Chrysler and Jeep franchise
agreements were rejected by Chrysler in bankruptcy because Marsh had only met 38% of
its MSR, it lacked a Dodge franchise agreement, and because Chrysler wanted a third-
party candidate to run a Chrysler, Dodge, and Jeep dealership in a different part of Las
Vegas. DX1315.
After Marsh received the May 13, 2009 letter informing it that its Chrysler and
Jeep franchise agreements would be rejected, it had to “liquidate [its] inventory of new
cars, leaving [it] with an inventory of Chrysler-specific tools that [it[ could no longer use
for warranty service and which [it] could no long use to access the manufacturer’s
computer to perform new car service.” Tr.373:8-12. Also, Marsh “obtained most of [its]
used car inventory from trade-ins associated with the purchase of new cars [and] [l]osing
new car sales meant [it] had fewer used cars to sell.” Tr.373:13-16. Marsh also “lost the
after-sale income and the after-market warranties and service contracts that [it] could no
longer sell in connection with the sale of Chrysler-Jeep projects.” Tr.373:16-19. Marsh
participated in the Section 747 arbitration process and won a letter of intent from New
Chrysler. In January 2017, Marsh opened a new Chrysler-Jeep dealership but was
required to spend significant amounts of money to open this new dealership. Tr.374:11-
18.
failure, if any, to comply with the terms of the franchise.” Nev. Rev. Stat. Ann. § 482.36355
(West 2009).
36
Marsh claims that the rejection of its Chrysler and Jeep franchise agreements in
the Chrysler bankruptcy amounts to a taking for the same reasons relied on by plaintiffs
Taylor, Theel, Whitey, and RFJS. Marsh relies on Ms. Murphy's valuations of his
franchise agreements to support a claim for just compensation. Ms. Murphy, relying on
the same income streams and same calculation methods as described above, and after
reviewing Marsh’s 2004, 2005 2006, 2007, 2008, and January to May 2009 financial
statements, PX145, calculated that Marsh’s Chrysler and Jeep franchise agreements
resulted in a net income of $860,020 in 2004, $1,032,818 in 2005, $1,396,370 in 2006,
$932,272 in 2007, $816,019 in 2008, and earned $746,431 from January to May 2009.
PX244.1G.
Using these values and her assumptions, Ms. Murphy calculated the amount of just
compensation Marsh is seeking for the claimed taking of the franchise agreement. Under
Ms. Murphy’s income valuation approach, the amount of just compensation Marsh seeks
for the claimed taking of the franchise agreement for the April 30, 2009 date is (1)
$8,972,000 where Chrysler enters bankruptcy but continues to produce cars and trucks or
(2) $7,037,000 for where Chrysler enters bankruptcy but continues to produce only
trucks. Tr.1406:14-15.
F. Livonia Chrysler-Jeep
Collen and David MacDonald testified on behalf of Livonia Chrysler-Jeep
(“Livonia”) which for the years at issue was located at 30777 Plymouth Road, Livonia,
Michigan. Livonia is incorporated under the laws of Michigan. The dealership included a
Chrysler and Jeep franchise at the time of the alleged taking. Tr.1290:5-9.
37
The Chrysler and Jeep franchise agreements that were rejected in the Chrysler
bankruptcy were awarded to Livonia on April 24, 1998. These Chrysler and Jeep
franchise agreements were identical in form and substance to the franchise agreements
that the other representative plaintiffs had with Chrysler. PX136. Both Mr. and Mrs.
MacDonald explained that they understood that, regardless of the termination terms in
those agreements, the agreements could only be terminated consistent with the franchise
laws in Michigan.20 Tr.1293:5-14.
On May 13, 2009, Livonia received a letter from Chrysler stating that its Chrysler
and Jeep franchise agreements would be rejected in bankruptcy. The letter is identical to
that received by the other representative plaintiffs in this case. PX139. Mr. Grady,
Director of Dealer Operations, testified that Livonia’s Chrysler and Jeep franchise
agreements were rejected by Chrysler in bankruptcy because Chrysler did not like the
location of the dealership and thought that it would be more profitable to move the
Chrysler and Jeep franchises to a Dodge dealership a few miles away. DX1315.
After it received the May 13, 2009 letter informing it that its Chrysler and Jeep
franchise agreements would be rejected, Livonia had to “sell [its] parts inventory and new
car inventory at a substantial loss.” Tr.1295:21-23. Additionally, Livonia was unable to
get out of contracts, such as an advertising contract, and “had to continue to pay them,
though [it] no longer needed their services.” Tr.1295:23-1296:1. Livonia participated in
20
Michigan law provides that an automobile manufacturer can only terminate or not renew a
franchise agreement if they have acted in good faith and have good cause. Mich. Comp. Laws
Ann. § 445.1567. Michigan law provided that the following alone did not constitute good cause
for termination: a change in ownership of the dealership, refusal of the dealership to purchase or
accept delivery of any automobile parts; or if the owner of the dealership has a franchise with
another auto manufacturer. Mich. Comp. Laws Ann. § 445.1568.
38
the Section 747 arbitration process and was ultimately awarded a letter of intent from
New Chrysler and has since signed new Chrysler and Jeep franchise agreements with
New Chrysler. Tr.1362:5-25.
Livonia claims that the rejection of its Chrysler and Jeep franchise agreements in
the Chrysler bankruptcy amounts to a taking for the same reasons relied on by the other
Alley’s plaintiffs. Livonia relies on Ms. Murphy’s valuation to support the amount of just
compensation seeks. Ms. Murphy, relying on the same income streams and same
calculation methods as described above, and after reviewing Livonia’s 2006, 2007, 2008,
and January to May 2009 financial statements, calculated that Livonia’s Chrysler and
Jeep franchise agreements resulted in a net income of $659,903 in 2006, $595,052 in
2007, $718,631 in 2008, and $130,224 from January to May 2009. PX244.1A.
Using these values and her assumptions, Ms. Murphy calculated the amount of just
compensation Livonia is seeking for the claimed taking of the franchise agreement.
Under Ms. Murphy’s income valuation approach, the amount of just compensation
Livonia is seeking for the claimed taking of the franchise agreement on the April 30,
2009 taking date is (1) $4,464,000 where Chrysler enters bankruptcy but continues to
produce cars and trucks or (2) $3,705,000 for where Chrysler enters bankruptcy but
continues to produce only trucks. Tr.1406:4-5.
G. Barry Dodge Inc.
Andrew Riexinger testified on behalf of Barry Dodge Inc. (“Barry”), which for the
years at issue was located at 4579 South Main Street, Brockport, New York. Barry was
incorporated under the laws of New York. Barry’s dealership included Chrysler, Dodge,
and Jeep franchises at the time of the alleged taking.
39
The Chrysler and Dodge franchise agreements that were rejected in the Chrysler
bankruptcy were awarded to Barry on August 9, 1993. The Jeep franchise agreement that
was rejected in the Chrysler bankruptcy was awarded to Barry on December 19, 1997.
Barry’s Chrysler, Dodge, and Jeep franchise agreements are identical in form and
substance to the other franchise agreements owned by the other representative plaintiffs.
PX2. Mr. Riexinger also testified that he understood that, regardless of the termination
provisions in these franchise agreements, state law precluded the termination of
dealerships for unjust reasons.21 Tr.1218:23-1219:1.
On May 13, 2009, Barry received a letter from Chrysler stating that its Chrysler,
Dodge, and Jeep franchise agreements would be rejected in bankruptcy. The letter is
identical to that received by the other representative plaintiffs in this case. PX4. Mr.
Grady, Director of Dealer Operations, explained that Barry’s Chrysler, Dodge, and Jeep
franchise agreements were rejected by Chrysler in bankruptcy because it only met 42% of
its MSR and because it was considered an excess point because Chrysler wanted to
reduce the number of dealers in the Brockport area. DX1315.
After Barry received the May 13, 2009 letter informing it that its franchise
agreements would be rejected it had to “salvage what money [it] could from [its] existing
inventory.” Tr.1220:14-16. Barry “sold [its] inventory of vehicles to other [dealers] and
21
New York state law provides that a franchisor cannot terminate or refuse to renew a franchise
“except for due cause, regardless of the terms of the franchise.” N.Y. Vehicle and Traffic Law §
463.2(d)(1). New York state law specifies that “[i]f the termination is based upon performance of
the dealer in sales and services there shall be no due cause if the dealer substantially complies
with the reasonable performance provisions of the franchise during such cure period and no due
cause if the failure to demonstrate such substantial compliance was due to factors which were
beyond the control of such dealer.” N.Y. Vehicle and Traffic Law § 463.2(e)(3).
40
parts to one of [its] former competitors . . . for 50 grand.” Tr.1220:16-18. Barry also “sold
some of [its] specialized tools to former competitors, which [it] could no longer use since
[it] no longer provided warranty services for new vehicles.” Tr.1220:18-21. Barry
continued to operate under the name “Barry’s Auto Center” as a used car dealership that
also sells campers and cargo trailers. Tr.1221:7, Tr.1221:16-17. Barry’s 2010 financial
statement for its used car dealership showed that it earned a net income of $239,417.
DX618. Barry chose not to file for arbitration under Section 747. Tr.1269:13-16.
