Colonial Chevrolet Co., Inc. v. United States

• Court: United States Court of Federal Claims
• Decided: October 2, 2019
• Docket: 10-647
• Status: Published

Opinion

In the United States Court of Federal Claims Nos. 10-647C, 11-100C, and 12-900C (Filed: October 2, 2019) CONSOLIDATED

) COLONIAL CHEVROLET CO., ) INC., et al., ) ) Plaintiffs, ) v. ) Fifth Amendment Taking; Government ) Action Through Coercion; Economic THE UNITED STATES, ) Value in a “But For World” ) Defendant. ) ) ********************* ) ALLEY’S OF KINGSPORT, INC., et ) al., ) ) Plaintiffs, ) v. ) ) THE UNITED STATES, ) ) Defendant. ) ) ****** *************** ) UNION DODGE, INC., et al., ) ) Plaintiffs, ) v. ) ) THE UNITED STATES, ) ) Defendant. ) )

TRIAL OPINION

Roger J. Marzulla, Washington, DC, counsel for Alley’s of Kingsport, Inc., et al., plaintiffs, and Marquette W. Wolf, Mesquite, TX, counsel for Colonial Chevrolet Co., Inc., et al., plaintiffs. Nancie G. Marzulla, Washington, DC, Richard Mann, Mesquite, TX, Leonard A. Bellavia, Mineola, NY, Thomas A. Homan, New York, NY, Stephen G. Larson, Steven E. Bledsoe, and Lauren Wulfe, Los Angeles, CA, and Harry W. Zanville, La Mesa, CA, of counsel.

Kenneth M. Dintzer, Civil Division, U.S. Department of Justice, Washington, DC, with whom were Joseph H. Hunt, Assistant Attorney General, Robert E. Kirschman, Jr., Director, James P. Connor and Elizabeth M. Hosford, Assistant Directors, Christopher J. Carney, Senior Litigation Counsel, for defendant. Jonathan E. Jacobson, Joshua A. Mandlebaum, Antonia R. Soares, Zacahary J. Sullivan, and Alison S. Vicks, Washington, DC, of counsel.

FIRESTONE, Senior Judge.

This action was brought by car dealers that had their franchise agreements with

Chrysler LLC (“Old Chrysler” or “Chrysler”) rejected when Old Chrysler went into

bankruptcy during the Great Recession in April 2009.1 These car dealer plaintiffs claim

that the United States Government (“government”) is liable for taking their franchise

agreements without just compensation in contravention of the Fifth Amendment. They

claim the government is liable because the government through its actions coerced

Chrysler into filing for bankruptcy under a government negotiated prepackaged

bankruptcy plan, which called for a reduction in Chrysler’s franchise network. The

reduction was accomplished through the rejection in the bankruptcy of 789 franchise

agreements, including plaintiffs’ agreements.2 Plaintiffs claim that had the government

not gotten involved in the Chrysler bankruptcy their franchise agreements would not have

1 The court’s use of the terms “Old Chrysler” or “Chrysler” in this opinion refer to Chrysler before it filed for bankruptcy in 2009. The term “New Chrysler” will be used to refer to the Chrysler that emerged after the 2009 bankruptcy. The court follows the same approach for Old General Motors, “Old GM” or “GM,” to refer to the company before it filed for bankruptcy in 2009. 2 Under the Bankruptcy Code, 11 U.S.C. § 365, a debtor or bankruptcy trustee “may assume or reject any executory contract . . . of the debtor.” The franchise agreements at issue in this case are executory contracts that were rejected in bankruptcy by the debtor, Chrysler.

2 been rejected by Chrysler in bankruptcy but would have been assumed by the owner of

New Chrysler.

The taking claims addressed in this decision trace back to three separate lawsuits,

Case Nos. 10-647, 11-100 and 12-900, filed by three groups of plaintiffs that owned

franchise agreements with either Old Chrysler or Old General Motors and that had their

franchise agreements rejected in the Chrysler and GM bankruptcies. The first of these

three lawsuits, Colonial Chevrolet Co., was filed on September 27, 2010 and the

government moved to dismiss the lawsuit on January 21, 2011. On February 27, 2012 the

government’s motion to dismiss was denied and the case was certified for interlocutory

appeal. Colonial Chevrolet Co., Inc. v. United States, 103 Fed. Cl. 570 (2012); Colonial

Chevrolet Co., Inc. v. United States, 106 Fed. Cl. 619, 622 (2012). During the Federal

Circuit’s interlocutory review, two later filed cases, Alley’s of Kingsport, Inc. and Union

Dodge, Inc. (Case Nos. 11-100 and 12-900) were stayed pending the Federal Circuit’s

decision in Colonial Chevrolet Co.

On April 7, 2014, the Federal Circuit issued its decision affirming the denial of the

government’s motion to dismiss. A&D Auto Sales, Inc. v. United States, 748 F.3d 1142

(Fed. Cir. 2014). The Circuit held that the plaintiffs had alleged sufficient facts to support

potential Fifth Amendment taking claims based on a theory of coercion. The Circuit also

held, however, that the plaintiffs had failed to allege sufficient facts to show that their

franchise agreements would have had economic value in a “but for world” where the

government had not provided financial assistance to Chrysler or GM.3

3 The concept of the “but for world” is derived from the Federal Circuit’s discussion of economic value in A&D Auto Sales. 748 F.3d at 1158-59. As the Circuit explained, in a regulatory taking 3 Regarding a taking by coercion, the Federal Circuit indicated that if the plaintiffs

could establish that Chrysler’s decision to enter bankruptcy under terms negotiated by the

government was not voluntary, a potential taking may be found. Id. at 1154. The Circuit

identified several cases where a party’s actions affecting the property of third parties was

found to be attributable to government pressure and thus a possible taking under a theory

of government coercion. Id. at 1154-55. Based on the plaintiffs’ allegations of Chrysler

and GM seeking government assistance during the Great Recession in late 2008 and early

2009, the Circuit listed several “circumstances” it deemed potentially relevant to the issue

of coercion including but not limited to (1) whether the government insisted on the

franchise terminations or targeted franchisees for termination, (2) whether the franchise

terminations would have occurred in any event, (3) whether government financing was

essential to Chrysler, and (4) whether the government had a role in creating the economic

circumstances alleged to have given rise to coercion. Id. at 1155. But the Circuit also

noted that if the government was acting only as a lender to Chrysler and GM and

negotiated bankruptcy terms necessary to protect the government’s financial interests, the

government might not be liable for a taking. Id. at 1156-57.

Regarding plaintiffs’ failure to allege that their franchise agreements had

economic value, the Circuit explained that to prove a taking the plaintiffs would need to

establish that their franchise agreements would have had value in a hypothetical “but for

world” where the government had not provided financial assistance to Chrysler or GM.

case, plaintiffs have the burden of showing what value their property would have had in the absence of government action. Id.

4 Id. at 1157-59. If plaintiffs’ franchise agreements would not have had value in a “but for

world” without government assistance, the Circuit explained, the government did not

“take” anything of value and cannot be liable for a “taking.” Id. The Circuit remanded the

case to this court to allow plaintiffs the opportunity to amend their complaints to include

allegations of value in a “but for world” without government assistance. Id. at 1158-59.

On September 15, 2014, the plaintiffs in all three above-captioned cases filed

amended complaints in which they posited that their franchise agreements would have

had value under several “but for world” scenarios in which the government did not

provide financial assistance to Chrysler or GM. Colonial Chevrolet Co., Inc. v. United

States, 123 Fed. Cl. 134, 140-46 (2015). The government moved to dismiss the amended

complaints claiming that plaintiffs’ “but for” assumptions were either implausible or

barred by A&D Auto Sales. Id. On September 9, 2015, this court granted in part and

denied in part the government’s motion, holding that certain of plaintiffs’ “but for world”

scenarios were consistent with the Federal Circuit’s decision in A&D Auto Sales. Id. The

court also severed the GM plaintiffs from the Chrysler plaintiffs and put the GM

plaintiffs’ claims on a separate discovery time table.

Following this court’s decision granting in part and denying in part the

government’s motion to dismiss, the court, on December 4, 2015, consolidated the three

above-captioned lawsuits for the purposes of case management, discovery, and for trial

on the merits of the Chrysler plaintiffs’ taking claims. On April 6, 2016, this court denied

the Chrysler plaintiffs’ motion for class certification. Thereafter, the parties chose 10

representative Chrysler plaintiffs for purposes of discovery and trial. One of the Chrysler

5 representative plaintiffs withdrew from the litigation prior to the commencement of trial

leaving nine representative plaintiffs.

The nine representative plaintiffs were divided into two groups: the Alley’s group

with seven plaintiffs including Taylor & Sons, Inc., Cedric Theel, Inc., Whitey’s Inc.,

RFJS Company, Jim Marsh American Corp., Livonia Chrysler Jeep, Inc., Barry Dodge,

Inc., and the Colonial group with two plaintiffs including Guetterman Motors, Inc. and

Mike Finnin Motors, Inc. The two groups of plaintiffs are represented by different

attorneys and sometimes relied on different evidence to prove their taking claims.

Trial to determine principally whether there was government action through

coercion and whether plaintiffs’ franchise agreements would have had economic value in

a “but for world” without government assistance was held in Washington, D.C. between

April 8, 2019 and May 8, 2019. Post-trial arguments were held on June 19, 2019 and June

20, 2019. During trial the court heard testimony from 36 witnesses and received 542

exhibits into evidence.

