Deadline looms for closed GM and Chrysler auto dealers to challenge their termination in arbitration

Over 3000 car dealerships whose franchises were terminated by GM and Chrysler as part of those automakers’ bankruptcy restructurings have until midnight this Monday (Jan. 25) to challenge their termination by filing for arbitration in the American Arbitration Association.  Congress imposed this special arbitration process as part of its Consolidated Appropriations Act of 2010, an omnibus spending bill signed into law by President Obama on December 16, 2009.  To stave off countless claims in the bankruptcy court that would have stymied efforts by GM and Chrysler to emerge from bankruptcy protection, Congress and the automakers agreed to enact this compromise legislation.   In addition to the quick filing deadline (40 days from the legislation’s enactment), the special program requires the entire dispute to be submitted to arbitration within 180 days (by June 14, 2010), mandates that the hearing be held in the state of the terminated dealership, bars depositions and limits document requests, and requires arbitrators to consider specific factors in deciding whether the franchise termination was lawful.  The parties split costs of the arbitration, but telephonic and electronic hearings are permitted, and some arbitrators might reduce their fees, which could lower costs of the process.  As of yesterday, the AAA estimated that about 21% of eligible dealerships had filed for arbitration. 

When I read about this program in mid-December, I wondered to myself why Congress was so quick to consider AAA arbitration an effective and useful mechanism to resolve these franchise disputes, at the same time it was considering amending the Federal Arbitration Act to declare unenforceable and revocable all pre-dispute arbitration clauses in, among other types of agreements, franchise agreements.  Now that the deadline is looming and only 21% of aggrieved dealerships have challenged their franchise termination in arbitration, I wonder whether the other 79% of franchisees have asked the same question.


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