Barry claims that the rejection of its Chrysler, Dodge, and Jeep franchise
agreements amounts to a taking for the same reasons as relied on by the other Alley’s
plaintiffs. Barry relies on Ms. Murphy’s valuations to support the amount of just
compensation it seeks. Ms. Murphy, relying on the same income streams and same
calculation methods as described above, and after reviewing Barry’s 2004, 2005, 2006,
2007, 2008, and January to May 2009 financial statements, calculated that Barry’s
Chrysler, Dodge, and Jeep franchise agreements resulted in a net income of $172,181 in
2004, $68,367 in 2005, $55,878 in 2006, $186,534 in 2007, $163,704 in 2008, and earned
$124,052 from January to May 2009. PX244.1C.
Using these values and her assumptions, Ms. Murphy calculated the amount of just
compensation Barry is seeking for the claimed taking of the franchise agreement. Under
Ms. Murphy’s income valuation approach, the amount of just compensation Barry is
seeking for the April 30, 2009 taking date is (1) $1,124,000 where Chrysler enters
bankruptcy but continues to produce cars and trucks, or (2) $859,000 for where Chrysler
enters bankruptcy but continues to produce trucks. Tr.1406:8-9.
41
H. Guetterman Motors
Jack Guetterman testified on behalf of Guetterman Motors (“Guetterman”), one of
the two representative Colonial plaintiffs, which for the years at issue was located at
2210 Sycamore Street, Cairo, Illinois. Guetterman was incorporated under the laws of
Illinois. Guetterman’s dealership included Chrysler, Dodge and Jeep franchises as well as
a Ford franchise at the time of the alleged taking.
The Chrysler, Dodge and Jeep franchise agreements that were rejected in the
Chrysler bankruptcy were awarded to Guetterman on February 11, 1993. Guetterman’s
Chrysler, Dodge, and Jeep franchise agreements are identical in form and substance to
the other franchise agreements owned by other representative plaintiffs. DX16 (Chrysler
Agreement), DX21 (Dodge Agreement), DX22 (Jeep Agreement). Mr. Guetterman also
testified that he understood that, regardless of the termination provisions in these
franchise agreements, state law precluded the termination of dealerships for unjust
reasons.22 Tr.2179:6-10.
22
Illinois state law provides that an automobile manufacturer cannot terminate or fail to renew a
franchise agreement without good cause and without giving sufficient notice as outline in Illinois
state law. 815 Ill. Comp. Stat. Ann. § 710/4(d)(6). The Illinois Board of Motor Vehicles
determines if there is sufficient good cause not to renew or cancel a franchise and Illinois law
provides that it shall consider, but is not limited to, the following factors: “(1) The amount of
retail sales transacted by the franchise during a 5-year period immediately before the date of the
notice of proposed actions as compared to the business available to the franchisee. (2) The
investment necessarily made and obligations incurred by the franchisee to perform its part of the
franchise. (3) The permanency of the franchisee’s investment. . . . (5) Whether the franchisee has
adequate moto vehicle sales and service facilities, equipment, vehicle parts, and service
personnel to reasonably provide for the need of the customers of the same line make of motor
vehicles handled by the franchisee. . . . (7) The extent and materiality of the franchisee’s failure
to comply with the terms of the franchise and the reasonableness and fairness of those terms. . .
.” 815 Ill. Comp. Stat. Ann. § 710/12(d).
42
On May 13, 2009, Guetterman received a letter from Chrysler stating that its
Chrysler, Dodge, and Jeep franchise agreements would be rejected in bankruptcy. The
letter is identical to that received by the other representative plaintiffs in this case. Mr.
Grady, Director of Dealer Operations, explained that the Guetterman Chrysler, Dodge
and Jeep franchise agreements were rejected by Chrysler in bankruptcy because the
dealership only met 53% of its MSR, was considered an excess point in the Cairo area,
was placed on a financial hold by Chrysler Financial, and had a competitive dual Ford
dealership attached to the Chrysler showroom. DX1315.
After Guetterman received the May 13, 2009 letter, Mr. Guetterman testified that
Chrysler only bought “back $18,754 of parts for 68 cents on the dollar” and that the
dealership was unable to sell its remaining Chrysler parts. Tr.2180:2-10. Mr. Guetterman
explained that the “cost of the remaining parts is over $100,000.” Tr.2180:6-7. Mr.
Guetterman also testified that he “attempted to negotiate with the New Chrysler through
[the] St. Louis dealer placement manager . . . but [it] was turned down.” Tr.2176:15-19.
Mr. Guetterman further testified that he “paid the initial fee and got a date to proceed”
under the Section 747 arbitration process, but that before the arbitration date, New
Chrysler offered Guetterman a letter of intent for a new franchise agreement. Tr.2176:21-
25. Mr. Guetterman explained that he did not accept the letter of intent because it
imposed new requirements which have required between $1 million and $2 million in
new investments. Tr.2177:12-15.
Guetterman’s 2010 financial statement for its Ford franchise, which it expanded
into space previously dedicated for Chrysler vehicles, showed that Guetterman received a
net income of $120,920 from that dealership. DX613. Guetterman’s 2011 financial
43
statement for its Ford franchise showed that Guetterman received a net income of
$82,813 from that dealership. DX648. Guetterman continues to operate as a Ford dealer
to the present day.
Guetterman claims that the rejection of its three Chrysler franchise agreements in
the Chrysler bankruptcy amounts to a taking based on the same theory of coercion relied
on by the Alley’s plaintiffs and discussed infra. Guetterman is seeking just compensation
in various amounts based on two different “but for” Chrysler Chapter 11 liquidation
scenarios. Unlike, the Alley’s plaintiffs, discussed above, Guetterman relies on the
testimony of Ted Stockton23 as its valuation expert. As will be explained in greater detail
later in the opinion, Mr. Stockton’s valuation approach is very different from the one
employed by Ms. Murphy. For example, while Ms. Murphy assumes that at least some
Chrysler cars or trucks will continue to be produced in her “but for world,” Mr. Stockton
assumes that Chrysler would have been liquidated in a Chapter 11 bankruptcy and that
Chrysler vehicles would no longer have been produced. He assumes that there would be
no new vehicles manufactured once Chrysler entered into bankruptcy. He assumed,
however, that Chrysler parts would continue to be produced by entities that would have
licensed Chrysler’s name and would have offered those parts to the dealers for a price.
Ms. Murphy and Mr. Stockton also used different methods to calculate just
compensation. Ms. Murphy calculated the amount of just compensation based on the
income valuation approach assuming each of the Alley’s plaintiffs would have continued
23
As will be described in further detail infra, Mr. Stockton is the Vice President of Economics
Services at the Fontana Group Inc. During his employment at Fontana he has worked 30,000
hours, focused on issues related to the automotive retail industry, and has conducted studies of
hundreds of franchise operations that sell a wide array of branded vehicles.
44
as franchisees with a new Chrysler car manufacturer. Mr. Stockton calculated just
compensation based largely on a “lost profits” method.
Specifically, Mr. Stockton posited two “but for worlds” where Chrysler liquidates
in bankruptcy at some point in April 2009. The two “but for worlds” are as follows (1) a
Chapter 11 bankruptcy where there is an orderly wind-down of Chrysler’s operations and
Guetterman continues to operate under its existing franchise agreements either for (i)
three years or (ii) seventeen months, depending on how long the wind-down takes to
complete, and (2) immediate liquidation of Chrysler in which Guetterman’s Chrysler
dealership continues to operate indefinitely as a “branded” Chrysler dealer, under a
licensing agreement with third party. Mr. Stockton testified that these “but for worlds”
were provided to him by counsel. Tr.2544:17-21.
Under the orderly wind-down scenarios that either last for three years or seventeen
months, Mr. Stockton made the following assumptions. He assumed that the franchise
agreements were not terminated in bankruptcy and are kept in effect for the period of the
wind-down. He further assumed that the United States would have guaranteed the
warranty obligations for the incumbent Chrysler customers. As part of this scenario, Mr.
Stockton assumed that Chrysler would attempt to sell off-lease vehicle returns to the
Chrysler franchisees which would provide the plaintiffs with additional used cars to sell
during the wind-down period.
Under the second scenario, immediate liquidation, Mr. Stockton testified that he
assumed that the United States would have again guaranteed the warranty obligations for
the incumbent Chrysler customers. He further assumed that a consortium of Chrysler
dealerships would have acquired the rights to certain propriety parts and intellectual
45
property, i.e. the Chrysler brand, in the Chrysler bankruptcy and that the plaintiffs would
have been able to operate as Chrysler branded dealerships for the purposes of serving and
selling used Chrysler vehicles, although not with any franchise agreement.24 Under this
second scenario, there is no “Chrysler” and thus no continuing franchise agreement
between Chrysler and the plaintiffs. Further, under this second scenario, the plaintiffs
would continue as “branded” dealers for between seven to ten years.
To set a value for what was “taken” by the government in Mr. Stockton’s “but for
world,” Mr. Stockton calculated how much net profit Guetterman lost under these two
liquidation scenarios by using Guetterman’s 2006, 2007 and 2008 financial statements.
DX138, DX196, DX311. Under Mr. Stockton’s approach, the amount of just
compensation Guetterman is seeking varies depending on the scenario, as follows: (1)
$122,761 for the immediate liquidation scenario; (2) $112,942 for a Chapter 11 three-
year orderly wind-down scenario; and (3) $61,047 for a Chapter 11 17-month orderly
wind-down scenario. Tr.2456:11-19.