Importantly, at trial the representative plaintiffs did not focus their coercion

evidence on Chrysler being forced to accept the government’s negotiated bankruptcy

terms (including a reduction in Chrysler franchises) because Chrysler needed the

government’s financial assistance, as the Federal Circuit had assumed in A&D Auto

Sales. 748 F.3d at 1155. Instead, plaintiffs presented opinion testimony to the effect that

Chrysler did not need the government’s financial assistance. Plaintiffs’ experts conceded

that Chrysler would have had to file for bankruptcy in 2009. However, they opined that

Chrysler would have had more options in bankruptcy than the one option negotiated by

the government. According to plaintiffs’ experts, Chrysler was coerced because Chrysler 6 was left with no alternative but to accept the government’s assistance after the

government took over negotiations with Chrysler’s creditors and others in early 2009.

Plaintiffs’ evidence to prove coercion by government action was somewhat

conflicting at trial. On the one hand, the plaintiffs introduced evidence to show that

Chrysler did not wish to enter bankruptcy but instead wanted the government to loan

Chrysler billions of dollars outside of bankruptcy. The plaintiffs relied on this evidence to

show (among other things) that the government, not Chrysler, wanted to use bankruptcy

to reduce Chrysler’s franchise network by rejecting plaintiffs’ franchise agreements,

rather than pursuing voluntary franchise terminations consistent with state law.

On the other hand, the plaintiffs conceded that Chrysler could not have avoided

bankruptcy in 2009 and built both their coercion and economic value theories around this

concession. The plaintiffs offered expert opinions to support a coercion theory based on

the assumption that there were many companies interested in purchasing Chrysler in late

2008 and early 2009, during the Great Recession. According to plaintiffs’ experts, these

potential purchasers would have kept Chrysler open during a Chrysler bankruptcy and

would not have had any reason to reject any franchise agreements. Plaintiffs introduced

evidence to show that the government took over negotiations with Chrysler’s creditors,

worker unions, and suppliers to accomplish the government’s public policy goals of

saving jobs and pensions. The plaintiffs asserted that their evidence demonstrated that the

decision to reduce the Chrysler franchise network involuntarily in bankruptcy was in

furtherance of these policy goals and was never part of Chrysler’s own franchise

reduction plans.

7 Plaintiffs also claimed that their franchise agreements would have had economic

value in a “but for world” where Chrysler did not accept government assistance but was

able to enter bankruptcy outside the terms negotiated by the government. Specifically,

plaintiffs presented expert valuation testimony to show that their franchise agreements

would have had value in a “but for world” without government assistance because their

franchise agreements would never have been rejected in a bankruptcy.

The Alley’s plaintiffs presented expert opinion testimony to show that if Chrysler

had entered bankruptcy without government assistance the outcome for Chrysler would

have been very similar to the bankruptcy with government assistance, but with all

franchisees remaining Chrysler franchisees. According to the evidence presented by the

Alley’s plaintiffs, franchises had value in a “but for world” because franchisees would

have had retained all their income streams, including new car sales, used car sales,

warranty and other services. They also presented expert valuation testimony to the effect

that their income from these sources would have continued for years because any new

Chrysler owner would have assumed their franchise agreements in bankruptcy.

The Colonial plaintiffs also presented expert opinion evidence to show that their

franchise agreements would have had value in a “but for world.” The Colonial expert

also opined that franchisees would have been able to generate profits from various

income streams during a Chrysler bankruptcy without government assistance. The

Colonial plaintiffs, however, did not claim that their franchise agreements had a “fair

market value,” as the Alley’s plaintiffs’ claimed. Rather, the Colonial plaintiffs’ expert

set forth various “but for world” values based on the anticipated profits those plaintiffs

8 would have received from being able to sell their remaining Chrysler inventory and used

cars, and from performing warranty and other service work.

The government presented fact and expert evidence to refute the Alley’s and

Colonial plaintiffs’ claims of government liability based on coercion and on economic

value. The government presented evidence to show that the government did not force

Chrysler into bankruptcy or into rejecting any of the plaintiffs’ franchise agreements. The

government presented undisputed evidence to show that Chrysler had been working to

reduce its franchise network for years and that Chrysler, not the government, identified

the number and names of the franchise agreements to be rejected in bankruptcy.

The government also presented evidence from government and Chrysler witnesses

to show that Chrysler’s decision to enter bankruptcy under government negotiated

bankruptcy terms was based on Chrysler’s best business judgment after consideration of

its options. The government presented undisputed testimony from Chrysler and

government witnesses to confirm that the government did not directly threaten or force

Chrysler to accept the government’s bankruptcy plan. The undisputed evidence

established that the government was willing to allow Chrysler to pursue bankruptcy with

limited government assistance if it wished to proceed in bankruptcy on its own. In fact,

the government offered Chrysler $750 million to help finance a wind-down if Chrysler

wished to pursue other bankruptcy options. The undisputed evidence also made clear that

if all of Chrysler’s creditors had agreed to the government’s terms, the government would

have given Chrysler financial assistance outside of bankruptcy.

The government also presented undisputed testimony from Chrysler witnesses to

show that Chrysler’s financial problems pre-dated the Great Recession. The undisputed 9 evidence established that Chrysler had started to look for a partner or alliance in 2007

because Chrysler knew it was not viable without an alliance with a company having a

small car fleet. The testimony established that no car manufacturer was interested in

joining forces with Chrysler in 2007 other than Fiat, and that Fiat made clear that it was

not willing to offer Chrysler the financial assistance Chrysler needed.

The government further presented expert opinion evidence to show that the

assumptions the Alley’s and Colonial plaintiffs’ experts relied on to establish that

Chrysler could have remained open during a bankruptcy without government assistance

and would not have rejected any franchise agreements were not supported by facts. The

government presented expert evidence to establish that there were no potential purchasers

of Chrysler in 2009. The government also presented expert evidence to confirm that,

without government funding, Chrysler would not have been able to remain operational

during a bankruptcy. According to the government’s expert witnesses, Chrysler would

have faced immediate liquidation under Chapter 7 of the Bankruptcy Code if it had not

received government assistance and would have had to immediately close its factories

and reject all of its franchise agreements. Based on this evidence the government asserted

that Chrysler’s decision to accept the government’s bankruptcy plan was made

voluntarily and was not coerced.

Regarding economic value, the government’s experts opined that, in the “but for

world” without government assistance, all of Chrysler’s factories and parts depots would

have closed. The experts opined that in the “but for world” there would have been no new

cars to sell, paid warranty work or Chrysler parts. According to the government’s experts,

in the “but for world” without government assistance, Chrysler would have been forced 10 into liquidation and the bankruptcy trustee would have rejected all Chrysler franchise

agreements. As such, the government’s experts concluded, none of Chrysler’s franchise

agreements would have had economic value.

As discussed in the opinion that follows, the court finds, after considering all of

the fact and expert evidence, that the plaintiffs failed to establish by a preponderance of

the evidence that the United States by its actions coerced Chrysler into filing for

bankruptcy under the government’s negotiated bankruptcy terms or into rejecting any of

the plaintiffs’ Chrysler franchise agreements in the Chrysler bankruptcy.4 The evidence

established that the government did not force Chrysler to accept its bankruptcy terms.

The evidence established that the government was willing to give $750 million to

Chrysler if Chrysler wished to proceed to bankruptcy alone.

The government’s evidence also established that the government through its

actions did not interfere with potential acquirers from coming forward to purchase

Chrysler in bankruptcy. The evidence established that none of the potential acquirers the

plaintiffs’ identified were interested or capable of purchasing Chrysler in April 2009. The

evidence established that Chrysler accepted the government’s prepackaged bankruptcy

plan based on Chrysler’s best business judgment after consideration of its options. The

evidence further established that had the government not provided financial assistance to

Chrysler, Chrysler would have been forced into liquidation under Chapter 7 of the

Bankruptcy Code and that, in that circumstance, all of plaintiffs’ franchise agreements

4 The plaintiffs conceded that Chrysler was not acting as the government’s agent in this case. Tr.4821:25-4822:5. Thus their entire case hinged on their proving the government by its actions coerced Chrysler into entering bankruptcy under prepackaged terms negotiated by the government. 11 would have been rejected by the bankruptcy trustee. The evidence thus established that

Chrysler’s decision to accept the government’s prepackaged bankruptcy terms was a

voluntary decision and not coerced.

Because the evidence established that Chrysler would have faced immediate

liquidation in a Chapter 7 bankruptcy without government assistance, the court also finds

that plaintiffs failed to prove their franchise agreements would have had value in a “but

for world” without government assistance. The evidence established that in a Chapter 7

bankruptcy all of Chrysler’s franchise agreements would have been rejected by the

bankruptcy trustee to preserve the assets of the bankruptcy estate and that plaintiffs’

franchise agreements would have had no economic value in that circumstance. Thus,

plaintiffs failed to prove that any property of value was “taken” from them.5

In reaching these conclusions, as discussed in the opinion, the court is mindful of

the testimony it heard from the owners of each representative franchise and appreciates

the sense of betrayal they felt when they learned that Chrysler had decided to reject their

franchise agreements in the April 2009 Chrysler bankruptcy. The court sympathizes with

many of these owners who testified as to how the loss of their franchise agreements

devastated not only their businesses but their lives. Nonetheless, the court was tasked

with deciding whether the plaintiffs proved that the United States coerced Chrysler into

rejecting their franchise agreements and whether their franchise agreements would have

5 Because the court reaches these conclusions, the court does not discuss in this opinion other issues presented at trial as to whether the taking alleged by the plaintiffs was a per se taking or should be evaluated under the Penn Central factors. See A&D Auto Sales, 748 F.3d at 1151, 1159.

12 had any value during the Great Recession in a “but for world” without the government’s

financial assistance. For the reasons discussed below, the court was compelled to find

that the plaintiffs did not meet their burden and it is for those reasons that plaintiffs’

taking claims have been rejected.

The court’s opinion begins with a lengthy summary of the evidence presented

followed by detailed findings of fact and conclusions of law as follows: (I) Summary of

the Individual Plaintiffs’ Testimony and Claims, (II) Summary of the Plaintiffs’

Evidence, (III) Summary of the Government’s Evidence, and, finally, (IV) Findings of

Fact and Conclusions of Law.

