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A&D Auto Sales, Inc. v. United States

United States Court of Appeals, Federal Circuit

April 7, 2014

A& D AUTO SALES, INC., ALLEY'S OF KINGSPORT, INC., ARCHER CHRYSLER JEEP WEST, INC., ARCHER CHRYSLER PLYMOUTH, INC., ARCHER DODGE, INC., ARCHER FINANCIAL HOLDINGS, INC., AXELROD CHRYSLER DODGE JEEP, INC., AXELROD CHRYSLER, INC., BARRY DODGE INC., BENNETT AUTOPLEX INC., BENSON MOTOR INC., ARROW FORD, INC., BILL KAY SUZUKI, INC., BOARDWALK AUTO CENTER, INC., BOB LUEGERS MOTORS, INC., BOB ROHRMAN MOTORS, INC., BOB TAYLOR JEEP, INC., BONDY'S FORD, INC., BROTHER'S MOTORS, INC., BURKE AUTOMOTIVE GROUP, INC., BY FISHEL'S JEEPS, INC., CARDENAS MOTORS, INC., CARSON AUTOMOTIVE INC., CDOHY, INC., CARSON CJ, LLC, CENTURY DODGE, INC., CHILSON, INC., CLARKSTON MOTORS, INC., COLEMAN AUTO GROUP, INC., COLEMAN CHRYSLER JEEP, INC., COUNTRY MOTORS, INC., CRAIN CDJ, LLC, CUNNINGHAM CHRYSLER JEEP, INC., CURFIN INVESTMENTS, INC., DJ-MACK INC., DET AUTOMOTIVE GROUP, INC., DAVE CROFT MOTORS, INC., BURKE BROTHERS, INC., DODGE OF ENGLEWOOD, INC., DON DRENNEN CHRYSLER JEEP, INC., DON PHILLIPS & SON SR. ENTERPRISES, INC., DONATO & SON'S JEEP, INC., DOUGLAS AUTOMOTIVE GROUP, INC., EJE, INC., EL DORADO MOTORS, INC., ELHART DODGE, INC., ELHART PONTIAC-GMC TRUCK, INC., ERTLEY CHRYSLER JEEP DODGE, LLC., FITZGERALD AUTO MALLS, INC., FT AUTOMOTIVE II, LLC, FT AUTOMOTIVE IV, LLC, FORT MORGANAUTO CENTER, INC., FOX HILLS MOTOR SALES, INC., G.K. ALCOMBRACK, INC., GOLDEN MOTORS, INC., GRAYSON PONTIAC, INC., GRESHAM CHRYSLER JEEP, INC., GRUBBS NISSAN MID-CITIES LIMITED, HAHN MOTOR COMPANY, HAMILTON CHRYSLER, INC., HARVEY M. HARPER CO., HOOVER MOTORS HOLDING CO., INC., HOOVER DODGE, INC., I.M. JARRETT & SON, INC., ISLAND JEEP, INC., JAMES W. HALTERMAN, INC., JIM MARSH AMERICAN CORPORATION, JOHN CULLEN DODGE, LLC, JOHNSON COUNTY MOTORS, L.C., KINGSTON DODGE, INC., KITAGAWA MOTORS, INC., KOVATCH FORD, INC., LFCJ, INC., LEE PETERSON MOTORS, INC., LENIHAN JEEP, INC., LIVONIA CHRYSLER JEEP, INC., LOU BACHRODT CHEVROLET, INC., MANCARI'S OF ORLAND HILLS, INC., MARKETPLACE SUZUKI, INC., MARSTALLER MOTORS, INC., MELCHIORRE, INC., MILLER-CAMPBELL COMPANY, MILLER MOTOR CAR CORPORATION, MILNER O'QUINN CHRYSLER DODGE JEEP, INC., MORONG BRUNSWICK, NEIL HUFFMAN ENTERPRISES, INC., NEIL HUFFMAN, INC., LUNT MOTOR COMPANY, MANUEL DODGE, INC., MATT MONTGOMERY, INC., MATTHEWS CHRYSLER, INC., MT. CLEMENS DODGE, INC., NEW CITY AUTO SALES, INC., NORTHGLENN DODGE, INC., JEFF HUNTER MOTORS, INC., JELMAC LLC, PAINTER SALES AND LEASING, PAINTER'S SUN COUNTRY CHRYSLER, INC., PEN MOTORS, INC., PLEASANT VALLEY MOTORS, INC., PRESTON CHRYSLER JEEP, INC., PRIDE CHRYSLER JEEP, INC., QUALITY JEEP-CHRYSLER, INC., RFJS COMPANY, LLC, REUTHER DODGE LLC, REUTHER'S INVESTMENT COMPANY, RHODEN AUTO CENTER, INC., RICHARD CHRYSLER JEEP, INC., RIVERSIDE AUTO SALES OF MARQUETTE, INC., ROCK OF TEXAS AUTOMOTIVE, INC., ROHR-ALPHA MOTORS, INC., SCK, INC., SCOTIA MOTORS, INC., SCOTT CHEVROLET, INC., SHOEMAKER AUTO GROUP, INC., SIEMANS IMPORTS, INC., SOUTH SHORE AUTO LINES, INC., SOUTHEAST AUTOMOTIVE, INC., STAR CHRYSLER, INC., TAMAROFF 12 MILE MOTORS, INC., TARBOX CHRYSLER JEEP, LLC, TARBOX MOTORS INC., TAYLOR & SONS, INC., TED BRITT OF FREDERICKSBURG, INC., TENAFLY CHRYSLER JEEP, INC., TETON MOTORS, INC., THOMAS SALES & SERVICE, INC., TOMSIC MOTOR COMPANY, TRANSIT LLC, TRI-STATE AUTOMOTIVE ASSOCIATES, INC., THE UNION SALES COMPANY, URKA AUTO CENTER, INC., VALLEY DODGE, INC., VERONA MOTOR SALES, INC., VIC OSMAN LINCOLN-MERCURY, INC., VILLAGE CHRYSLER JEEP, INC., WACO DODGE SALES, INC., WALKER MOTORS, INC., WALLACE CHRYSLER JEEP, LLC, WESTMINSTER DODGE, INC., WESTSIDE DODGE, INC., WHEATON MOTOR CITY, INC., WHEELER LEASING CO. II, INC., WHITEY'S, INC., WILLIAM T. PRITCHARD, INC., WRIGHT DODGE, LLC, WYCKOFF CHRYSLER, INC., AND YOUNG VOLKSWAGEN, INC., Plaintiffs-Appellees
v.
UNITED STATES, Defendant-Appellant; COLONIAL CHEVROLET CO., INC., AND MIKE FINNIN MOTORS, INC., Plaintiffs-Appellees
v.
UNITED STATES, Defendant-Appellant