I. Mike Finnin Motors
Mike Finnin testified on behalf of Mike Finnin Motors (“Finnin”), the second
Colonial plaintiff, which for the years at issue was located at 4355 Dodge Street,
Dubuque, Iowa. Finnin was incorporated under the laws of Iowa. Finnin’s dealership
included Chrysler and Jeep franchises as well as a Kia franchise acquired in 2007.
24
Mr. Stockton also testified on cross examination that if a consortium of dealers did not
purchase the proprietary parts and intellectual property from Chrysler during the Chrysler
bankruptcy, some unidentified third party would have and then would have licensed these parts
and the brand to the Chrysler plaintiffs, who would thus have been able to continue as Chrysler-
branded dealers. Tr.2446:5-10.
46
The Chrysler and Jeep franchise agreements that were rejected in the Chrysler
bankruptcy were awarded to Finnin on November 21, 1994. Finnin’s Chrysler and Jeep
franchise agreements are identical in form and substance to the other franchise
agreements owned by the other representative plaintiffs. DX29 (Jeep Agreement), DX32
(Chrysler Agreement). Mr. Finnin also testified that he understood that, regardless of the
termination provisions in these franchise agreements, state law precluded the termination
of dealerships for unjust reasons.25
On May 13, 2009, Finnin received a letter from Chrysler stating that its Chrysler
and Jeep franchise agreements would be rejected in bankruptcy. The letter is identical to
that received by the other representative plaintiffs in this case. DX446. Mr. Grady,
Director of Dealer Operations, explained that Finnin’s Chrysler and Jeep franchise
agreements were rejected by Chrysler in bankruptcy because the dealership only met 66%
of its MSR and because Chrysler believed that a nearby Dodge dealer was a better dealer
and wanted that dealer to have the Finnin Chrysler and Jeep franchises. DX1315.
After Finnin received the May 13, 2009 letter, Finnin lost use of half of a “10,000
new square foot showroom at [its] main facility” that was dedicated to its Chrysler and
25
Iowa state law provides that a “franchiser shall not terminate or refuse to continue any
franchise unless the franchiser has first established, in a hearing held under the provisions of this
chapter, that both of the following apply: a. The franchiser has good cause for termination or
noncontinuance. b. Upon termination or noncontinuance, another franchise in the same line-
make will become effective in the same community, without diminution of the motor vehicle
service formerly provided, or that the community cannot be reasonably expected to support such
a dealership.” Iowa Code Ann. § 322A.2(1) (West 2009). Iowa state law further provides that
“[u]pon hearing, the franchiser shall have the burden of proof to establish that under the
provisions of this chapter the franchiser should be granted permission to terminate or not
continue the franchise, or to enter into a franchise establishing an additional motor vehicle
dealership, or to alter a franchisee’s community.” Iowa Code Ann. § 322A.9 (West 2009).
47
Jeep franchises. Tr.2244:19-21. Finnin also lost the income it could have derived from
“selling the Jeep-Chrysler products, not selling those trade [ins], not performing warranty
work on the Chrysler-Jeep vehicles, not selling parts to our individual clients and our
wholesale accounts, and . . . the blue-sky value for the franchise.” Tr.2249:1-8. Finnin
“sought to get [its] Chrysler franchise back through 747 arbitration [and] spent over
$180,000 trying to get it back, but it was denied by the arbitrator.” TR2249:9-12. Finnin’s
2010 financial statement from the Kia franchise that had been co-located with its
Chrysler franchises showed that Finnin received an annual net profit of $291,742 from
that dealership. DX620. Finnin’s 2011 financial statement from its Kia franchise showed
that it received an annual net profit of $473,108 from that dealership. DX650.
Finnin claims that the rejection of its Chrysler and Jeep franchise agreements in
the Chrysler bankruptcy amounts to a taking of its two franchises based on a theory of
coercion that is the same as that relied on by the Alley’s plaintiffs. Finnin is seeking just
compensation in various amounts depending on two different “but for” liquidation
scenarios posited by its valuation expert Mr. Stockton. As explained above regarding
Guetterman, Mr. Stockton posits two “but for worlds” where Chrysler liquidates in
bankruptcy to establish the value of Finnin’s franchise agreements. Mr. Stockton
calculated the profit Finnin allegedly lost based on these two liquidation scenarios by
using Finnin’s 2006, 2007 and 2008 financial statements. DX137, DX195, and DX310.
Under Mr. Stockton’s valuation approach, the amount of just compensation Finnin is
seeking is as follows: (1) $1,591,912 for the immediate liquidation scenario; (2)
$1,391,138 for the three-year orderly wind-down scenario; (3) $775,040 for the 17-month
orderly wind-down scenario. Tr.2453:15-19.
48
II. SUMMARY OF PLAINTIFFS’ FACT AND EXPERT EVIDENCE
A. Plaintiffs’ Fact Witnesses
i. Steven Rattner
Steven Rattner testified for both the plaintiffs and the United States at trial. He
explained that he was appointed by Timothy Geithner, President Obama’s Secretary of
Treasury, at the end of February 2009 to head a newly formed Auto Team Task Force
(“Auto Team”) at the United States Department of Treasury.26 According to Mr. Rattner,
his role was to assemble and oversee “a team of people who were going to address the
growing crisis in the automobile industry [in 2008-09] and . . . come up with some
policies to ameliorate the situation.” Tr.1607:7-10. He remained in this position from
February 2009 until July 2009. Tr.1607:12-15.
Mr. Rattner testified that he understood that his job on the Auto Team “was a
restructuring exercise in that the Government had put some bridge loans into [Chrysler]
at the end of 2008 . . . [and] it would be the [Obama] Administration that would have to
figure out what, if anything, the Government should do, could do by the way of
permanent financing to make [Chrysler] viable.” Tr.1623:8-18. Mr. Rattner explained
that in carrying out the goals of the Auto Team there was a principle called “shared
sacrifice” which meant they “felt that all the stakeholders in [Chrysler] . . . were going to
26
Mr. Rattner came to the Auto Team with a journalism and finance background. Mr. Rattner
was a reporter for the New York Times for over eight years and had been an investment banker
for both Lehman Brothers and Lazard Freres before cofounding a private equity firm, the
Quadrangle Group. Tr.1606:15-1607:4. After leaving the Auto Team, Mr. Rattner returned to his
earlier work in finance and today he is chairman and chief executive officer of Willett Advisors,
which manages the personal and philanthropic assets of former New York City Mayor Michael
Bloomberg. Tr.1607:16-23.
49
have to make sacrifices and share in them.” Tr.1626:11-16. These sacrifices, Mr. Rattner
testified, would come from “the lenders, the shareholders, the employees, the workers,
the suppliers, and the dealers.” Tr.1627:7-9. Mr. Rattner explained that, for the lenders,
this meant that they would not be able to recover the entirety of the outstanding debt that
Chrysler owed to them. Tr.1628:3-12. Mr. Rattner testified that, for the employees,
shared sacrifice was that their contracts would be renegotiated and that Chrysler’s
obligations to them would be restructured or reduced. Tr.1628:15-17. At that time, the
shared sacrifice of the auto dealers was not discussed.
Mr. Rattner explained that prior to Obama taking office, Chrysler had received a
bridge loan from the Trouble Asset Relief Fund (“TARP”) from the Bush Administration
in the amount of $4 billion on December 31, 2008, and that under the terms of the bridge
loan Chrysler was required to submit a “Viability Plan” to the U.S. Department of
Treasury by February 17, 2009. DX996. Mr. Rattner explained that Chrysler was required
to produce “a plan showing how, in their judgment, with whatever tools and adjustments
or financial support or whatever it was that they thought they needed, a plan that would
allow them to become profitable again and remain viable or profitable . . . for the
indefinite future.” Tr.1630:5-12.
Chrysler’s Viability Plan was prepared by Chrysler, with the help of Robert
Manzo, a restructuring specialist from the Capstone consulting firm who was retained by
Chrysler starting in 2008. Tr.3928:18-24; DX1056. In its plan, Chrysler offered the
following three options: (1) a stand-alone plan, in which Chrysler would continue with
the same management but with an additional $5 billion from Treasury and $6 billion from
the Department of Energy for a total of $11 billion in additional government funding, (2)
50
an alliance with Fiat plan, under which the two companies would work together to
rebuild Chrysler with lighter and more fuel efficient vehicles and also would receive $11
billion in additional government funding, and (3) an orderly wind-down of Chrysler in
bankruptcy plan, which would require $24 billion in debtor-in-possession or “DIP”
financing for a two-year wind-down of operations to allow for the continued production
of cars and trucks. Tr.1720:9-25; DX1056. Upon receiving Chrysler’s Viability Plan,
members of the Auto Team and their experts, including Mr. Mosquet,27 were asked to
review Chrysler’s plan. Mr. Ronald Bloom,28 Mr. Rattner’s deputy who later testified for
the government, was primarily responsible for reviewing Chrysler’s Viability Plan along
with other members of the Auto Team including Brian Osias and Clay Calhoon.29 After
reviewing Chrysler’s Viability Plan, the Auto Team determined that Chrysler could not
survive under the terms proposed. On March 30, 2009 President Obama announced that
Chrysler’s Viability Plan was rejected, and that Chrysler would be given until the end of
April to revise its Viability Plan. DX1133.
Mr. Rattner testified that the Auto Team gave serious consideration to allowing
Chrysler to liquidate in bankruptcy without government involvement but came to
27
As discussed infra, Mr. Mosquet is a senior partner and managing director in the Detroit office
of Boston Consulting Group. Since 2005, Mr. Mosquet has worked mainly in the automotive
industry. Tr.1858:7-1859:14.