I. SUMMARY OF INDIVIDUAL PLAINTIFFS’ TESTIMONY AND CLAIMS

Based on the evidence summarized below, the court has made the following

findings regarding the terms of the plaintiffs’ franchise agreements, the profitability of

their franchises before their Chrysler franchise agreements were rejected in the Chrysler

bankruptcy, Chrysler’s justification for rejecting their franchise agreements in

bankruptcy, and their participation or decision not to participate in an arbitration program

established by Congress after the Chrysler bankruptcy to allow Chrysler franchisees to

seek reinstatement as New Chrysler franchisees. The court also summarizes the amount

each plaintiff claims as just compensation based on their experts’ valuations.

A. Taylor & Sons Inc. Gregory Taylor testified on behalf of the Taylor & Sons, Inc. (“Taylor”)

dealership, which for the years at issue was located at 300 Cedar Street in Sandpoint,

Idaho. Taylor was incorporated under Idaho state law. The dealership included Chrysler,

Dodge, and Jeep franchises at the time of the alleged taking. Taylor also had a GM

13 franchise allowing it to sell Chevrolet vehicles at the time of the alleged taking of its

Chrysler franchises. Taylor operated its Chrysler/Dodge/Jeep and Chevrolet dealership

under the same roof from 1988 until 2009. Taylor continues to sell Chevrolet vehicles

under its franchise agreement with New GM.

Taylor was formed in August 1988 and when it purchased a majority interest in an

existing Chevrolet, Oldsmobile, Chrysler, Dodge, and Plymouth dealership. In September

1988, Taylor was awarded a new Chrysler franchise agreement, a new Plymouth

franchise agreement,6 and a new Dodge franchise agreement. PX162 (Chrysler,

Plymouth, and Dodge Agreements). In June 1998, Taylor was awarded a Jeep franchise

which was subject to the same terms as the Chrysler, Plymouth, and Dodge franchise

agreements. DX39 (Jeep Agreement).

The Chrysler, Dodge, and Jeep franchise agreements Taylor entered into with

Chrysler were virtually identical. Entitled “Sales and Service Agreements,” the franchise

agreements provided Taylor with the “right to order and purchase from [Chrysler] and to

sell at retail . . . those specific models of [Chrysler] vehicles . . . listed on the Motor

Vehicle Addendum[.]” PX162 (Chrysler and Dodge Agreements), DX39 (Jeep

Agreement). The Motor Vehicle Addendum (“MVA”) to Taylor’s Chrysler franchise

agreement allowed it to sell “[a]ll passenger cars of the Chrysler line-make.” PX162. The

6 Chrysler stopped producing Plymouth cars in 2001 and terminated all Plymouth franchises, including the Taylor franchise, on September 30, 2001. Taylor, along with all other Plymouth franchise holders, received a letter from Chrysler on September 19, 2000, a year before the termination, informing them that the Plymouth line would end with the 2001 model year. In these letters, Chrysler agreed, consistent with the terms of the Plymouth franchise agreements, to buy back all new vehicles, parts, accessories, and signs from terminated Plymouth franchise holders. 14 MVA to the Dodge franchise agreement allowed it to sell “[a]ll passenger cars of the

Dodge line-make” and “[a]ll trucks of the Dodge line-make.” PX162. The MVA for the

Jeep dealership allowed Taylor to sell “all trucks in the Jeep Line-make.” DX39.

In addition to allowing Taylor to sell the above-mentioned Chrysler vehicles, the

agreement also contained a “Sales Locality” provision which identified the “territory of

DEALER’s responsibility for the sale of [Chrysler, Dodge or Jeep] vehicles, vehicle parts

and accessories.” PX162; DX39. Taylor’s sales locality ranged from twenty-five to

seventy-five miles from its dealership depending on the direction and county boundaries.

In the same Sales and Service Agreement, Taylor agreed to build a facility in a specific

area meeting the requirements set forth by Chrysler for “new and used vehicle display

areas, salesrooms, service areas, parts and accessories areas, building exterior and

grounds [that would be] satisfactory to [Chrysler] as to appearance and layout, and [that

would] be maintained and used as set forth in the Dealership Facilities and Location

Addendum.” DX1424.

Taylor’s franchise agreements with Chrysler also required that it agree to “service

[Chrysler] vehicles actively and effectively and provide and maintain, for servicing

[Chrysler] vehicles, adequate facilities equipped with the basic tools common to the trade

and with special tools and equipment peculiar to [Chrysler] products and necessary for

servicing and repairing specified [Chrysler] vehicles proper, efficiently, and

competitively.” Id. As part of its service obligation to Chrysler, Taylor was further

required to “cause its service personnel to receive such training from time to time

required by [Chrysler] to maintain their technical expertise to render competent customer

service, including the use of improved methods of repair, or the repair of new parts or 15 systems, developed by [Chrysler].” Id. Furthermore, the franchise agreements required

Taylor to “at all times keep on hand . . . the number and assortment of [] parts that in

[Chrysler’s] judgment is necessary to meet the service requirements and to meet all of

[the] obligations” under the franchise agreement. Taylor’s franchise agreements also

required franchisees to “submit to [Chrysler], in such manner, in such form, and at such

times as [Chrysler] may reasonably request, complete and accurate reports of sales and

stocks of new and used vehicles on hand and other reports, including monthly financial

statements and operating reports.” Id. These reports were admitted into evidence as

exhibits PX181, PX187, PX188, PX189, PX182, PX184 for the years between 2004 and

2009 and included information on each of the following income streams: (1) new car

sales, (2) used car sales, (3) warranty service work, (4) customer pay service work, (5)

miscellaneous (body shop, finance and insurance, etc.).

Finally, each of Taylor’s franchise agreements identified standardized additional

terms regarding Chrysler and Taylor’s rights in the event of termination. Paragraph 28

describes the various ways in which Chrysler and a dealer can terminate the franchise:

(a) DEALER may terminate this Agreement on not less than thirty (30) days written notice. (b) [Chrysler] may terminate this Agreement on not less than (60) days written notice for the following reasons: . . . failure of DEALER to meet its minimum service satisfaction requirements . . . failure of DEALER to perform fully any of DEALER’s undertakings or obligations as set forth in this Agreement . . . the conviction of DEALER . . . of any crime . . . impairment of the reputation or financial standing of DEALER . . . (c) Notwithstanding the provision above this Agreement will terminate automatically without notice from either party on: . . . (v) the discontinuance by [Chrysler] of the production or

16 distribution of all [Chrysler] vehicles listed on the Motor Vehicle Addendum[.] DX1424. Under the agreements, if Chrysler terminates a franchise pursuant to Paragraph 28,

Chrysler agreed

to buy and DEALER agrees to sell, free and clear of any liens and encumbrances, within ninety (90) days after the effective date of any termination under Paragraph 28: (a) All new, unused and unsold specified [Chrysler] vehicles . . . (b) All new, unused and undamaged [Chrysler] parts that are priced and identified as eligible for return . . .(c) All new, unused and undamaged [Chrysler] accessories or accessories packages for the yearly model current at the effective date of termination . . . (d) All signs of a type required by [Chrysler] belonging to DEALER, showing the name ‘Chrysler Corporation’ or one of the designated trade names applicable only to [Chrysler] products or [Chrysler’s] affiliated companies. . . (e) Special tools (in complete sets), of a type recommended by [Chrysler], adapted only to the servicing of [CHRYSLER] vehicles and purchased by DEALER during the thirty-six (36) months immediately preceding the effective date of termination at a price and under terms and conditions to be agreed upon by [Chrysler] and DEALER.

Id.

Mr. Taylor and each of the other plaintiffs who testified explained that they

understood that, regardless of the above-cited termination provisions in the franchise

agreements, each of their franchise agreements were also subject to state laws precluding

the termination of dealerships under state law unless certain criteria were met.7

7 Idaho state law provides that “a manufacturer shall not cancel, terminate or fail to renew any franchise agreement with a dealer unless the manufacturer has satisfied the notice requirement of subsection (2) of this section and has good cause for cancellation, termination or nonrenewal.” Idaho Code Ann. § 49-1614(1) (West 2009). Specifically, Idaho law provides that “[n]otwithstanding the terms, provisions or conditions of any franchise agreement or of any waiver, good cause shall exist for the purposes of termination, cancellation or nonrenewal when there is a failure by the dealer to comply with a provision of the franchise agreement, where the 17 On May 13, 2009, after Chrysler had filed for bankruptcy on April 30, 2009,

Taylor received a letter from Chrysler stating that all three of its Chrysler franchise

agreements would be rejected in bankruptcy. The letter stated in full:

As you know, we are in the process of seeking approval of the sale of our primary operating assets to a new company. The unprecedented decline in the industry has had a significant impact upon sales and requires the new company to reduce production levels to better match ongoing demand. With the downsizing of operations following the sale and reduction of plants and production, similar reductions must be made in the size of the dealer body. With regret, this letter is to inform you that on May 14th, 2009, we are filing a motion in bankruptcy court rejecting the Sales and Service Agreement(s) between Chrysler Motors LLC and the dealership listed above. Upon approval from the court, your agreement will be rejected on or about June 9, 2009. We intend to maintain “business as usual” with you until the rejection takes place. We intend to honor warranty and incentive payments, during the period that you remain an active dealer subject to available financing. It is necessary to work together to make this transition as seamless as possible to your customers. After rejection, we want to work with you to assist in the redistribution of new vehicles and parts to ease the burden on you. Attached to this letter, please find further details regarding the transition period. Your business center will be in touch to offer assistance. These are extraordinary times, and they call for extraordinary efforts. It is with a sense of profound sadness

provision is both reasonable and of material significance to the franchise agreement relationship, and provided that the dealer has been notified in writing of the failure within one hundred eighty (180) days prior to termination, cancellation or nonrenewal. A protest may be filed in accordance with the provision of section 49-1617, Idaho Code.” Idaho Code Ann. § 49-1614(4). However, the Idaho Code provides that a franchise agreement cannot be terminated because its owner has a franchise agreement with another automobile manufacturer. Idaho Code Ann. § 49-1614(5). Furthermore, Idaho law provides that “[t]he manufacturer shall have the burden of proof under this section concerning the issue of good cause, which shall include, but not be limited to, termination, nonrenewal or cancellation of any franchise agreement by the manufacturer for insolvency, license revocation, conviction of a felony, fraud by a dealer or failure by a dealer to comply with a provision of the franchise agreement, where the provision is both reasonable and of material significance to the franchise agreement relationship.” Idaho Code Ann. § 49-1614(6).