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Appeal from the United States Court of Federal Claims in No. 11-CV-0100, Senior Judge Robert H. Hodges, Jr. Appeal from the United States Court of Federal Claims in No. 10-CV-0647, Senior Judge Robert H. Hodges, Jr.

ROGER J. MARZULLA, Marzulla Law, LLC, of Washington, DC, argued for plaintiffs-appellees in case no. 2013-5019. With him on the brief were NANCIE G. MARZULLA. Of counsel on the brief was LEONARD A. BELLAVIA, Bellavia Gentile & Associates, LLP, of Mineola, New York.

HARRY ZANVILLE, Law Office of Harry Zanville, San Diego, California, argued for plaintiffs-appellees in case no. 2013-5020. With him on the brief were STEVEN J. EAGLE, Law Office of Steven J. Eagle, of Arlington, Virginia, RICHARD D. FAULKNER, JAMES D. BLUME, Blume, Faulkner Skeen & Northam, PPLC, of Richardson, Texas, and G. KEVIN BUCHANAN, Buchanan & Bellan, L.L.P., of Dallas, Texas.

KENNETH M. DINTZER, Assistant Director, Civil Division, Commercial Litigation Branch, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were STUART F. DELERY, Principal Deputy Assistant Attorney General, JEANNE E. DAVIDSON, Director, DAVID A. HARRINGTON, and ELIZABETH M. HOSFORD, Senior Trial Counsels, and SARAH M. VALENTI and SETH W. GREENE, Trial Attorneys. Of counsel were DANIEL B. VOLK, and SARAH M. BIENKOWSKI, Attorneys.

JONATHAN A. MICHAELS, Michaels Law Group, APLC, of Newport Beach, California, for amici curiae, Spitzer Motor City, et al. With him on the brief was KATHRYN J. HARVEY. Of counsel on the brief was ALLEN P. PRESS, Green Jacobson, P.C., of Clayton, Missouri.

Before NEWMAN, DYK, and TARANTO, Circuit Judges.

OPINION

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Dyk, Circuit Judge.

These appeals arise from two takings suits related to the 2009 bankruptcies of General Motors Corporation (" GM" ) and Chrysler LLC (" Chrysler" ). The plaintiffs are former dealers of those companies whose franchises were terminated in the bankruptcies. The plaintiffs allege that these terminations constituted a taking because the government required them as a condition of its providing financial assistance to GM and Chrysler and/or to the companies that succeeded them in the bankruptcies. The government moved to dismiss the suits for failure to state a claim. The United States Court of Federal Claims (" Claims Court" ) denied dismissal, and the government brought these interlocutory appeals.

Because we lack the benefit of a fully developed factual record, we do not at this stage address every issue the government raises. As to the issues we do address, we reject the government's arguments for dismissal. While we hold that the complaints are deficient because they do not sufficiently allege that the economic value of the plaintiffs' franchises was reduced or eliminated as a result of the government's actions, we nonetheless affirm the Claims Court's decision to deny dismissal at this point in the proceedings. The proper remedy is to grant the plaintiffs leave to amend their complaints to include the necessary allegations, and on remand the Claims Court shall do so.