28
As discussed infra, Mr. Bloom was the deputy to Mr. Rattner and later became the head of the
Auto Team. Tr.2685:7-15. Mr. Bloom, prior to joining the Auto Team, had worked for the
United Steelworkers Union from 1996 to 2008, where he negotiated their collective bargaining
contracts and managed their relationship with Wall Street firms interested in investing in steel
companies that are unionized. Tr.2682:25-2683:7.
29
Brian Oasis testified, as discussed in greater detail infra, that he was an analyst who worked
alongside with Mr. Calhoon and by March 2009 was focused exclusively on Chrysler.
Tr.3138:21-3139:2.
51
understand that Chrysler needed to survive in some form so that its suppliers would also
survive. Specifically, Mr. Rattner testified that if Chrysler was no longer making cars and
trucks and instead was liquidated “many of those suppliers would have also been forced
into some form of liquidation, and the problem was not just those jobs that were lost, but
suppliers in this industry typically do not supply just one manufacturer. They supply
multiple, maybe all of them. And so you have Ford, you would have GM, you would
have Toyota, and all the people who operate in the south, potentially not being able to get
parts they needed to make their cars, and it was not inconceivable -- and I don’t think we
were being doomsday folks to say this -- that we thought the whole industry could shut
down, at least for a bit, in a Chrysler liquidation.” Tr.1725:9-22. Mr. Rattner also
explained that the Obama Administration was concerned about unemployment,
particularly in the auto industry, and therefore concluded that keeping Chrysler alive was
important for this reason as well. Tr.1725:8-22.
After Chrysler’s initial Viability Plan was rejected by the Auto Team, but before
another plan was submitted, Mr. Rattner explained that the Auto Team largely took
control of Chrysler’s viability planning and began meeting with Chrysler’s stakeholders,
including its creditors, represented by JP Morgan (the administrative agent for the nearly
$7 billion in debt owned by Chrysler’s first lien lenders), Fiat (Chrysler’s prospective
purchaser), the United Auto Workers (“UAW”), and suppliers. The evidence established
that many of these meetings took place without Chrysler management present.30 As Mr.
30
The evidence established that Chrysler, without the Auto Team’s support, continued to work
on an alternative Viability Plan that required government assistance, but which Chrysler hoped
would meet the government’s requirements without Chrysler having to enter bankruptcy. As
52
Rattner testified, “between March 30th and the end of April, [the Auto Team], Chrysler,
ultimately the banks, the UAW, various interested parties, attempted and ultimately
succeeded in negotiating a set of go-forward arrangements that each party could live with
and that [the Auto Team] determined would allow Chrysler to achieve viability.”
Tr.1636:10-15.
Mr. Rattner testified that in his role as leader of the Auto Team he negotiated with
Chrysler’s first lien lenders, represented by JP Morgan. Tr.1650:4-1651:16. Mr. Rattner
testified in detail how the Auto Team set the terms and pace of the negotiations with JP
Morgan, where he understood that his “first offer was not going to be [his] last offer, so
[he] deliberately started low[.]” Tr.1652:15-18. He explained that he “spent a good bit of
time -- many hours in a short period of time negotiating with [JP Morgan] and [JP
Morgan] negotiating with [the] other [lenders]” to try and modify the terms of the $7
billion in loans so that Chrysler would not have to file for bankruptcy, but that those
negotiations failed. Tr.1653:21-1654:11. Eventually, the first lien lenders received $2
billion in an agreement approved by the Bankruptcy Court. Tr.1653:8-11.31
Mr. Rattner testified that his deputy, Mr. Bloom, was charged with negotiating an
arrangement with UAW. Tr.1637:4-15. Mr. Rattner testified that the Auto Team “[sat]
down with UAW and attempted to negotiate some restructuring of the [employee’s]
described in more detail in the discussion of Mr. Nardelli and Mr. Bloom’s testimony, this effort
by Chrysler failed.
31
As discussed infra, JP Morgan’s advisor John Haeckel testified that after reviewing Chrysler’s
Viability Plan, he came to believe that the first lien lenders would never get more than $2 billion
from Chrysler if Chrysler entered bankruptcy without government assistance. He thus advised JP
Morgan to accept the government’s proposal to relinquish the debt held by first lien lenders for
the government’s $2 billion. Tr.2865:25-2866:3.
53
contract and of Chrysler’s obligation to [its employees].” Tr.1628:15-17. These
negotiations eventually led to UAW pension funds receiving shares in New Chrysler.
Specifically, under the prepackaged bankruptcy plan, negotiated by the government’s
Auto Team, in exchange for forgiving $8 billion in fixed obligations owed by Chrysler to
the UAW’s Voluntary Employees’ Beneficiary Association Plan or “VEBA,” UAW
agreed to accept a $4.6 billion unsecured note and stock in New Chrysler. Tr.2720:7-13.
Mr. Rattner explained that the Auto Team also took charge of the negotiations
with Fiat regarding a potential merger with Chrysler. Mr. Rattner described it as “a kind
of three-way negotiation in which Chrysler, Fiat, and the U.S. Government all
participated.” Tr.1636:16-24. The evidence established that under the final negotiated
prepackaged bankruptcy plan, Fiat would take over management of New Chrysler and
receive stock in new Chrysler. Fiat would not, however, have to pay Chrysler for its
interest in New Chrysler. Mr. Rattner stated that consistent with its financing role, the
government had to approve the deal with Fiat. Tr.1636:25-1637:3. Mr. Rattner
acknowledged that the government’s power in this circumstance is known as the “Golden
Rule,” meaning “he who has the gold makes the rules.” Tr.1683:9-12.
Mr. Rattner explained that reducing the number of Chrysler franchises was in
Chrysler’s proposed Viability Plan before the government got involved and thus was
always a part of Chrysler’s viability planning. Tr.1665:13-20. Known in the auto industry
as “dealership rationalization,” the government understood from Chrysler’s submissions
that Chrysler planned to reduce the total number of franchisees and wanted to combine all
brands under one roof to make Chrysler viable. Id. For this reason, “dealer
rationalization,” which was initiated by Chrysler well before the financial crisis, was
54
always going to be part of a final Chrysler Viability Plan. Tr.1665:13-20, Tr.1641:12-21,
Tr.16380:14-17. Mr. Rattner, explained however, that the Auto Team “never got into the
question of which dealers, how, or anything of that sort” but rather was looking at it from
a macro level of how many. Tr.1664:20-1665:12. He also agreed that one of the positives
of moving forward with a Chrysler bankruptcy was that it would allow Chrysler to reduce
its dealership network without having to comply with state franchise laws, which, as
identified in the footnotes for each representative plaintiff, provide significant protections
to car franchisees and limit the circumstances under which dealerships can be terminated.
Put another way, bankruptcy would allow Chrysler to reject franchise agreements without
having to first comply with state laws. Tr.1642:13-25.
Mr. Rattner further explained that the government had hoped that Chrysler would
not have to file for bankruptcy and testified that up to the last minute the government was
willing to provide funding under the terms the government negotiated with Chrysler’s
lenders and others. Tr.1653:24-25, Tr.1654:9-11. However, he also testified that everyone
understood from the beginning of the Auto Team’s review of Chrysler’s Viability Plan
that bankruptcy was an option. Tr.1640:6-22, Tr.1642:4-11. When JP Morgan was not
able to get an agreement from all of Chrysler’s lenders, the government concluded that if
Chrysler, in some form, was going to continue to manufacture cars and trucks, Chrysler
would have to file for bankruptcy under the terms the Auto Team negotiated. Tr.1661:12-
18.
Per the court’s pre-trial order, the government also elicited testimony and evidence
from Mr. Rattner during the plaintiffs’ case-in-chief. In his testimony for the government,
Mr. Rattner explained that Chrysler understood that “it could not be viable unless it had
55
significant sacrifice” from all interested parties including dealers, shareholders, suppliers,
the UAW, and credit groups. Tr.1719:12-16. He explained that he understood at the time
that JP Morgan and the other first lien lenders would not provide Chrysler with any
financing in order to allow Chrysler to continue to operate as an ongoing concern while
in bankruptcy. Without this debtor-in-possession or “DIP” financing, Chrysler could not
continue to manufacture new cars and trucks. Thus, if Chrysler was to continue to make
cars and trucks during bankruptcy, Mr. Rattner explained that Chrysler needed the federal
government’s assistance. Tr.1722:13-1723:5. Mr. Rattner also made clear in his
testimony that the Auto Team never targeted specific dealers for rejection. Tr.1737:1-6.
ii. Xavier Mosquet
The plaintiffs also presented the testimony of Xavier Mosquet to support their
coercion claim. Mr. Mosquet is a senior partner and managing directing for Boston
Consulting Group (“BCG”) in its Detroit office, and was an advisor to the Auto Team.
Tr.1858:7-20. Mr. Mosquet explained that BCG is a “managing consulting firm present
in several countries around the world” that gives advice to corporations about operation
issues. Tr.1858:21-1859:14. He explained that he is an expert in the automotive industry
and further explained that BCG was retained by the Auto Team in 2009, with Mr.
Mosquet as the team leader, to analyze the Viability Plans submitted by GM and Chrysler
in February 2009. Tr.1859:24-1860:12.