18 that we must take this step and reject some of our dealer Sales and Service Agreement(s), but it’s a necessary step in the process of pursuing and completing the sale of our assets to the new company. We wish there was a better way, but there isn’t. We are grateful for the support you and your company have provided Chrysler over the years and we wish you the best under these circumstances.

PX178.

The justification for rejecting Taylor’s Chrysler franchises in bankruptcy were

explained by Peter Grady, Chrysler’s Director of Dealer Operations at the time of the

Chrysler bankruptcy. In his testimony, Mr. Grady explained that Chrysler examined

several criteria in selecting which franchisees to reject in bankruptcy. These criteria, he

further explained, grew out of an earlier voluntary effort by Chrysler to rationalize or

reduce its dealership network under a program called “Project Genesis.” Project Genesis,

which is discussed in greater detail later in the opinion, identified several criteria which

Chrysler employed in an effort to get all of its dealers to sell all Chrysler brands under

one roof and to ensure that each such dealer would have sufficient market share to

maximize profitability. The Project Genesis criteria were modified in the month leading

up to the Chrysler bankruptcy when the option of rejecting franchise agreements in

bankruptcy without regard to state law became more likely.

As discussed in more detail infra by the plaintiffs’ bankruptcy expert Judge

Fitzgerald and the government’s bankruptcy expert Judge Gerber, under the Bankruptcy

Code, executory contracts can be rejected in bankruptcy without regard to state law in

order to preserve estate assets. Judge Fitzgerald and Judge Gerber also explained that

rejecting a franchise agreement in bankruptcy is legally distinct from terminating a

19 franchise agreement. Rejection excuses the party filing for bankruptcy from having to

continue performance under the contract. To the extent the contracting party has a breach

of contract claim arising from the rejection of the agreement, the contracting party, here

the franchisee, has an unsecured claim in the bankruptcy.

According to Mr. Grady, Chrysler consulted with Fiat, the New Chrysler owner, to

determine which franchisees out of the total number of 3100 should have their franchise

agreements rejected in bankruptcy. Eventually Chrysler selected 789 franchisees for

rejection. In determining which 789 franchisees to reject in bankruptcy, Mr. Grady

testified that Chrysler examined the following: (1) whether the franchise was meeting its

Minimum Sale Responsibility (“MSR”)8, (2) the franchise’s Scorecard for Sales,9 Share,

Shipments, Warranty, etc., (3) whether the franchise facility had adequate capacity and

met Chrysler’s standards, (4) the franchise location, (5) the franchise’s financial strength,

(6) the franchise’s management, (7) whether the franchise had a “dual” or competitor’s

dealership under the same roof, and (8) whether it was a single point franchise, meaning

it did not have all three Chrysler brands under one roof. Tr.3598:8-3602:21.

8 Each franchise agreement required franchisees to meet MSR. Steven Landry, Chrysler’s Executive Vice President of sales and marketing, explained that the MSR was calculated by taking the number of new Chrysler vehicles registered in a state and comparing that number to the number of total new vehicles registered in that state to determine the market share for Chrysler vehicles in that location. Tr.3471:14-3472:19. An MSR was then set based on the number of new vehicles the franchisee would need to sell for Chrysler to maintain its market share. Id. Put another way, the MSR was used to determine if a dealership held the same market share in its sales locality as Chrysler held either on the state or national level. Id. 9 Mr. Grady explained that each dealer received a scorecard which was “made up of a total of 1000 points, and the detail within the scorecard mainly focused on sales versus targets, market share within the dealer’s geographic area, shipments versus targets, and then customer profile targets,” customer satisfaction, and warranty work. Tr.3599:7-3600:2. 20 Mr. Grady explained that Taylor’s three franchises were rejected by Chrysler in

bankruptcy because together they had only met 36% of its MSR, sold less than 100 new

Chrysler vehicles the previous year, and were co-located under one roof with a Chevrolet

franchise. Tr.3809:23-3810:23; DX1315.

After Taylor received the May 13, 2009 letter informing it that all of its Chrysler

franchise agreements would be rejected, Taylor sold its remaining new Chrysler brand

vehicles either “a few thousand dollars over net . . .[but] for far less than [Taylor] paid

Chrysler to purchase them[,]” “for net cost, meaning that [Taylor] made no profit on them

despite housing and advertising the vehicles for months[,]” or by “trad[ing] [the]

remaining Chrysler new inventory, Chrysler for GM, with another dealer who had been

notified that his GM franchise would be terminated.” Tr.294:13-25. Regarding the

Chrysler parts Taylor had in stock, Taylor explained that the dealership “traded some

parts to the same terminated General Motors dealer, to the extent [it] could, and used

some of the parts on Chrysler vehicles that [it] continued to service. [Taylor] eventually

threw the remaining parts in the dumpster.” Tr.295:4-8. Finally, Taylor disposed of

Chrysler specialized tools and equipment in an auction “but could only earn pennies on

the dollar.” Tr.295:11-13.

In December 2009, eight months after Chrysler had filed for bankruptcy, Congress

enacted Section 747 of the Consolidated Appropriations Act of 2010, Pub. L. 111-117

(“Section 747”) to allow dealerships to seek a franchise with New Chrysler under an

arbitration program. If a dealer won in arbitration it would receive a customary and usual

letter of intent to enter into a franchise agreement with New Chrysler. Taylor elected not

to participate in the arbitration program “because there was nothing left and [Taylor] 21 would have had to buy something [it] previously owned, and it would have cost a lot of

money.” Tr.326:14-17.

Taylor’s 2010 financial statement for its Chevrolet franchise showed that Taylor

received a net income of $94,122 from that dealership. DX614. As noted, Taylor

continues to operate as a Chevrolet dealer to the present day. Tr.299:10-13.

Taylor claims that the rejection of its three Chrysler franchise agreements in the

Chrysler bankruptcy amounts to a taking because the government coerced Chrysler into

bankruptcy with a plan that included the rejection of its franchise agreements. Taylor

claims it is entitled to just compensation. Plaintiffs’ valuation expert Diane Anderson

Murphy,10 based on instructions she received from the Alley’s plaintiffs’ counsel,

provided valuation opinions for two dates: December 2008 and April 2009. During

closing argument, counsel for the Alley’s plaintiffs stated that April 30, 2009 was the date

of any “taking” by the government and that the compensation the Alley’s plaintiffs are

seeking is based on the value of their franchise, as determined by Ms. Murphy, on that

date. See Tr.5097:23-5098:14, Tr.5109:22-5110:5. In addition to Ms. Murphy’s valuation

10 As will be described in further detail infra, Ms. Murphy is a Director with the Valuation Services Group of Moss Adams LLP. She is the coauthor of several versions of the National Automobile Dealers Association’s dealership valuation guide and she has managed or staffed well over 1,500 dealership appraisal projects.

22 opinions, plaintiffs relied on the opinion testimony of the plaintiffs’ three other experts:

David Berliner,11 Judge Judith Fitzgerald,12 and Maryann Keller.13

As discussed in greater detail infra, Ms. Murphy opined that the economic loss

Taylor sustained from the rejection of its franchise agreements on either date of taking

she examined is equal to Taylor’s entire Chrysler dealership as an ongoing business.

According to Ms. Murphy, although the franchise agreement is an intangible asset, its

value is equal to all the net income generated by the dealership as well as the physical

assets associated with those income streams. Thus, in valuing the franchise agreements

on the dates selected, she considered the income streams from not only new car sales and

warranty work, which are expressly derived from Chrysler’s obligations under the

franchise agreements, but also the net income from used car sales and non-warranty

service work.

11 As will be described in further detail infra, Mr. Berliner is the partner in charge of BDO’s Business Restructuring Services Group with advisory and consulting experience in the areas of business restructuring, reorganizations, Section 363 sales, and debtor-in-possession financing. He has worked on bankruptcy cases involving the liquidation of large corporations such as Sports Authority Holdings, Malibu Lighting Corporation, Furniture Brands International, American Home Mortgage, and Pillowtex Corporation. 12 As will be described in further detail infra, Judge Fitzgerald is a former United States Bankruptcy Judge who sat in the Western District of Pennsylvania for over twenty-five years, the District of Delaware for twenty years, the Eastern District of Pennsylvania for eight years and in the District of the United States Virgin Islands for nine years. During her tenure as a Bankruptcy Judge she presided over hundreds of Chapter 11 bankruptcies, including cases that involved the assumption or rejection of executory contracts such as franchise agreements and licenses. 13 As will be described in further detail infra, Ms. Keller is the Principle at Maryann Keller & Associates who provides automotive-related advisory services to companies, investors, and professional firms. She has advised clients on issues across the automotive supply chain, from component companies to retail sales. 23 In valuing Taylor’s franchise, Ms. Murphy also made several assumptions

regarding the fate of Chrysler in a “but for world” without government financial

assistance. Ms. Murphy assumed that all of Chrysler’s assets would have been sold in

bankruptcy to a third party. She also assumed that the new Chrysler would either (1)

continue indefinitely to produce all of Chrysler’s product lines or (2) continue

indefinitely with production of only the Chrysler trucks. She assumed production under

either scenario would not have been interrupted during the bankruptcy and that the

franchisees would have continued to receive new cars and/or trucks to sell without

significant interruption. Ms. Murphy further assumed that Taylor (and all the other

Alley’s plaintiff franchiseeships she valued) would have had their franchise agreements

assumed by any new Chrysler owner and thus would have been able to continue as

Chrysler franchisees without interruption. Ms. Murphy further testified that the terms of

the franchise agreements assumed by Chrysler’s new owner would not be altered by the

new owner. Finally, she assumed that the economy on both dates was recovering and

would grow at a healthy rate.14

Ms. Murphy based her valuations for Taylor on financial statements Taylor

submitted to Chrysler for 2004, 2005, 2006, 2007, 2008, and from January to May 2009.

