Alternatives To Termination

• Pages: 59-71

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CHAPTER IV

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

arises.

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.