Regarding the Chrysler Viability Plan, Mr. Mosquet explained that Chrysler’s plan
was not viable. The plaintiffs, however, focused Mr. Mosquet’s testimony on his
understanding of Chrysler’s “Project Genesis” plan, which, as described above in
connection with the testimony of the individual plaintiffs, was a voluntary Chrysler
56
program designed to reduce or “rationalize” Chrysler’s dealership network without forced
dealership closures. Tr.1873:3-6, Tr.1874:3-8, Tr.1885:19-23. Mr. Mosquet testified that
neither he nor anyone else at BCG criticized Project Genesis. Tr.1909:17-1910:8. He also
testified that, in comparison to GM, which had not begun to rationalize its dealership
network, BCG had concluded that Chrysler had already done significant dealership
closures and was thus ahead of GM. PX704; Tr.1892:13-20. Mr. Mosquet testified that
BCG concluded that Chrysler had “already gone through a significant number of low
performing consolidations.” Tr.1936:15-20; PX704. Mr. Mosquet further testified that
BCG concluded that any further reduction in the dealership network could result in
eliminating additional good dealers with “limited upside potential.” Tr.1894:11-17;
PX704.
Mr. Mosquet explained that in evaluating Chrysler’s Viability Plan, BCG had not
done any analysis concerning whether further reducing the number of Chrysler dealers
would positively impact Chrysler’s sales or increase its profitability. He also testified that
no one at BCG had analyzed the health of the overall dealership network. Tr.1900:11-
1901:5, Tr.1901:15-18. He testified that he understood that Fiat’s plan for the Chrysler
dealerships was the same as Project Genesis. Tr.1882:1-4. Mr. Mosquet concluded by
stating that only Chrysler was in the position to determine the appropriate size of its
dealership network. Tr.1962:12-23, Tr.1963:4-6.
iii. Alfredo Altavilla
In accordance with the court’s pre-trial order, the court allowed the parties to
introduce the video deposition of Alfredo Altavilla, Fiat’s Head of Business Development
and CEO of Fiat Powertrain Technology, in lieu of his attendance at trial. In his
57
deposition, Mr. Altavilla testified regarding the negotiations between the government and
Fiat and regarding Fiat’s interest in the size and composition of Chrysler’s dealership
network.
Mr. Altavilla explained that there had been an initial term sheet negotiated
between Fiat and Chrysler regarding an “alliance” before the Auto Team got involved.
He testified that the second term sheet between Fiat and Chrysler was significantly
renegotiated by the Auto Team. Depo. 60:8-25. Specifically, Mr. Altavilla explained that
during his first meeting with Mr. Bloom from the Auto Team, Mr. Altavilla learned that
the government would be Fiat’s “main counterpart for executing the alliance[.]” Depo.
67:20-68:5. He went on to explain that the second term sheet had no provisions that were
promoted or suggested by Chrysler and that in negotiating the second term sheet it was
understood that the Auto Team expected additional concessions from both sides. Depo.
177:15-178:3. Mr. Altavilla explained, however, that neither in the first or second term
sheet executed between Chrysler and Fiat was there any mention of reducing the
dealership network by a specific number of dealers. Depo. 154:4-22, Depo. 152:23-153:4.
Mr. Altavilla testified that part of the reason that Fiat was interested in Chrysler was
because Chrysler had an extensive dealership network. Depo. 140:20-25. He testified that
Fiat eventually came to understand from Chrysler why a reduction in the size of the
dealership network made sense and deferred to Chrysler’s judgment when Chrysler
proposed accelerating Project Genesis with the more ambitious “Project Tiger.”
58
Ultimately, Project Tiger became the basis for Chrysler deciding which franchise
agreements to reject in the bankruptcy.32 Depo. 146:4-147:11.
B. The Plaintiffs’ Experts
i. Dr. Donald Marron
The plaintiffs presented the testimony of Dr. Donald Marron, Ph.D., an economist
and Institute Fellow and Director of Economic Policy Initiatives at the Urban Institute in
Washington D.C. and president of Marron Economics, LLC, an economic consulting
firm. Tr.2047:1-6. Dr. Marron was called to explain why, in his view, the terms the Auto
Team negotiated in its prepackaged bankruptcy plan did more than protect the
government’s financial interests. Dr. Marron opined that the government’s negotiated
terms were designed to achieve valid public policy goals including saving jobs and
pensions.
Dr. Marron holds an A.B. in mathematics from Harvard University and a Ph.D. in
economics from the Massachusetts Institute of Technology and is an expert in the fields
of public finance and industrial organization. Tr.2047:7-11. From 2002 through early
2009, Dr. Marron served in senior economic policy positions in the United States
Congress and the White House. Tr.2047:19-21. His positions included being the
Executive Director of the Joint Economic Committee, Acting Director of the
Congressional Budget Office (“CBO”), and Senate-confirmed member of the Council of
Economic Advisors. Tr.2047:21-25. In his role at CBO he “directed a staff of about 230
employees that were charged with working on a broad range of economic and budget
32
As will be discussed in greater detail infra, Project Tiger was a plan proposed by Chrysler in
April 2009 just before it entered bankruptcy. DX1167.
59
issues.” Tr.2047:25-2048:2. From August 2007 until January 2009 he served at the White
House Council of Economic Advisors as a consultant, then senior economic advisor, and
then as member where he was “actively engaged in responding to the financial crisis,
including the creation and use of the Troubled Asset Relief Program.” Tr.2048:5-11. He
has published numerous articles and papers on the economics of public policy and has
provided testimony to committees of the U.S. Congress on more than twenty occasions.
Tr.2048:19-24.
Dr. Marron offered several opinions relevant to the government’s motivation in
providing Chrysler with financial support during the economic crisis and opined that the
government, in providing funding and in requiring certain actions in exchange for
government financing, was acting in its governmental capacity and not simply as a
private lender. Dr. Marron’s opinions are summarized as follows.
First, Dr. Marron opined that “[t]he United States experienced a remarkably severe
financial crisis and economic downturn starting in 2007. The main causes include[d]
excesses in mortgage lending and fragility of a highly leveraged financial system reliant
on ample liquidity.” He further testified that “[g]overnment policy errors contributed to
the financial crisis and the severity of the economic downturn.” Tr.2055:23-2056:4.
Second, Dr. Marron opined that “[t]he government had unique power to combat
the financial crises and was correct to use it. Many companies directly benefited from
that support, but the purpose was not to help individual companies. Instead, the goal was
to support essential parts of the economy, and, in so doing, stem job losses and avoid an
even more severe economic downturn. The Chrysler . . . bailout[], for example, [was]
intended to support the domestic auto industry as a whole, including suppliers and other
60
auto manufacturers[.]” Tr.2058:25-2059:10. Dr. Marron explained that having learned its
lesson from inaction during the Great Depression, the government acted in order “to
support the economy as a whole and [to] avoid a downturn as severe or worse than in the
Great Depression.” Tr.2061:17-19.
Third, Dr. Marron testified that it was his opinion that “[t]he government did not
act in a commercial manner in rescuing Chrysler. The government did not have a
commercial motive. It sought to protect the broader economy, not earn a commercial
return. The government did not seek commercial returns. Instead, it gave Chrysler
substantial subsidies.” Tr.2062:24-2063:4. Dr. Marron explained that during the financial
crisis the “government did not have a commercial motivation in enacting TARP” but
rather aimed to support the American economy and prevent job loss. Tr.2063:10-14. Dr.
Marron noted that the government’s concern of “shared sacrifice” is not something a
private lender would have considered but is a public policy consideration made by the
government when acting in its governmental capacity. Tr.2065:5-9. Additionally, Dr.
Marron opined that the “government knowingly subsidized Chrysler, offering financial
terms much more generous than private investors would accept” and that this was further
evidence that the government was not acting as a private lender. Tr.2065:9-11. Dr.
Marron acknowledged that “[s]ome of the government’s actions did parallel those a
commercial lender or financier might take” but that ultimately “[t]he Chrysler bailout as a
whole was decidedly non-commercial.” Tr.2065:10-13, Tr.2065:24-25.
Fourth, Dr. Marron testified that it was his opinion that the government was not
acting as a private lender because the loans to Chrysler were highly subsidized.
Tr.2066:1-6. Specifically, Dr. Marron explained that “the government did not invest in
61
the companies on commercial terms” but rather “expected to lose money.” Tr.2066:6-8.
In support of his opinion, Dr. Marron relied on contemporaneous reports by the Office of
Financial Stability (“OFS”), the CBO, and the Office of Management and Budget
(“OMB”). He noted that OFS in 2009 published three estimates of the Automotive
Industry Financing Program,33 with subsidy rates ranging from 43% to 60%, meaning
that the government understood that it would not likely receive repayment. PX257. For
example, Dr. Marron explained that in its first estimate OFS calculated that the
government had made $75.9 billion in loans and equity investments to auto companies
but that the securities it received were worth only $30.5 billion. Tr.2068:8-15. Dr. Marron
noted that this meant the $45.4 billion difference was a subsidy to the auto companies,
which was about 60% of the overall investment. Id. Dr. Marron explained that for the
other two estimates calculated by OFS, the subsidization rate was consistent with the first
estimate. Dr. Marron went on to explain that the CBO and OMB reported similar
numbers and subsidization rates. Based on these rates, Dr. Marron concluded that the
government acted in its governmental capacity and not as a private lender when it bailed
out Chrysler. Tr.2076:9-15.
