Alternatives To Termination

Counsel for both parties to a franchise or distribution agreement
should encourage their respective clients to identify and weigh creative
alternatives to termination. At the very least, by engaging in that
process, both counsel and client will gain a better understanding of the
client’s short-term and long-term business objectives. Without that
understanding, counsel cannot provide effective strategic advice
concerning the best approach to pursuing or fighting termination,
whether in the context of precontract negotiations or after a dispute
The obstacles posed by state franchise laws and, even in their
absence, the delays associated with the legal battles that often occur as a
result of “involuntary” terminations warrant thoughtful consideration of
alternative strategies to accomplish the same end less expensively and—
often, although not always—more quickly. The prospect of expensive
and time-consuming litigation is not the only reason for pursuing, or at
least seriously considering, alternatives to involuntary termination.
Politics and public relations may also come into play.
For example, in May 2009, Chrysler LLC announced plans to
terminate the franchises of 789 dealers, a quarter of its nationwide
network, and gave the dealers three weeks to wind down their
operations.1 General Motors Corp. (“GM”) also notified 1,100 of its
dealers that their franchise agreements would be terminated by October
2010.2 A month later, top executives of Chrysler and GM, were called to
testify before the Senate Commerce Committee regarding the
terminations.3 Dealers alleged that the proposed dealer closings would
1. Ken Bensinger, Carmakers’ Pain Spreads Through Economy, LOS
ANGELES TIMES, June 4, 2009, at 1.
2. Id.
3. Josh Mitchell, Car Chiefs Grilled on Dealer Closings, WALL STREET
JOURNAL, June 4, 2009, at B1.

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