Strengthening Constitutional Self-Government

No Left Turns

The Post-Modern Road to Serfdom?

When I teach the American Revolution, I try to teach my students the difference that property rights make. In feudal societies, men did not own their property outright. The King or the Lord could, in many circumstances, resume his title to your land and transfer it to someone else. On the vast majority of American farms, the King lacked that right. The Americans thought that taxation without representation was a step back toward feudal property.

The Kelo decision, and actions the government has taken lately in the current crisis, suggest that we, having forgotten what property rights are and are for, are moving away from that part of the American way. Technochracy does not like it when citizens’ rights get in the way of efficient planning.

Mark Steyn points us to this letter from a soon to be former Dodge dealer. If true, it’s worse than re-shuffling legal order for repaying the company’s debt holder.

On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them. My new vehicle inventory consists of 125 vehicles with a financed balance of 3 million dollars. This inventory becomes impossible to sell with no factory incentives beyond June 9, 2009. Without the Dodge franchise we can no longer sell a new Dodge as "new," nor will we be able to do any warranty service work. Additionally, my Dodge parts inventory, (approximately $300,000.) is virtually worthless without the ability to perform warranty service. There is no offer from Chrysler to buy back the vehicles or parts inventory.

Our facility was recently totally renovated at Chrysler’s insistence, incurring a multi-million dollar debt in the form of a mortgage at Sun Trust Bank.

Discussions - 18 Comments

This is a really interesting post, for a few reasons. First, it is not clear from the outset why the right should care about the complaints of franchisees over franchisors, absent an interest in throwing a wrench in the plans of a Democratic administration and the US auto companies. If McDonald's or Walmart goes bankrupt, are you really going to care if they cancel and transfer franchise contracts?

Second, I don't know the history, but I would bet that the Mark Steyn right was never particularly fond of state legislative meddling in the franchise relationship, except for a newfound concern for franchisees in the past few weeks. I say this because (1) state meddling tended to take the form of (what you would probably call) paternalistic restrictions on the kinds of franchising practices that corporations could create, and (2) it often involved bureaucratic activity (by the FTC or state motor vehicle boards) that at first blush appears to be precisely the kind of interference in the supposedly natural workings of the market that the right usually decries.

Finally, bankruptcy court is where private parties go to work out disputes when a company is insolvent. I don't really understand why any termination in this case is even remotely a threat to the "American way" of property rights. Are you saying that the only "American" result is if the dealers are compensated for the cancellation? Are you really saying that cancellation of franchise contracts in bankruptcy is not the "American way"? I don't understand either of these claims.

I think that what you and Steyn are trying to do is to hook a rhetorical shot at the Obama administration to a relatively ordinary, if large-scale, legal proceeding over franchises in bankruptcy.

Brett, you may be right...but what about the lands taken from individuals turned into wildlife preserves and then magicly sold as comercial real estate by the government? It is a real problem. I imagine that the bank will somehow collect on the example case though, probably via money creation/inflation taxes.

The Chrysler bankruptcy is not following the established legal process. That is certainly the case with the priority of the creditors. The same seems to be happening here too.

Nardelli's 200 million dollar golden parachute from Home Depot could easily offset this fellow's problems. Of course he 'earned' that money and he would no doubt point out how it would be a return to serfdom to differ with his compensation.

The Chrysler bankruptcy is not following the established legal process. That is certainly the case with the priority of the creditors. The same seems to be happening here too
How is that, Richard? Looks like pretty standard modification of executory contracts to me, but I'm not an expert in bankruptcy.

The franchisees are suing, and I think that Steyn and you are getting played, to be honest.

Blah, Blah, Blah, who cares about some fatcat dealer who probably spent his career ripping off consumers? The important thing to remember is that we are all AMERICANS, and individuals aside, we are in this together! And now, we as a people have the most important thing, which is HOPE!

I agree with a post at in that the problems at GM and Chrysler were management issues. The unions did not help and if Rick Wagoner stood up to them when he had a chance GM would not be going bankrupt. Instead, management at the two companies decided that their bonuses where more important then playing hard with the unions and putting together real plans for growth. No, they kept production lines moving and stuck to SUVs for higher profits.

The dealers did not voice objections that the respective product lines were thin. As long as they were making money everyone was happy.

Clarence Thomas dissents:

"Long ago, William Blackstone wrote that “the law of the land … postpones even public necessity to the sacred and inviolable rights of private property.”

The Framers embodied that principle in the Constitution, allowing the government to take property not for “public necessity,” but instead for “public use.” Defying this understanding, the Court replaces the Public Use Clause with a “Public Purpose’ ” Clause, (or perhaps the “Diverse and Always Evolving Needs of Society” Clause), a restriction that is satisfied, the Court instructs, so long as the purpose is “legitimate” and the means “not irrational,”.

This deferential shift in phraseology enables the Court to hold, against all common sense, that a costly urban-renewal project whose stated purpose is a vague promise of new jobs and increased tax revenue, but which is also suspiciously agreeable to the Pfizer Corporation, is for a “public use.”