Dr. Marron acknowledged on cross examination that all the reports that he relied
on included figures that encompassed all or nearly all of the government’s loans to the
auto industry and not just to Chrysler. Tr.2126:8-2129:20. Additionally, on cross
examination, Dr. Marron acknowledged that New Chrysler repaid all its federal loans to
33
This program provided capital to both Chrysler and GM as well as their captive finance
companies, Chrysler Financial and General Motors Acceptance Corporation, and auto part
suppliers. Tr.2117:18-25.
62
the United States. He explained, however, “when the loans were first made, the analysts
would have assumed there was some probability of default and that would have been
built into their estimated subsidy rate . . . [a]nd by the end, where it turned out after the
fact that this loan didn’t default, that adjustment goes away.” Tr.2138:12-24.
ii. David Berliner
David Berliner, who received a B.A. degree in economics from Lafayette College
and an M.B.A. from the University of Michigan, also testified for the plaintiffs. He is a
licensed Certified Public Accountant as well as a Certified Insolvency and Restructuring
Advisor and a Certified Turnaround Professional. Tr.100:3-7. Mr. Berliner is currently a
partner at BDO, an international accounting, tax and consulting firm, where he oversees
business restructuring and turnaround services. Tr.99:21-100:8. He has been involved in
several bankruptcy cases involving the liquidation of “large corporations including Sports
Authority Holdings, Malibu Lighting, Furniture Brands International, American Home
Mortgage, and Pillowtex Corporation.” Tr.101:7-11. He also “served as the financial
advisor to the official committee of unsecured creditors in the bankruptcy of Daewoo
Motor America, Inc.” Tr.101:18-20.
Mr. Berliner offered his opinion that “the Chrysler dealers whose franchises were
terminated and made worthless in June 2009 would have fared better and their franchises
would have retained significant value if the U.S. Government had not acted as it did in
2009.” Tr.102:3-7. Specifically, Mr. Berliner testified that “absent the financial assistance
from the Government, Chrysler would have filed for an ordinary liquidation in
bankruptcy and would not have terminated existing dealer franchises as it did in 2009”
and “under this but for scenario . . . the rejected dealers would have generated revenues
63
and earnings for a period of at least 20 months or longer during a Chrysler 2009
liquidation, and therefore, the rejected dealership franchises would have had substantial
value.” Tr.102:8-19. Mr. Berliner posits that had the government not gotten involved in
providing financial assistance to Chrysler, Chrysler would have begun a Chapter 11
liquidation bankruptcy with debtor-in-possession or DIP financing so that Chrysler could
continue manufacturing at least some of Chrysler's vehicle lines with valid warranties. He
further opined that Chrysler would not have rejected any franchise agreements if Chrysler
had entered Chapter 11 without government assistance. Tr.131:5-18.
Mr. Berliner explained that, in his view, had the government not provided
assistance to Chrysler, Chrysler would have sold its assets in a Section 363 bankruptcy
sale. Although described in more detail by former Bankruptcy Judge Judith Fitzgerald,
plaintiffs’ bankruptcy expert, Mr. Berliner explained that “Section 363 sales are any sale
of a debtor’s assets conducted under the authority of the Bankruptcy Court . . . and may
include individual assets belonging to the debtor, a combination of assets, or
substantially, all of the debtor’s assets.” Tr.131:20-25. Mr. Berliner explained that in his
opinion Chrysler “would have begun a Section 363 asset sale process to attempt to sell its
valuable vehicle lines, such as Jeep, Dodge Ram Truck, and Town & Country/Dodge
Minivan[.]” Tr.132:7-11. Mr. Berliner testified that “more than one potential bidder
would have submitted a qualifying bid . . . and Chrysler would have held an auction in
order to select the highest and best bid.” Tr.135:20-24. Mr. Berliner explained that he
based his conclusion on the assumption that “[b]idding would have been competitive, in
part due to the interest in obtaining the valuable Chrysler brands and also in part, out of
concern that a competitor might win one of these or more of these iconic brands at too
64
low a price,” and because through bankruptcy the assets would be taken free and clear of
all liens and claims. Tr.135:24-136:6.
Mr. Berliner further explained why he believed that Chrysler would have likely
received DIP financing. Tr.137:5-6. Mr. Berliner stated that “[i]f the debtor does not have
sufficient cash to conduct the asset sales and to cover the costs of the liquidation process,
the debtor will seek Bankruptcy Court permission to obtain debtor-in-possession or DIP
financing to provide the necessary funds.” Tr.137:20-24. Mr. Berliner reasoned that a
debtor would seek DIP financing because “[i]f the debtor has only limited funds to
conduct a sale process, then the liquidation sales must be done in an accelerated time
frame which generally results in lower prices than an orderly sale process.” Tr.137:8-12.
Mr. Berliner opined that Chrysler would have sought and would have obtained some DIP
financing from “its secured lenders, Cerberus [the then-owner of Chrysler], a stalking
horse bidder for the Chrysler brands, or a state government [where] a plant producing
Chrysler’s valuable brands was located.” Tr.138:10-14. Mr. Berliner testified that these
entities would have been incentivized to provide DIP financing in order “to ensure the
liquidation process and sale of assets was done over a reasonable time frame and in an
orderly manner” to maximize the value of the assets. Tr.138:19-24. Mr. Berliner went on
to state that “even if no DIP financing was provided to Chrysler . . . one or two brands
would have still been sold, maybe at a lower sales price” and the “Chrysler dealers would
still have been able to continue providing service and parts and selling used vehicles to
their customers and still may have received some new vehicles to sell in the future from
the acquirer of the brands.” Tr.129:11-23.
65
Mr. Berliner next opined that warranty work would continue at all the plaintiffs’
franchises because, in his view, the government would have put into place some type of
warranty program to guarantee the outstanding warranties of Chrysler car owners. Mr.
Berliner explained that he believed that “[i]f nothing else, the government would likely
have insisted that there was a warranty program to ensure public safety, consumer
protection, and prevent the collapse of the U.S. automotive industry. Tr.140:7-11.
Specifically, Mr. Berliner testified that “given the large number of Chrysler vehicles on
the roads in early 2009 . . . a recall warranty program would have been put in place in a
Chrysler 2009 liquidation.” Tr.141:2-6.
Regarding the plaintiffs’ franchises, Mr. Berliner opined that “no Chrysler dealers
would have been immediately terminated in a Chrysler 2009 liquidation.” Tr.141:7-9.
Mr. Berliner testified that “there was no short-term benefit to Chrysler rejecting
dealership agreements” and that Chrysler would not have rejected any agreements in
bankruptcy. Tr.144:15-17, Tr.144:23-145:2.
Mr. Berliner testified that he supported his opinions based on evidence he
examined from three other automobile bankruptcies in the United States: Daewoo Motors
America, Saab America, and American Suzuki Motor Company. Mr. Berliner explained
that Daewoo Motors America (“DMA”) was the U.S. import and distribution arm of
Daewoo Motor Company, which in 2002 had a network of 525 dealerships. Tr.145:14-19.
He explained that DMA was forced to file for Chapter 11 bankruptcy in the United States
in 2002 after its parent company was placed into reorganization status in South Korea.
Tr.145:20-24. Mr. Berliner testified that “[a]s part of the DMA bankruptcy, the company
entered into long-term agreements with the buyer of Daewoo to provide service, warranty
66
repairs and Daewoo parts to the U.S. market through the DMA dealership network” and
that “approximately 450 of the DMA dealers entered into agreements with the buyer and
remained in business for many months, providing service and warranty repair work and
selling used cars.” Tr.145:24-146:8.
Next, Mr. Berliner testified regarding the fate of Saab America after Saab
Automobiles went into bankruptcy. He testified that, following that bankruptcy, the 188
dealers in the dealership network stayed open for a period of time to service cars and sell
used vehicles. Tr.146:13-22. Finally, Mr. Berliner testified about the American Suzuki
Motor Corporation (“Suzuki”) bankruptcy in 2012. Mr. Berliner explained that at the
time Suzuki filed for bankruptcy, it had “220 automobile dealerships, 900
motorcycle/ATV dealerships, and over 780 outboard marine dealerships.” Tr.146:24-
147:2. Mr. Berliner explained that Suzuki undertook an orderly liquidation process where
it entered into a Service and Parts Agreement with its dealers where Suzuki would honor
all warranties and allow the dealers to continue to provide warranty service and sell the
remaining new automobiles. Tr.147:8-22.
Mr. Berliner testified these historic examples of prior auto bankruptcies together
with his expert opinions supported his conclusion that “Chrysler dealers would have
continued in business, earning profits by performing a range of services for a period of
time” if Chrysler had filed for Chapter 11 bankruptcy without government assistance.
Tr.149:10-13. He testified that “[s]ome of the valuable Chrysler brands, such as Jeep,
Dodge RAM trucks, and minivans, would be sold to an acquirer in a 363 sale” and that
the “acquirer would seek to restart production as soon as possible, likely sometime in late
2009 or 2010.” Tr.149:13-17. Mr. Berliner concluded that if the 363 purchaser did not
67
have an existing dealership network, the Chrysler dealers could potentially continue in
business indefinitely and have their franchise agreements assumed by the new
manufacturer. Tr.149:18-23. Mr. Berliner acknowledged that even if the Section 363
acquirer in bankruptcy had a dealership network, “there would be some transition period
of one to two years after the Section 363 sale where it would be necessary for the
acquirer to utilize the existing Chrysler dealers to sell new vehicles and provide service
and warranty repairs until the acquirer’s dealer network was ready.” Tr.149:24-150:5.