PX181, PX187, PX188, PX189, PX182, PX184. These financial statements reported

income on Taylor’s three major income streams: new car sales, used car sales, and fixed

services (warranty service, customer pay service, and parts). In addition, for plaintiffs,

14 Much of Ms. Murphy’s testimony was devoted to explaining the local economy of each of the Alley’s plaintiffs’ market and how those economic conditions were improving during the early portion of 2009. 24 like Taylor, with franchise agreements with another automobile manufacturer, Ms.

Murphy applied a “used to new formula” to determine the proportion of new car sales,

used car sales, service, and parts that should be attributed to only to the Chrysler

franchise. Based on this “used to new formula,” Ms. Murphy calculated that Taylor’s

Chrysler franchises gave Taylor a net income of $117,514 in 2004, $75,901 in 2005,

$89,634 in 2006, $103,287 in 2007, $83,555 in 2008, and $24,200 from January to May

2009. See PX244.1B.

Using the above-cited income amounts and the assumptions she made about

Chrysler and the economy, Ms. Murphy opined that the value of Taylor’s franchise

agreements, in a “but for world” without government assistance, would have been worth:

(1) $686,000 where Chrysler enters bankruptcy but continues to produce cars and trucks

or (2) $558,000 for where Chrysler enters bankruptcy but continues to produce only

trucks. Tr.1406:6-7.

B. Cedric Theel Inc.

Cedric Theel testified on behalf of the Cedric Theel Inc. (“Theel”) dealership

which for the years at issue was located at 3955 Trenton Drive Bismarck, North Dakota.

Theel was incorporated under the laws of North Dakota. The dealership included a Dodge

franchise at the time of the alleged taking. Theel also had a Toyota franchise at the time

of the alleged taking.

Theel was incorporated in 1983 and in 1985 Theel purchased a Dodge dealership

in Bismarck, North Dakota. Tr.408:4-24. The Dodge franchise agreement that was

eventually rejected in bankruptcy was awarded to Theel on February 1, 2000. In 1990

25 Theel obtained the right to sell Mitsubishi. Tr.409:14-15. In 1992 Mr. Theel and his wife

purchased the Toyota and Hyundai dealership that was next door to the Theel Dodge

dealership and placed ownership of that dealership under a new company, Cedric Theel

Ltd. In 1995, the Dodge and Toyota dealerships were consolidated under one roof and

under the ownership of Theel. Tr.408:4-409:21.

The Dodge franchise agreement that Theel entered into in February 2000 is

identical in form and substance to the Dodge franchise agreement described and quoted

in the preceding section describing the Taylor franchise agreements and is not repeated

here. See PX191 (Dodge Agreement). Mr. Theel explained that he understood regardless

of the above-quoted termination provisions in his franchise agreement that his Dodge

franchise agreement was also subject to state law protection. 15 Tr.417:7-13.

On May 13, 2009, Theel received a letter from Chrysler stating that its Dodge

franchise agreement would be rejected in bankruptcy. The letter is identical to that

received by Taylor and the other representative plaintiffs in this case. DX449. Mr. Grady,

Director of Dealer Operations, explained that Theel’s Dodge franchise agreement was

rejected by Chrysler in bankruptcy because Theel’s MSR was only 70%, it was a single

Dodge franchise dealer, and it had a dual dealership with Toyota. Tr.3801:4-3803:14;

DX1315.

15 North Dakota law provides that a manufacturer may not “[a]ttempt or threaten to terminate, cancel, or fail to renew or substantially change the competitive circumstances of the dealership contracts for any reason other than failure of the automobile or truck retailer to comply with the terms of the contract between the parties, if the attempt or threat is based on the results of a circumstance beyond the retailer’s control, including a natural disaster in the dealership market area or a labor dispute.” N.D. Cent. Code Ann. § 51-07-02.3(5) (West 2009). 26 After Theel received the May 13, 2009 letter informing it that its Dodge franchise

agreement would be rejected, Theel had “about 60 new Dodge vehicles on hand at the

time.” Tr.421:15. Theel sold “most of the new Dodge cars to customers at fire sale prices

. . . [and] [s]ome [other dealers] bought the remainder of [its] new Dodge inventory” all

at a loss. Tr.421:22-24. Theel also had “approximately $200,000 in Dodge parts” which it

sold “to a warehouse for 25 to 75 percent less than what [it] paid for them.” Tr.422:2-6.

Additionally, Theel “tried to convert [the] servicing area for Toyota servicing, but a lot of

the equipment was not suited for Toyotas, including all of the diesel engine service

equipment, which was for Dodge vehicles only.” Tr.422:20-23. Theel also sold a $30,000

sign that it had purchased shortly before its Dodge franchise was rejected to another

Chrysler dealer for only $16,000. Tr.423:10-13. Mr. Theel testified that he elected not to

participate in the Section 747 arbitration process because he never got an answer as to

why his Dodge franchise was terminated. Tr.452:4-8. Theel’s 2010 financial statement

for its Toyota franchise showed that Theel earned a net income of $606,447 from that

dealership. DX621. Theel’s 2011 financial statement shows that its Toyota dealership

earned a net income of $674,499. DX653. Theel continues to operate as a Toyota dealer

to the present day.

Theel claims that the rejection of its Dodge franchise agreement in the Chrysler

bankruptcy amounts to a taking and, for the same reasons as relied on by Taylor, seeks

just compensation. As with Taylor, Theel relies on Ms. Murphy to establish the value of

the franchise agreement at the time of the alleged taking. After reviewing Theel’s 2004,

2005, 2006, 2007, 2008 and January to May 2009 financial statements, DX77, DX107,

DX139, DX197, DX312, Ms. Murphy calculated that Theel’s Dodge franchise agreement 27 generated a net income of $130,323 in 2004, $175,006 in 2005, $97,377 in 2006,

$142,333 in 2007, and $69,279 in 2008. See PX244.1E.

Using these values and her assumptions, Ms. Murphy calculated the amount of just

compensation Theel is seeking for the claimed taking of its Dodge franchise agreement.

Under Ms. Murphy’s income valuation approach, the amount of just compensation Theel

is seeking for the claimed taking of the franchise agreement on April 30, 2009 is either

(1) $709,000 where Chrysler enters bankruptcy but continues to produce cars and trucks

or (2) $621,000 for where Chrysler enters bankruptcy but continues to produce only

trucks. Tr.1406:12-13.

C. Mansfield Motor Group/Whitey’s Auto Group

Dirk Schluter testified on behalf of Mansfield Motor Group, d/b/a Whitey’s Auto

Group (“Whitey’s”) which for the years at issue was located at 1493 Park Avenue West,

Mansfield, Ohio. Whitey’s was incorporated under the laws of Ohio. The dealership

included a Chrysler franchise at the time of the alleged taking. Tr.817:12-13. Whitey’s

also had a Lincoln-Mercury franchise under the same roof as the Chrysler franchise at the

time of the alleged taking. Whitey’s was incorporated in 1947 and received its first

Chrysler franchise agreement in the mid-1960s. Tr.818:14-17, 819:16-18.

In August 2001, Whitey’s was awarded a new Chrysler agreement when Mr.

Schluter and his brother became the new owners of Whitey’s. Tr.820:5-15. The 2001

franchise agreement is the agreement that was rejected in the Chrysler bankruptcy. The

Chrysler franchise agreement that Whitey’s entered into in August 2001 is identical in

form and substance to the Chrysler franchise agreement described in the preceding

section regarding Taylor & Sons. PX224. Mr. Schluter explained that he understood that 28 regardless of the above-cited termination provisions that his franchise agreement was also

subject to state laws precluding the termination of franchise agreements under state law.16

Tr.824:15-21.

On May 13, 2009 Whitey’s received a letter from Chrysler stating that its Chrysler

franchise agreement would be rejected in bankruptcy. The letter is identical to the ones

received by other representative plaintiffs in this case. PX239. Mr. Grady, Director of

Dealer Operations, explained that Whitey’s Chrysler franchise was rejected by Chrysler

in bankruptcy because it only met 45% of its MSR, was a dual dealership with a Lincoln

franchise, and was only a single Chrysler franchise dealer. Tr.3806:21-3803:13; DX1315.

After Whitey’s received the May 13, 2009, it was able to “place[] [its] [new]

inventory with another dealer, [although it] lost money on the vehicles.” Tr.831:15-17.