I cannot agree. If such “economic development” takings are for a “public use,” any taking is, and the Court has erased the Public Use Clause from our Constitution, as Justice O’Connor powerfully argues in dissent. I do not believe that this Court can eliminate liberties expressly enumerated in the Constitution and therefore join her dissenting opinion. Regrettably, however, the Court’s error runs deeper than this. Today’s decision is simply the latest in a string of our cases construing the Public Use Clause to be a virtual nullity, without the slightest nod to its original meaning. In my view, the Public Use Clause, originally understood, is a meaningful limit on the government’s eminent domain power. Our cases have strayed from the Clause’s original meaning, and I would reconsider them."..............

It's been 4 years since the free-floating Constitutional Convention called the Supreme Court repealed the Public Use Clause--and Suzette Kelo's house still sits there abandoned. That's "unreasonable" even by the Court's "public purpose" standard. And a "public purpose" is any idea that pops into a bureaucrat's head.

I don't know if Chrysler dealers were robbed, but Chrysler bond-holders were. Obama painted them as "greedy hedge funds", but a hedge fund is just a group of retirees investing their life savings-- the bastards!

Bankruptcy Judge Obama doled out Other People's Money based on "empathy"--that's how he wants all his judges to operate. He took millions from the unions and then "ruled" in their favor. Any other bankruptcy judge would go to prison.

It's Hugo Chavez-style Socialism. Barack should have given him a book.

"a hedge fund is just a group of retirees investing their life savings-- the bastards!" Sure they are. John Paulson made $3.7 billion in one year. The hedge fund managers James H. Simons and George Soros each earned almost $3 billion last year. The era of big capitalism is over. We should show no empathy - to Nardelli and hedge fund managers.

"managers"--they manage Other People's Money. Including millions of retirees. If they loot it, prosecute them. But don't hand their money to the people who gave you campaign cash and call it anything other than theft, communism or Democrat politics. But I repeat myself.

Last post from me on this: Richard just had his facts wrong on what happens in Chapter 11 with respect to franchise contracts. If anything, his complaint appears to be either with congressional choices regarding franchise contracts (as expressed through valid use of the constitutional power to write a bankruptcy code), or with the fact that this particular chapter 11 reorganization didn't happen in a way that some bondholders - who were buying up assets and speculating that the feds would bail them out - liked.

The latter criticism doesn't really relate to the franchise contracts, though, and no knowledgeable commentator says that it does, as far as I know. I doubt that any other plan by any other actors would have allowed all the dealers to keep operating, given a widely acknowledged problem with excess dealer capacity. The power to modify and cancel the franchise contracts would be there for anyone to use, and they would avail themselves of it. And if Chrysler gets liquidated, the situation probably won't be any better for the dealers.

Or maybe Richard thinks that franchisees are entitled to more protections in chapter 11 proceedings. Interesting thought but not the system we have now, and it seems like a strange system to me given the already highly regulated nature of the franchise relationship (at the state level and pre-bankruptcy, at least).

Maybe Richard wanted to make a broader point about the rule of law, but this was a poor vehicle for such a claim, unfortunately.

My understanding is that the government used its leverage over TARP-taking banks to change the order of priority so that the Union got more of Chrysler than did secured bond-holders. That's why some, including Indiana pension funds are suing.

The Treasury seems to have forced a deal through before it went to the bankruptcy judge, and thus presented the Court with a fait accompli. And they also seem to be pushing it along rather more quickly than is usually the case (in what seems to be a desperate effort to save Union jobs in Michigan). Perhaps I'm wrong about that. Here's the NY Times story. Is it normal for the President to bring the parties to the table first, rather than simply turning it over to a judge who can then follow the usually course, and pace of things?

Soros bankrolls and is a huge democratic supporter and contributor so you just bashed the guy who owns the guy you believe in. That is like saying I trust Howdy Doody, but that guy making him talk I don't like at all.

Richard: even if you're right, that doesn't help the dealers all that much, because it doesn't alter the legal vulnerability of franchise agreements in chapter 11, which was the subject of your post's complaint that "it’s worse than re-shuffling legal order for repaying the company’s debt holder[s]."

Partly, I'm simply surprised by the lack of rights franchisees have in this case. Were the company simply ceasing operations altogether, killing all the franchises would be unsurprising. What I am curious about is, however legal it may be, whether this is normal? Is it going faster than usual, and therefore giving terminated franchises less time to wind down than is usually the case? (They certainly seem to have less time than is reasonable and fair.) Is the criterion for terminating franchises that which is normal in such cases? What is the responsibility of the court to consider such things?

Quickness itself isn't that unusual in this kind of proposed sale (which sometimes do come to court basically fully formed), but this one is both big and very quick. In their filings, Chrysler points to cases that show that the court should apply a deferential "business judgment" rule, and the franchisees point to cases where the court takes a harder look; looks like an ordinary (if high-stakes) legal dispute about how to characterise the rules in light of the purposes of the bankruptcy code and relevant state law and constitutional principles.

Richard is right, and the things that he mentions in comment 12 are a big deal. The administration is picking winners and losers, rather than allowing parties to enforce contract rights.

The dealer needs to lawyer up fast, and get into court even faster.

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