Mr. Berliner explained that during this transition period, the Chrysler dealers would be
able to continue to provide service and warranty work and sell some new Chrysler
vehicles as well as used vehicles, and, at the end of the transition period, would either
remain dealers or would wind-down their operations. Tr.150:6-13. Mr. Berliner reiterated
that dealers would have had a “minimum of 20 months and potentially longer” from the
date of the filing of a Chrysler bankruptcy in a “but for world” without government
funding, and that the plaintiffs would have been able to derive profits from their
operations for this period. Tr.151:1-7.
On cross examination, Mr. Berliner admitted that it is not uncommon for a debtor
in bankruptcy to reject executory contracts, like franchise agreements, as Chrysler did in
its bankruptcy, based on its business judgment. Tr.194:5-15, Tr.195:5-6. Mr. Berliner
also admitted on cross examination that he had no opinion as to who would have acquired
Chrysler’s assets in a 363 sale. Tr.197:10-14. He explained that he “believed” that there
would be an acquirer, that the sale would occur within four to six months, and that, as a
result, the plaintiffs would have had sixteen to twenty months to perform service and
warranty work. Tr.201:8-17, Tr.153:12-20. Mr. Berliner further admitted on cross
68
examination that some of the Chrysler franchisees would likely have had their
agreements rejected in the bankruptcy and that only some would have been given new
franchise agreements with the Section 363 purchaser. Tr.203:19-204:25. In this
connection, Mr. Berliner explained that he assumed that Chrysler franchisees would have
access to financing to purchase new cars from Chrysler (known as floor plan financing)
and that there would be DIP financing in place to allow Chrysler to orderly wind-down in
a bankruptcy. Tr.230:1-6, Tr.233:16-24.
Finally, regarding the other auto bankruptcies he relied on, Mr. Berliner admitted
on cross examination that there were some important distinctions between those
bankruptcies and what would have happened to Chrysler had the government not
intervened. First, he acknowledged that franchise agreements were rejected in the Saab
bankruptcy. Tr.262:22-263:10, Tr.153:12-20. Next, he acknowledged that the Suzuki
bankruptcy involved an auto distributor going bankrupt, and not the manufacturer.
Finally, in the case of Suzuki, he acknowledged that the manufacturer continued to
provide financial assistance that would not have been available to Chrysler in a “but for
world” bankruptcy. Tr.263:23-265:10.
iii. Maryann Keller
The plaintiffs presented the testimony of Ms. Maryann Keller, an automotive
industry expert with decades of experience conducting automotive industry financial
research and analysis. She is currently the principle of Maryann Keller & Associates, a
position she has held since January 2001. Tr.1070:17-22. She holds a bachelor’s degree
in chemistry from Rutgers University and a master’s degree from Bernard Baruch School
at the City University of New York. Tr.1073:14-17. She has “advised clients on issues
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across the automotive supply chain, from component companies to retail sales area.”
Tr.1071:11-14. Ms. Keller has been “qualified as an automotive expert in three
proceedings, the first in the International Court of Arbitration in Hong Kong; a second in
the State of Virginia; and, finally, in the Bankruptcy Court in New York City.”
Tr.1071:18-22. She has lectured about the automotive industry at Columbia University,
Harvard, NYU, MIT, and the Economic Club of Detroit. Tr.1072:19-21. Ms. Keller has
also authored two books on the automotive industry and written columns on the
automotive industry for the Christian Science Monitor, Motor Trend Magazine, and
Automotive Industries. Tr.1072:23-1073:1.
Ms. Keller testified that she was asked to opine on what would have happened if
“the federal government had not provided financial assistance to Chrysler LLC in 2009
[and] the company would have restructured in a bankruptcy proceeding.” Tr.1073:18-22.
She testified that in her opinion Chrysler’s assets that would have attracted multiple
buyers and that Chrysler would have continued to manufacture vehicles during the
bankruptcy. She also opined that plaintiffs would have been able to continue to sell
Chrysler vehicles and would not have rejected any franchise agreements in a bankruptcy
without government involvement. Tr.1074:11-1075:1.
Ms. Keller testified that the most prized assets of Chrysler would have been the
Jeep brand, the Dodge RAM truck brand, and the Chrysler family of minivans.
Tr.1076:2-14. Ms. Keller testified that there would likely have been at least 12 companies
interested in purchasing Chrysler’s assets and continuing to manufacture Chrysler
vehicles. She explained that without having to abide by UAW contracts and pay union
wages she believed Chryslers’ assets would become more valuable and would have
70
attracted more interest from potential purchasers. Tr.1086:12-21. She identified the
following entities as potential purchasers of Chrysler’s assets: The Blackstone Group;
The Fiat Group, Ford Motor Company, Geely, General Motors, Magna International,
Inc., Mahindra & Mahindra Limited, PSA Peugeot Citroen, Renault, Tata Motors,
Tracinda Corp., and Volkswagen Group. Ms. Murphy testified as to why each of these
entities was in a position financially to purchase Chrysler’s vehicle lines in a Section 363
sale and why it would have made financial sense for them to do so. Tr.1086:22-1102:23.
First, Ms. Keller testified that in her opinion the Blackstone Group would “have
targeted Chrysler’s physical assets in addition to its brands and intellectual property.”
Tr.1087:7-9. Ms. Keller explained that she believed the Blackstone Group would be a
potential Section 363 purchaser in part because it was a large private equity firm with
“$31.8 billion in assets under management with $821.3 million in revenues” during 2007
and that it had attempted to acquire “Chrysler in the spring of 2007 from Daimler” but
had lost to Cerberus. Tr.1087:1-6.
Second, Ms. Keller testified that Fiat also would have been a potential Section 363
purchaser because “the combination of these two companies was ideal . . . Fiat’s
expertise was small fuel-efficient cars while Chrysler’s expertise was trucks and sport
utility vehicles” and because “Fiat had the ability to make Jeep a major international
brand and to add Italian designed cars to the North American portfolio.” Tr.1089:8-19.
She explained that Fiat, which paid nothing for Chrysler under the government's
prepackaged bankruptcy plan, was in a financial position to purchase Chrysler’s assets
because in 2007 it had earned €2.1 billion on €59 billion in revenue. Tr.1088:2-7.
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Third, Ms. Keller opined that Ford would have been a potential bidder because its
financial conditions were “impressive” in 2007, with $13 billion in cash on hand and
access to more than $10 billion in credit in 2008. Tr.1090:1-3. Ms. Murphy testified that
she believed “Ford had the wherewithal to have been a bidder for select Chrysler assets
that complemented its . . . portfolio including the Jeep brand.” Tr.1090:3-6.
Fourth, Ms. Keller opined that Geely, a Chinese automotive manufacturing
company headquartered in Hangzhou, Zejiang would have been a potential Section 363
purchaser. Ms. Keller explained that “[b]y the end of 2007, Geely recorded, in Hong
Kong dollars, 11.3 billion in revenues and recorded . . . record breaking profits of Hong
Kong dollars [of] 320 million before taxes.” Tr.1090:7-10. She explained that she
believes that at the time of a Chrysler bankruptcy, Geely was “well capitalized for both
domestic and international growth.” Tr.1090:15-16. Ms. Keller further testified that
Geely’s subsequent “acquisition of Lotus and its subsequent acquisition of Volvo
demonstrated its ability and willingness to acquire international automotive assets that
would add to its brand portfolio and its technical expertise.” Tr.1090:17-21. Ms. Keller
also noted that Geely “actually attempted to purchase some or all of Fiat Chrysler in
2018” to further support her opinion that Geely would have been an interested bidder in
Chrysler’s assets if there had been an open Section 363 sale. Tr.1091:11-14.
Fifth, Ms. Keller opined that General Motors could have been a potential buyer of
“select Chrysler brands that complemented its own product portfolio, especially Jeep
after it discontinued the Hummer brand,” after GM emerged from bankruptcy at some
point in 2008. Tr.1092:8-13.
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Sixth, Ms. Keller testified that Magna International, a Canadian global automotive
part supplier, could have been a prospective bidder on Chrysler’s assets in the event of an
open Section 363 auction. Ms. Keller explained that Magna in 2007 “had over 25 billion
in revenue and over 68 million in net income.” Tr.1092:16-17. Ms. Keller testified that
“Magna was financially tied to Chrysler as a major supplier of components for all
Chrysler vehicles” and thus would have had an interest in bidding for Chrysler’s assets.
Tr.1092:19-21. She went on to explain that in 2007, when Chrysler was for sale, Magna
had made a bid of $4.7 billion and that Magna would likely attempt to purchase
Chrysler’s assets again in a Section 363 sale. Tr.1092:22-1093:1.
Seventh, Ms. Keller testified that Mahindra & Mahindra Limited (“Mahindra”), an
automotive and farm equipment manufacturer based in Mumbai, India, would have been
another potential purchaser of Chrysler’s assets in a Chrysler bankruptcy. Ms. Keller
explained that by “the end of fiscal year 2008, ending March 31, 2008, Mahindra had
produced more than 2 million vehicles . . . [and had a] gross income . . . [of] $3.05
billion.” Tr.1093:18-25. Ms. Keller testified that she believed that Mahindra would have
been interested in purchasing Chrysler’s assets because “it would have benefited from
entering the global light vehicle segment on a major scale” and “would have targeted
Chrysler’s Jeep and Dodge truck brands.” Tr.1094:1-9. Ms. Keller also noted that her
opinion was supported by the fact that Mahindra representatives met with Chrysler in
early 2008 to discuss the possible acquisition of certain Chrysler assets. Tr.1094:5-7.