Whitey’s also lost money on its “inventory of used Chrysler vehicles because [it] could

no longer sell them with a certified status of used cars and with the manufacturer

16 Ohio law provides that “no franchisor shall terminate or fail to continue or renew a franchise except for good cause.” Ohio Rev. Code Ann. § 4517.54(A) (West 2009). Ohio law also provides that “[i]n determining whether good cause has been established by the franchisor for terminating or failing to continue to renew a franchise, the motor vehicle dealers board shall take into consideration the existing circumstances, including, but not limited to: (1) The amount of retail sales transacted by the franchisee during a five-year period immediately preceding such notice as compared to the business available to the franchisee; (2) the investment necessarily made and obligations incurred by the franchisee to perform its part of the franchise; (3) the permanency of the franchisee’s investment; . . . (7) the extent and materiality of the franchisee’s failure to comply with the terms of the franchise and the reasonableness and fairness of the franchise terms . . . .” Ohio Rev. Code Ann. § 4517.55(A) (West 2009). Ohio law also specified that “[n]otwithstanding the terms, conditions, or provisions of any franchise or waiver, the following do not constitute good cause for terminating or failing to continue or renew a franchise: (1) Refusal by the franchisee to purchase or accept delivery of any new motor vehicle, parts, accessories, or any other commodity or service not ordered by the franchisee; (2) The fact that the franchisee or the owner of any interest therein, owns, has an investment in, participates in the management of, or holds a license for the sale of the same or any other line-make of new motor vehicle; . . . (5) Failure of the franchisee to achieve any unreasonable or discriminatory performance criteria.” Ohio Rev. Code Ann. § 4517.55(B) (West 2009). 29 warranty,” and sold them often at a loss. Tr.831:18-22. Whitey’s lost money on the

inventory of Chrysler-specific parts although it was able to use some of the parts in

customer-pay service. Tr.832:14-18. Whitey’s also “threw out the remaining Chrysler

signage, as well as the Chrysler brochures and other advertising material.” Tr.832:20-23.

Whitey’s filed a request for arbitration and received $10,000 in settlement from New

Chrysler. Tr.833:15-21.

In August of 2008 Whitey’s acquired franchise agreements to sell Volvo and

Mercedes-Benz vehicles. Whitey’s financial statement for its Lincoln, Volvo, and

Mercedes-Benz franchises showed that Whitey’s earned a net income of $157,562 in

2010, the first full year without the Chrysler franchise. Tr.891:17-19; DX1493.

Whitey’s claims that the rejection of its Chrysler franchise agreement in the

Chrysler bankruptcy amounts to a taking for the same reasons as relied on for plaintiffs

Taylor and Theel. Whitey’s relies on Ms. Murphy for the valuation of the franchise

agreement. Ms. Murphy, after reviewing Whitey’s 2005, 2006, 2007, 2008, and January

to May 2009 financial statements, PX223, PX233, calculated that Whitey’s Dodge

franchise agreement resulted in a net income of $195,853 in 2004, $127,940 in 2005,

$159,309 in 2006, $120,535 in 2007, $61,415 in 2008 and $30,292 between January and

May 2009. PX244.1D.

Using these values and her assumptions, Ms. Murphy calculated the amount of just

compensation Whitey’s is seeking for the claimed taking of the franchise agreement.

Under Ms. Murphy’s income valuation approach, the amount of just compensation

Whitey’s is seeking for the April 30, 2009 taking date is either (1) $524,000 where

30 Chrysler enters bankruptcy but continues to produce cars and trucks, or (2) $292,000 for

where Chrysler enters bankruptcy but continues to produce trucks. Tr.1406:10-11.

D. RFJS Company, LLC Robert L. Frederick II and John Scotford Jr. testified on behalf of RFJS Company,

LLC (“RFJS”), which for the years at issue was located at 7871 Market Street Boardman,

Ohio. RFJS was incorporated under Ohio state law. Tr.967:13. The dealership at the time

of the rejection of the franchise agreements included Chrysler, Dodge, and Jeep

franchises. Tr.972:14-15. RFJS did not have any franchise agreements with other auto

manufacturers at that time. RFJS was formed in 2006. Mr. Fredrick contributed the

Dodge franchise agreement that he owned to RFJS and Mr. Scotford contributed the cash

that was used to purchase a Chrysler/Jeep dealership. Tr.966:34-967:8. The Dodge

franchise agreement that Mr. Fredrick contributed was awarded to RFJS in October 2006.

DX130. This Dodge franchise agreement was identical in form and substance to the

franchise agreements described above.

RFJS’s Chrysler and Jeep franchise agreements, however, were different from

those described above. RFJS’s “Sales and Service Agreement[s]” contained different

terms. DX131; DX132. Instead of having an indefinite franchise agreement that could

only be terminated upon specified events, RFJS’s Chrysler and Jeep franchise agreements

provided that they only continued “in effect until the expiration of 24 months after the

execution date at which time this Term Agreement will terminate automatically without

notice to or by either party.” Id. The agreements went on to state that “[i]f this Term

Agreement is not terminated as provided herein or in Paragraph 28 of said Terms and

Provisions, and thus continue in effect for the period set forth in the immediately

31 forgoing Paragraph, [Chrysler], at the expiration of such period, will enter into the

Standard Chrysler Corporation Sales and Service Agreement current at the date of said

expiration, for such specified [Chrysler] vehicles with DEALER, provided that DEALER

has fulfilled each and every condition set forth in [the Agreement].” Id. RFJS received its

Term Sales and Service Agreements for its Chrysler and Jeep franchises on October 27,

2006. Id. As part of the term franchise agreements RFJS had to build a satisfactory

dealership facility at 7870 Market Street, Boardman, Ohio within twelve months of the

execution of the Chrysler and Jeep franchise agreements. Id.

As of October 2007, RFJS had not met its obligation to build a facility at 7871

Market Street to Chrysler’s standards. On May 20, 2008, RFJS got a one-year extension

of its Chrysler and Jeep franchise agreements in order to complete the construction of a

facility at 7871 Market Street. DX253.

Mr. Fredrick and Mr. Scotford testified that they understood that, despite the

above-cited termination provisions, their Chrysler, Dodge, and Jeep franchise agreements

were subject to state laws and could not be terminated or not renewed unless certain

criteria were met.17

17 Ohio law provides that “no franchisor shall terminate or fail to continue or renew a franchise except for good cause.” Ohio Rev. Code Ann. § 4517.54(A) (West 2009). Ohio law also provides that “[i]n determining whether good cause has been established by the franchisor for terminating or failing to continue to renew a franchise, the motor vehicle dealers board shall take into consideration the existing circumstances, including, but not limited to: (1) The amount of retail sales transacted by the franchisee during a five-year period immediately preceding such notice as compared to the business available to the franchisee; (2) the investment necessarily made and obligations incurred by the franchisee to perform this part of the franchise; (3) the permanency of the franchisee’s investment; . . . (7) the extent and materiality of the franchisee’s failure to comply with the terms of the franchise and the reasonableness and fairness of the franchise terms . . . .” Ohio Rev. Code Ann. § 4517.55(A) (West 2009). Ohio law also specified that “[n]otwithstanding the terms, conditions, or provisions of any franchise or waiver, the following do not constitute good cause for terminating or failing to continue or renew a franchise: (1) 32 On May 13, 2009, RFJS received a letter from Chrysler stating that its Chrysler,

Dodge, and Jeep franchise agreements would be rejected in bankruptcy. The letter is

identical to that received by the other representative plaintiffs in this case. Tr.970:17-19.

Mr. Grady, Director of Dealer Operations, explained that RFJS’s Chrysler, Dodge, and

Jeep franchise agreements were rejected by Chrysler in bankruptcy because RFJS

dealership was an excess point, i.e. a location that Chrysler determined was no longer

valuable and because the dealership was operating at a loss and had been placed on a

finance hold by Chrysler Financial.18 DX1315.

After RFJS received the May 13, 2009 letter informing it that its Chrysler, Dodge,

and Jeep franchise agreements would be rejected, “all of [its] new cars either ended up

being retailed or wholesaled to other dealers [it] had good relationships with,” but “that

really didn’t help[.]” Tr.972: 7-10. RFJS “made the best deal [it could for] parts. [Its]

tools and equipment were sold at an auction,” but it got “virtually nothing.” Tr.972:20-

Refusal by the franchisee to purchase or accept delivery of any new motor vehicle, parts, accessories, or any other commodity or service not ordered by the franchisee; (2) The fact that the franchisee or the owner of any interest therein, owns, has an investment in, participates in the management of, or holds a license for the sale of the same or any other line-make of new motor vehicle; . . . (5) Failure of the franchisee to achieve any unreasonable or discriminatory performance criteria.” Ohio Rev. Code Ann. § 4517.55(B) (West 2009). 18 Leland Wilson, the Chief Financial Officer of Chrysler Financial between 2007 and 2010, explained the significance of a dealer being placed on a financial hold and not being able to obtain floor plan financing to finance their purchase of new and used cars. He explained that floor plan financing involved dealers “order[ing] cars through Chrysler, Chrysler would ship those cars to the dealers. Each of those dealers that [Chrysler Financial] financed would have a dealer . . . credit line” that would be used to finance the purchase. Tr.3855:9-11. He went on to explain that “the first lien collateral [for the loan] was the vehicle” and that when the car was sold the proceeds were used to pay off the loan the dealer incurred to purchase the car and allowed the dealer to continue purchasing new vehicles. Tr.3855:17-23. RFJS was one of the Chrysler franchisees that relied on Chrysler Financial for floor plan financing. “Financial hold” meant that Chrysler Financial was no longer willing to extend floor plan financing to RFJS and thus it could not obtain new inventory through its Chrysler Financial credit line. Tr.3806:3-8. 33 25. Ultimately, RFJS “shut down the dealership” and “did not consider staying open as a

service and used car dealership because [its] business ran on the new car franchise.”

Tr.973:1-11. After its Chrysler, Dodge, and Jeep franchise agreements were rejected,

RFJS pursued arbitration under Section 747 and settled with New Chrysler for $200,000.

Tr.1029:13-25. Because RFJS did not continue as either a new car dealership or used car

and service dealership there are no financial statements for RFJS past June 2009.