Background

At this stage in the proceedings, we accept the dealers' well-pleaded factual allegations as true. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While we primarily consider the allegations in the complaint, we may also look to " matters incorporated by reference or integral to the claim, items subject to judicial notice, [and] matters of public record." 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (3d ed. 2004).

I

The bankruptcies of GM and Chrysler took place in the historic recession and credit crisis of 2008-09. GM and Chrysler were in serious financial difficulty, as loans to automobile dealers and consumers had come to an " abrupt halt" and sales " plummeted." A& D J.A. 78.[1] Automobile sales were down more than 37% from the previous year, falling to their lowest level in 26 years. In a major public speech, President Bush expressed fears that " [i]f we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers." President George W. Bush, President Bush Discusses Administration's Plan to Assist Automakers (Dec. 19, 2008) (transcript available at http://georgewbush-whitehouse.archives.gov/news/releases/2008/12/20081219.html). In late 2008, the chief executives of GM and Chrysler appeared before Congress to ask for emergency financial assistance in the form of loans and lines of credit. Shortly thereafter, Treasury Secretary Henry Paulson created the Automotive Industry Financing Program, through which the Department of Treasury (" Treasury" ) would make loans and other investments in the automakers using government funds. As the plaintiffs agree, the stated goal of the program was

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to avoid " disorderly bankruptcy and liquidation," which would entirely eliminate them as ongoing entities. Id. The program was created as a part of the wider Troubled Asset Relief Program (" TARP" ), which made similar investments in a number of financial institutions. TARP had been established by Congress two months earlier, in the Emergency Economic Stabilization Act of 2008, Pub. L. 110-343, 122 Stat. 3765.

The government's first assistance to the automakers consisted of stopgap loans ($13.4 billion to GM, $4 billion to Chrysler) intended to keep the companies from having to cease operations pending talks over more comprehensive assistance. In connection with these loans, the government and the automakers entered formal agreements setting forth the conditions of the government's assistance. One condition was that the companies would submit viability plans demonstrating that they could achieve financial stability with the help of the government funds. GM and Chrysler submitted their viability plans in February 2009 as required.

The government rejected GM and Chrysler's initial viability plans and called for the submission of revised proposals. Executive branch officials in charge of overseeing the financial assistance suggested that the companies adopt various changes to improve their longterm viability, such as focusing on lighter, more fuel-efficient vehicles and (in GM's case) more quickly reducing the number of brands. The government specifically suggested that the automakers should significantly reduce the number of dealers within their franchise networks to improve their viability. Although the automakers were already reducing their dealer ranks over time and GM's initial viability plan had included additional dealer terminations, the government determined that the current and proposed pace of terminations was too slow, and that the companies' large dealer networks were an obstacle to viability. The government advised the companies they should expand their terminations and that they might accomplish the terminations expeditiously by opting to reject the franchise agreements in bankruptcy proceedings.[2] Outside bankruptcy, the dealer franchises had protections against termination under various state and federal franchise laws. The complaints allege that the government's proposals concerning franchise terminations were mandatory--that is, that the government required the automakers to include them or else forgo any further financial assistance. At this stage, we accept the plaintiffs' allegations as true, and proceed on the assumption that the government required these terms as a condition of financial assistance.

The companies eventually adopted the government's suggestions for a bankruptcy filing, reduction of their dealer networks, and other changes. Each filed for Chapter 11 reorganization, and the government made available an additional $38 billion in financing ($30 billion in loans and equity investments to GM, $8 billion in loans to Chrysler) for restructuring the companies. After approval by the bankruptcy court under 11 U.S.C. § 363, the old GM and Chrysler entities sold most of their operating assets to newly created entities commonly called " New GM" and " New Chrysler" --in which the federal government, and other entities, acquired specified ownership

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interests. As a result of the sale, the government acquired a 60.8% ownership stake in New GM's common stock, as well as a portion of its preferred stock. The dealer franchises that were not terminated were transferred to the new entities along with other assets. The termination of the remaining franchises was handled differently by each company. In Chrysler's case, the franchises were eventually terminated by the bankruptcy estate. In GM's case, either the franchises were terminated by the bankruptcy estate or the dealers signed " Deferred Termination Agreements" providing for a transition to termination. To the extent the franchises were terminated by action of the bankruptcy estate, the affected dealers received unsecured claims against the estates, see 11 U.S.C. § 365(g); In re Old Carco LLC, 406 B.R. 180, 190 (Bankr. S.D.N.Y. 2009), but it is unclear whether they have received any-thing for those claims. It is unclear as well whether the dealers who signed termination agreements received any compensation.

II

The first of these two suits was filed in September 2010 by several terminated GM and Chrysler dealers. Suing on behalf of themselves and a putative class of others similarly situated, the plaintiffs alleged that the government had effected a taking of their dealer franchises (including rights conferred by state law) by " coerci[ng]" the automakers--that is, by requiring dealer terminations as a condition of financial assistance. Colonial J.A. 29; see also A& D J.A. 20. ...


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