Eighth, Ms. Keller testified that PSA Peugeot Citroen (“PSA”), a French
automobile company, would be another likely bidder on Chrysler’s assets in a
bankruptcy. She explained that in 2007, PSA had earned a profit of €1.8 billion and had
73
sold over 3.4 million vehicles. Tr.1094:15-18. She opined that “PSA had been seeking to
return to the United States . . . [and] the French Government had guaranteed financial
assistance to PSA during the financial crisis.” Tr.1094:15-24. Ms. Keller stated that
PSA’s interest in Chrysler’s assets would have stemmed from the fact that “the Chrysler
product portfolio would fill gaps, especially for light trucks in [PSA’s] portfolio . . . and
the Chrysler acquisition would have provided a [United States] dealer body . . . that
would have granted [PSA] franchises to those dealers without the burden of having
dealers make additional facilities investments.” Tr.1094:24-1095:8.
Ninth, Ms. Keller testified that Renault, the second largest auto manufacturing
company in France, would have also been an interested bidder. Ms. Keller explained that
in 2007 Renault generated €40.6 billion in revenue and earned 2.7 billion in profit, and
that it would have likely been interested in returning to the United States market through
an acquisition of Chrysler assets. Tr.1095:18-25.
Tenth, Ms. Keller testified that Tata Motors (“Tata”), an automobile manufacturer
based in Mumbai, India, would have also been a potential bidder on Chrysler’s assets in
order to expand its international market share. Ms. Keller explained that “Tata wanted to
become an international automaker” which is evidenced by its 2008 acquisition of Jaguar
Land Rover from Ford and the fact that in early 2008 Tata was in talks with Chrysler
about selling the Jeep brand in India. Tr.1096:17-1097:18.
Eleventh, Ms. Keller opined that Tracinda Corp, a privately-owned investment
company based in Beverly Hills, California, would have been another potential
purchaser. Ms. Keller explained that “on April 5th, 2007, Tracinda made a $4.5 billion
cash offer to DaimlerChrysler for its U.S.-based unit” and that it would have likely made
74
similar efforts to purchase Chrysler’s assets in bankruptcy in 2009. Tr.1098:3-6. Ms.
Keller also explained that Tracinda would have been a likely 363 purchaser because it
had made other forays into the automotive industry by purchasing large amounts of
shares in GM and Ford. Tr.1098:9-19.
Finally, Ms. Keller opined that the Volkswagen Group (“VW”) would have been a
potential purchaser of Chrysler’s assets in a Section 363 sale. She explained that in 2007
VW had earned €6.5 billion in pre-tax profit and “was a financially strong company and
had previously acquired auto companies and successfully integrated them into its
business.” Tr.1098:24-1099:3. Ms. Keller testified that although VW had success in
many global markets, “its presence in the North American market lagged because the
company did not have what are called crossover sport utility vehicles [and] pickup
trucks,” which a purchase of Chrysler’s assets in a 363 sale would have provided.
Tr.1099:3-7.
Ms. Keller went on to explain, after listing the 12 different potential Section 363
purchasers, that her conclusion that some company would have purchased Chrysler’s
assets and made use of its vehicle lines is supported by historical examples in the
automotive industry. She explained that “[t]he modern auto industry is notable for the
willingness of buyers to purchase the assets of financially distressed, even bankrupt
automakers.” Tr.1100:5-7. She further testified that Chrysler brands like Jeep would have
attracted a number of buyers both for the name recognition and the distribution network.
For example, Ms. Keller noted that the Jeep brand was purchased by Chrysler in 1987
when it bought American Motors. Tr.1101:25:1102:18. She explained that Chrysler made
this purchase even though American Motors was in financial distress and that Chrysler
75
decided to preserve the dealership network in order to preserve an expertise in Jeep
service and a distribution network. Tr.1102:24-1103:11.
Ms. Keller also pointed to the sales of MG Rover, Lotus, Saturn, Hummer, and
Saab, including some while the brand was in bankruptcy. She explained that each of these
brands attracted potential buyers despite less than ideal financial conditions, which, in her
opinion, demonstrated that automakers have an appetite for purchasing brands with name
recognition in order to revitalize them. Tr.1104:15-1105:16 (MG Rover), Tr.1105:17-
1106:10 (Lotus), Tr.1106:11-1109:8 (Saturn), Tr.1109:9-1110:7 (Hummer), Tr.1110:8-
1111:19 (Saab). She went on to explain that economic indicators predicted a rebound in
auto sales which would have made Chrysler’s assets even more valuable. Specifically,
Ms. Keller relied on the fact that S&P 500 was up 25% between March and May 2009,
the Consumer Confidence as measured by the University of Michigan was up 20% in the
same time period, and gas prices were on the decline. Tr.1112:7-1113:9. She also noted
that used vehicle values are a “effective predictor of future auto demand” and that used
vehicle prices were steadily increasing though the first half of 2009. Tr.1114:25-1115:3.
Ms. Keller testified that all these factors indicated that there would have been a
strong market for Chrysler’s assets with many potential bidders, which would have
resulted in higher value for Chrysler and in turn its creditors had the government not
intervened. She opined that it was because the government intervened that other willing
purchasers did not come forward. Tr.1121:3-25. Ms. Keller further explained that
“Chrysler would have been a highly desirable partner for a number of the world’s
automakers because of its brand recognition, its desirable truck portfolio, and other
vehicle offerings. And the company coming out of bankruptcy would have been freed of
76
those debt obligations and labor costs that were really [Chrysler’s] major liabilities.”
Tr.1121:11-17.
On cross examination, Ms. Keller admitted that she was not offering an opinion as
to which of the companies discussed would have purchased Chrysler’s assets in a Section
363 sale or how much those companies would have had to pay for Chrysler’s assets.
Tr.1123:11-23, Tr.1124:2-14. She also admitted that in preparing her testimony she did
not conduct an analysis of how profitable any of Chrysler’s products lines were at the
time. Tr.1151:23-1152:9. Additionally, throughout her cross examination she admitted
that for the 12 companies she proffered as potential Section 363 buyers, she did not
consider such factors as whether those companies had ever expressed an interest in
buying Chrysler, or had the financial ability to pay for Chrysler’s assets in an amount
sufficient to meet its debt, at the time of the Chrysler bankruptcy in April 2009.
Tr.1155:21-24, Tr.1159:22-25, Tr.1160:15-16.
Ms. Keller was confronted on cross examination with an article from May 31,
2009 in the New York Times in which she was quoted as saying that she believed that
Chrysler as well as GM had too many dealer showrooms to be profitable and that there
was an advantage in reducing these dealers in bankruptcy.34 Tr.1148:1-1149:11.
Government counsel also asked Ms. Keller about an April 30, 2009 article she authored,
published in the Detroit News, where she espoused the belief that Chrysler was a failing
34
In her May 31, 2009 New York Times article Ms. Keller is quoted as saying that “GM and
Chrysler bore costs associated with their huge dealer networks, which they can now streamline
[and] [o]nly through bankruptcy could this be accomplished without huge expenses and litigation
with individual dealers.” Tr.1148:3-8.
77
auto manufacturer that had been written off by its owner Cerberus, that no entity would
step in to provide Chrysler with sufficient money to keep Chrysler going, and that the
best result that could be hoped for the Chrysler-Fiat alliance was that not too much
money was lost.35 Tr.1180:19-22, Tr.1182:25-1184:15; DX1602.
iv. Judge Judith Fitzgerald
The plaintiffs also offered the opinion testimony of the Judith Fitzgerald, a retired
federal bankruptcy judge. Judge Fitzgerald was “sworn into the Western District of
Pennsylvania [as a bankruptcy judge] on October 30, 1987, [and] sat for nearly twenty-
six years before [her] retirement in May 2013.” Tr.521:7-11. She was also “designated to
sit in the District of Delaware for twenty years, the Eastern District of Pennsylvania for
eight, and the District of the United States Virgin Islands for nine.” Tr.521:12-16. Prior to
serving as a bankruptcy judge, she served for “12 years as an Assistant United States
Attorney in the Western District of Pennsylvania.” Tr.521:17-19. She has taught
numerous law classes on commercial transactions, bankruptcy, and contracts. Tr.521:25-
522:2. She is currently “a shareholder, member of the board, and vice president of the law
firm of Tucker Arensberg, PC, which is based primarily in Pittsburgh, Pennsylvania.”
Tr.520:21-24. Judge Fitzgerald testified that she was retained by the plaintiffs “to look at
but for scenarios that would address what Chrysler may have been able to do . . . in the
absence of government action, and to compare that with the real world franchise
35
In the Detroit News article Ms. Keller wrote “Daimler and Cerberus have written off their
investment in [Chrysler].” She explained that Cerberus “seemed to know [it was] acquiring a
hollow auto business since [it] immediately spoke about forming partnerships and affiliations to
compensate for the lack of homegrown models.” She explained that she believed that Chrysler
would need more than $6 billion to continue and that she could not “imagine any lender stepping
up with new loans.” DX1602.
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terminations that occurred in the actual Chrysler bankruptcy case.” Tr.522:11-17. Judge
Fitzger
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