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Court Watch

By Cynthia M. Klaus and Bryan Huntington
November 02, 2015

Franchisees and Dealers Should Plead Causation In Actions Against The Government

In a decision that may significantly expand the ability of franchised entities to bring Fifth Amendment claims, the United States Court of Federal Claims has held that dealerships have stated plausible causes of action against the federal government in the case of Colonial Chevrolet Co., Inc. v. United States, Nos. 10-647C, 11-100C, and 12-900C, 2015 WL 5268941 (Fed. Cl. Sept. 9, 2015). The decision solidifies that claims against the government may lie where the government's conduct vis-'-vis a third party effects a taking of a plaintiff's property right ' which may include a franchise or dealership agreement. The ruling offers a roadmap that franchisees and dealers advancing takings claims should follow, and will likely be of interest to former General Motors and Chrysler Group dealers that lost their dealerships as a result of the Troubled Asset Relief Plan (TARP).

In 2009, as part of TARP, the federal government offered GM and Chrysler an aggregate $38 billion in financing in exchange for the manufacturers' agreement to terminate 2,243 dealerships. As a consequence, the three groups of dealers in Colonial Chevrolet had their dealerships terminated.

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