RFJS claims that the rejection of its Chrysler, Dodge, and Jeep franchise

agreements in the Chrysler bankruptcy amounts to a taking of its franchises for the same

reasons relied on by Taylor, Theel, and Whitey’s. RFJS relies on Ms. Murphy’s valuation

as the basis for the just compensation it is seeking. Ms. Murphy, after reviewing RFJS’s

2006, 2007, 2008, and January to May 2009 financial statements, PX153, calculated that

RFJS’s Chrysler, Dodge, and Jeep franchise agreements resulted in a net income of

$104,940 in 2006, $331,375 in 2007, lost $45,125 in 2008, and earned $24,065 from

January to May 2009. PX244.1F.

Using these values and her assumptions, Ms. Murphy calculated the amount of just

compensation RFJS is seeking for the claimed taking of the franchise agreements. Under

Ms. Murphy’s income valuation approach, the amount of just compensation RFJS seeks

for the claimed taking for the April 30, 2009 date is (1) $1,766,000 where Chrysler enters

bankruptcy but continues to produce cars and trucks, or (2) $1,329,000 for where

Chrysler enters bankruptcy but continues to produce only trucks. Tr.1406:14-15.

E. Jim Marsh American Corporation Jim Marsh testified on behalf of Jim Marsh American Corporation (“Marsh”)

which for the years at issue was located 8555 West Centennial Parkway, Las Vegas,

34 Nevada. Tr.367:7. Marsh is incorporated under the laws of Nevada. The dealership

included a Chrysler and Jeep franchise at the time of the alleged taking. In early 2009,

Marsh purchased a Kia, Suzuki, and Mitsubishi dealership. Tr.379:9-12. The Suzuki

dealership closed in 2014 when Suzuki filed for bankruptcy and Marsh sold the

Mitsubishi dealership in 2017. Tr.378:23-25. Marsh still operates a Kia dealership. The

Chrysler and Jeep franchise agreements that were rejected by Chrysler in the Chrysler

bankruptcy were awarded to Marsh on December 21, 2000. Tr.367:21-25. Prior to

receiving these franchise agreements, Marsh had other Chrysler and Jeep franchise

agreements dating back to 1995 and 1971. Tr.366:17-367:20. Marsh’s 2000 Chrysler and

Jeep franchise agreements were identical in form and substance to those of the other

representative plaintiffs in this case. DX44.

Mr. Marsh explained that he knew that state laws protected his franchise

agreements from unjust termination and testified that throughout his several decades of

experience as a new vehicle franchise owner he had never heard of an involuntary

termination of a franchise agreement other than when an owner was convicted of a felony

or some form of fraud.19 Tr.369:21-370:2.

19 Nevada state laws provide that “[n]otwithstanding the terms of the franchise, a manufacturer or distributor shall not terminate or refuse to continue any franchise unless it has received the written consent of the dealer or: (a) It has given written notice of its intention to the dealer and the Director; and (b) Either the following conditions occurs: (1) The dealer does not file a protect with the Director within the time allowed by this section; or (2) After the dealer has filed a protest and the Director has conducted a hearing on the matter, the Director issues an order authorizing the manufacturer or distributor to terminate the franchise or permit it to lapse.” Nev. Rev. Stat. Ann. § 482.36352(1) (West 2009). Furthermore, Nevada state law states that “[i]n determining whether good cause has been established for permitting a manufacturer or distributor to terminate, refuse to continue, modify or replace a franchise, the Director shall consider without limitation: (1) The amount of business transacted by the dealer, as compared to the business available to the dealer . . . (2) The investment necessarily made and obligations incurred by the dealer to perform its part of the franchise . . . (6) The extent of the dealer’s 35 On May 13, 2009, Marsh received a letter from Chrysler stating that its Chrysler

and Jeep franchise agreements would be rejected in bankruptcy. The letter is identical to

that received by the other representative plaintiffs in this case. PX147. Mr. Grady,

Director of Dealer Operations, explained that Marsh’s Chrysler and Jeep franchise

agreements were rejected by Chrysler in bankruptcy because Marsh had only met 38% of

its MSR, it lacked a Dodge franchise agreement, and because Chrysler wanted a third-

party candidate to run a Chrysler, Dodge, and Jeep dealership in a different part of Las

Vegas. DX1315.

After Marsh received the May 13, 2009 letter informing it that its Chrysler and

Jeep franchise agreements would be rejected, it had to “liquidate [its] inventory of new

cars, leaving [it] with an inventory of Chrysler-specific tools that [it[ could no longer use

for warranty service and which [it] could no long use to access the manufacturer’s

computer to perform new car service.” Tr.373:8-12. Also, Marsh “obtained most of [its]

used car inventory from trade-ins associated with the purchase of new cars [and] [l]osing

new car sales meant [it] had fewer used cars to sell.” Tr.373:13-16. Marsh also “lost the

after-sale income and the after-market warranties and service contracts that [it] could no

longer sell in connection with the sale of Chrysler-Jeep projects.” Tr.373:16-19. Marsh

participated in the Section 747 arbitration process and won a letter of intent from New

Chrysler. In January 2017, Marsh opened a new Chrysler-Jeep dealership but was

required to spend significant amounts of money to open this new dealership. Tr.374:11-

18.

failure, if any, to comply with the terms of the franchise.” Nev. Rev. Stat. Ann. § 482.36355 (West 2009). 36 Marsh claims that the rejection of its Chrysler and Jeep franchise agreements in

the Chrysler bankruptcy amounts to a taking for the same reasons relied on by plaintiffs

Taylor, Theel, Whitey, and RFJS. Marsh relies on Ms. Murphy's valuations of his

franchise agreements to support a claim for just compensation. Ms. Murphy, relying on

the same income streams and same calculation methods as described above, and after

reviewing Marsh’s 2004, 2005 2006, 2007, 2008, and January to May 2009 financial

statements, PX145, calculated that Marsh’s Chrysler and Jeep franchise agreements

resulted in a net income of $860,020 in 2004, $1,032,818 in 2005, $1,396,370 in 2006,

$932,272 in 2007, $816,019 in 2008, and earned $746,431 from January to May 2009.

PX244.1G.

Using these values and her assumptions, Ms. Murphy calculated the amount of just

compensation Marsh is seeking for the claimed taking of the franchise agreement. Under

Ms. Murphy’s income valuation approach, the amount of just compensation Marsh seeks

for the claimed taking of the franchise agreement for the April 30, 2009 date is (1)

$8,972,000 where Chrysler enters bankruptcy but continues to produce cars and trucks or

(2) $7,037,000 for where Chrysler enters bankruptcy but continues to produce only

trucks. Tr.1406:14-15.

F. Livonia Chrysler-Jeep

Collen and David MacDonald testified on behalf of Livonia Chrysler-Jeep

(“Livonia”) which for the years at issue was located at 30777 Plymouth Road, Livonia,

Michigan. Livonia is incorporated under the laws of Michigan. The dealership included a

Chrysler and Jeep franchise at the time of the alleged taking. Tr.1290:5-9.

37 The Chrysler and Jeep franchise agreements that were rejected in the Chrysler

bankruptcy were awarded to Livonia on April 24, 1998. These Chrysler and Jeep

franchise agreements were identical in form and substance to the franchise agreements

that the other representative plaintiffs had with Chrysler. PX136. Both Mr. and Mrs.

MacDonald explained that they understood that, regardless of the termination terms in

those agreements, the agreements could only be terminated consistent with the franchise

laws in Michigan.20 Tr.1293:5-14.

On May 13, 2009, Livonia received a letter from Chrysler stating that its Chrysler

and Jeep franchise agreements would be rejected in bankruptcy. The letter is identical to

that received by the other representative plaintiffs in this case. PX139. Mr. Grady,

Director of Dealer Operations, testified that Livonia’s Chrysler and Jeep franchise

agreements were rejected by Chrysler in bankruptcy because Chrysler did not like the

location of the dealership and thought that it would be more profitable to move the

Chrysler and Jeep franchises to a Dodge dealership a few miles away. DX1315.

After it received the May 13, 2009 letter informing it that its Chrysler and Jeep

franchise agreements would be rejected, Livonia had to “sell [its] parts inventory and new

car inventory at a substantial loss.” Tr.1295:21-23. Additionally, Livonia was unable to

get out of contracts, such as an advertising contract, and “had to continue to pay them,

though [it] no longer needed their services.” Tr.1295:23-1296:1. Livonia participated in

20 Michigan law provides that an automobile manufacturer can only terminate or not renew a franchise agreement if they have acted in good faith and have good cause. Mich. Comp. Laws Ann. § 445.1567. Michigan law provided that the following alone did not constitute good cause for termination: a change in ownership of the dealership, refusal of the dealership to purchase or accept delivery of any automobile parts; or if the owner of the dealership has a franchise with another auto manufacturer. Mich. Comp. Laws Ann. § 445.1568. 38 the Section 747 arbitration process and was ultimately awarded a letter of intent from

New Chrysler and has since signed new Chrysler and Jeep franchise agreements with

New Chrysler. Tr.1362:5-25.

Livonia claims that the rejection of its Chrysler and Jeep franchise agreements in

the Chrysler bankruptcy amounts to a taking for the same reasons relied on by the other

Alley’s plaintiffs. Livonia relies on Ms. Murphy’s valuation to support the amount of just

compensation seeks. Ms. Murphy, relying on the same income streams and same

calculation methods as described above, and after reviewing Livonia’s 2006, 2007, 2008,

and January to May 2009 financial statements, calculated that Livonia’s Chrysler and

Jeep franchise agreements resulted in a net income of $659,903 in 2006, $595,052 in

2007, $718,631 in 2008, and $130,224 from January to May 2009. PX244.1A.

Using these values and her assumptions, Ms. Murphy calculated the amount of just

compensation Livonia is seeking for the claimed taking of the franchise agreement.

Under Ms. Murphy’s income valuation approach, the amount of just compensation

Livonia is seeking for the claimed taking of the franchise agreement on the April 30,

2009 taking date is (1) $4,464,000 where Chrysler enters bankruptcy but continues to

produce cars and trucks or (2) $3,705,000 for where Chrysler enters bankruptcy but

continues to produce only trucks. Tr.1406:4-5.

