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363(f) and Dealership Agreements

posted by Stephen Lubben

With the Chrysler sale hearing slated to begin Wednesday morning, the attorneys at Jones Day are no doubt spending their Memorial Day weekend writing an omnibus response to the many objections already on the docket, as well as negotiating resolutions to the myriad cure payment objections that have also been filed.

I thought of them (briefly) while I was at the Shake Shack with my family today. There are definite advantages to academia.

And while I can never hope to blog on all those objections, I thought I might address a few of the more interesting ones in the next few posts.  I’ll start with an objection by the “Committee of Affected Dealers,” who I mentioned earlier.

It appears that the Dealers have a few law firms working for them – still no Rule 2019 statement, however – and the objection I’m focusing on here was filed by their “Special Counsel.”

This objection argues that 363(f) will not operate on the Dealers' rights under state franchise law, and thus the Affected Dealers will have viable rights to remedies for unjustified termination under state law.  Put to one side what this argument does to §365, which the Dealers never really address, and instead focus on the fascinating argument they make under §363(f).

First, they argue that the Dealers' rights under state franchise laws are interests for purposes of §363(f).  I’ll admit, I first thought counsel had lost it here.  Why would you want to admit that you have an “interest” for purposes of §363(f) when you are arguing that §363(f) does not apply to your claim?

But it all became clear in the second part of the argument.  Namely, given that the rights under state franchise law are interests, no subpart of §363(f) applies to these interests, because they are not liens or other interests expressly mentioned in subparts (1) through (5).  A really clever argument.

One problem:  it seems to have a fatal flaw.  The Affected Dealers cite the 3d Circuit’s opinion in In re Trans World Airlines, Inc., 322 F.3d 283 (3d Cir. 2003) to support their broad definition of “interests.”  That opinion also holds that EEOC claims and travel vouchers promised as part of a settlement agreement are not only interests, but interests subject to §363(f)(5).  The 3d Circuit explained that both types of claims could be reduced to money and the claimants could be compelled to accept such a money satisfaction in a chapter 7 case.  Id. at 290-91.  If EEOC claims, why not claims under state franchise laws?


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