G. Barry Dodge Inc. Andrew Riexinger testified on behalf of Barry Dodge Inc. (“Barry”), which for the

years at issue was located at 4579 South Main Street, Brockport, New York. Barry was

incorporated under the laws of New York. Barry’s dealership included Chrysler, Dodge,

and Jeep franchises at the time of the alleged taking.

39 The Chrysler and Dodge franchise agreements that were rejected in the Chrysler

bankruptcy were awarded to Barry on August 9, 1993. The Jeep franchise agreement that

was rejected in the Chrysler bankruptcy was awarded to Barry on December 19, 1997.

Barry’s Chrysler, Dodge, and Jeep franchise agreements are identical in form and

substance to the other franchise agreements owned by the other representative plaintiffs.

PX2. Mr. Riexinger also testified that he understood that, regardless of the termination

provisions in these franchise agreements, state law precluded the termination of

dealerships for unjust reasons.21 Tr.1218:23-1219:1.

On May 13, 2009, Barry received a letter from Chrysler stating that its Chrysler,

Dodge, and Jeep franchise agreements would be rejected in bankruptcy. The letter is

identical to that received by the other representative plaintiffs in this case. PX4. Mr.

Grady, Director of Dealer Operations, explained that Barry’s Chrysler, Dodge, and Jeep

franchise agreements were rejected by Chrysler in bankruptcy because it only met 42% of

its MSR and because it was considered an excess point because Chrysler wanted to

reduce the number of dealers in the Brockport area. DX1315.

After Barry received the May 13, 2009 letter informing it that its franchise

agreements would be rejected it had to “salvage what money [it] could from [its] existing

inventory.” Tr.1220:14-16. Barry “sold [its] inventory of vehicles to other [dealers] and

21 New York state law provides that a franchisor cannot terminate or refuse to renew a franchise “except for due cause, regardless of the terms of the franchise.” N.Y. Vehicle and Traffic Law § 463.2(d)(1). New York state law specifies that “[i]f the termination is based upon performance of the dealer in sales and services there shall be no due cause if the dealer substantially complies with the reasonable performance provisions of the franchise during such cure period and no due cause if the failure to demonstrate such substantial compliance was due to factors which were beyond the control of such dealer.” N.Y. Vehicle and Traffic Law § 463.2(e)(3). 40 parts to one of [its] former competitors . . . for 50 grand.” Tr.1220:16-18. Barry also “sold

some of [its] specialized tools to former competitors, which [it] could no longer use since

[it] no longer provided warranty services for new vehicles.” Tr.1220:18-21. Barry

continued to operate under the name “Barry’s Auto Center” as a used car dealership that

also sells campers and cargo trailers. Tr.1221:7, Tr.1221:16-17. Barry’s 2010 financial

statement for its used car dealership showed that it earned a net income of $239,417.

DX618. Barry chose not to file for arbitration under Section 747. Tr.1269:13-16.

Barry claims that the rejection of its Chrysler, Dodge, and Jeep franchise

agreements amounts to a taking for the same reasons as relied on by the other Alley’s

plaintiffs. Barry relies on Ms. Murphy’s valuations to support the amount of just

compensation it seeks. Ms. Murphy, relying on the same income streams and same

calculation methods as described above, and after reviewing Barry’s 2004, 2005, 2006,

2007, 2008, and January to May 2009 financial statements, calculated that Barry’s

Chrysler, Dodge, and Jeep franchise agreements resulted in a net income of $172,181 in

2004, $68,367 in 2005, $55,878 in 2006, $186,534 in 2007, $163,704 in 2008, and earned

$124,052 from January to May 2009. PX244.1C.

Using these values and her assumptions, Ms. Murphy calculated the amount of just

compensation Barry is seeking for the claimed taking of the franchise agreement. Under

Ms. Murphy’s income valuation approach, the amount of just compensation Barry is

seeking for the April 30, 2009 taking date is (1) $1,124,000 where Chrysler enters

bankruptcy but continues to produce cars and trucks, or (2) $859,000 for where Chrysler

enters bankruptcy but continues to produce trucks. Tr.1406:8-9.

41 H. Guetterman Motors

Jack Guetterman testified on behalf of Guetterman Motors (“Guetterman”), one of

the two representative Colonial plaintiffs, which for the years at issue was located at

2210 Sycamore Street, Cairo, Illinois. Guetterman was incorporated under the laws of

Illinois. Guetterman’s dealership included Chrysler, Dodge and Jeep franchises as well as

a Ford franchise at the time of the alleged taking.

The Chrysler, Dodge and Jeep franchise agreements that were rejected in the

Chrysler bankruptcy were awarded to Guetterman on February 11, 1993. Guetterman’s

Chrysler, Dodge, and Jeep franchise agreements are identical in form and substance to

the other franchise agreements owned by other representative plaintiffs. DX16 (Chrysler

Agreement), DX21 (Dodge Agreement), DX22 (Jeep Agreement). Mr. Guetterman also

testified that he understood that, regardless of the termination provisions in these

franchise agreements, state law precluded the termination of dealerships for unjust

reasons.22 Tr.2179:6-10.

22 Illinois state law provides that an automobile manufacturer cannot terminate or fail to renew a franchise agreement without good cause and without giving sufficient notice as outline in Illinois state law. 815 Ill. Comp. Stat. Ann. § 710/4(d)(6). The Illinois Board of Motor Vehicles determines if there is sufficient good cause not to renew or cancel a franchise and Illinois law provides that it shall consider, but is not limited to, the following factors: “(1) The amount of retail sales transacted by the franchise during a 5-year period immediately before the date of the notice of proposed actions as compared to the business available to the franchisee. (2) The investment necessarily made and obligations incurred by the franchisee to perform its part of the franchise. (3) The permanency of the franchisee’s investment. . . . (5) Whether the franchisee has adequate moto vehicle sales and service facilities, equipment, vehicle parts, and service personnel to reasonably provide for the need of the customers of the same line make of motor vehicles handled by the franchisee. . . . (7) The extent and materiality of the franchisee’s failure to comply with the terms of the franchise and the reasonableness and fairness of those terms. . . .” 815 Ill. Comp. Stat. Ann. § 710/12(d). 42 On May 13, 2009, Guetterman received a letter from Chrysler stating that its

Chrysler, Dodge, and Jeep franchise agreements would be rejected in bankruptcy. The

letter is identical to that received by the other representative plaintiffs in this case. Mr.

Grady, Director of Dealer Operations, explained that the Guetterman Chrysler, Dodge

and Jeep franchise agreements were rejected by Chrysler in bankruptcy because the

dealership only met 53% of its MSR, was considered an excess point in the Cairo area,

was placed on a financial hold by Chrysler Financial, and had a competitive dual Ford

dealership attached to the Chrysler showroom. DX1315.

After Guetterman received the May 13, 2009 letter, Mr. Guetterman testified that

Chrysler only bought “back $18,754 of parts for 68 cents on the dollar” and that the

dealership was unable to sell its remaining Chrysler parts. Tr.2180:2-10. Mr. Guetterman

explained that the “cost of the remaining parts is over $100,000.” Tr.2180:6-7. Mr.

Guetterman also testified that he “attempted to negotiate with the New Chrysler through

[the] St. Louis dealer placement manager . . . but [it] was turned down.” Tr.2176:15-19.

Mr. Guetterman further testified that he “paid the initial fee and got a date to proceed”

under the Section 747 arbitration process, but that before the arbitration date, New

Chrysler offered Guetterman a letter of intent for a new franchise agreement. Tr.2176:21-

25. Mr. Guetterman explained that he did not accept the letter of intent because it

imposed new requirements which have required between $1 million and $2 million in

new investments. Tr.2177:12-15.

Guetterman’s 2010 financial statement for its Ford franchise, which it expanded

into space previously dedicated for Chrysler vehicles, showed that Guetterman received a

net income of $120,920 from that dealership. DX613. Guetterman’s 2011 financial 43 statement for its Ford franchise showed that Guetterman received a net income of

$82,813 from that dealership. DX648. Guetterman continues to operate as a Ford dealer

Guetterman claims that the rejection of its three Chrysler franchise agreements in

the Chrysler bankruptcy amounts to a taking based on the same theory of coercion relied

on by the Alley’s plaintiffs and discussed infra. Guetterman is seeking just compensation

in various amounts based on two different “but for” Chrysler Chapter 11 liquidation

scenarios. Unlike, the Alley’s plaintiffs, discussed above, Guetterman relies on the

testimony of Ted Stockton23 as its valuation expert. As will be explained in greater detail

later in the opinion, Mr. Stockton’s valuation approach is very different from the one

employed by Ms. Murphy. For example, while Ms. Murphy assumes that at least some

Chrysler cars or trucks will continue to be produced in her “but for world,” Mr. Stockton

assumes that Chrysler would have been liquidated in a Chapter 11 bankruptcy and that

Chrysler vehicles would no longer have been produced. He assumes that there would be

no new vehicles manufactured once Chrysler entered into bankruptcy. He assumed,

however, that Chrysler parts would continue to be produced by entities that would have

licensed Chrysler’s name and would have offered those parts to the dealers for a price.

Ms. Murphy and Mr. Stockton also used different methods to calculate just

compensation. Ms. Murphy calculated the amount of just compensation based on the

income valuation approach assuming each of the Alley’s plaintiffs would have continued

23 As will be described in further detail infra, Mr. Stockton is the Vice President of Economics Services at the Fontana Group Inc. During his employment at Fontana he has worked 30,000 hours, focused on issues related to the automotive retail industry, and has conducted studies of hundreds of franchise operations that sell a wide array of branded vehicles. 44 as franchisees with a new Chrysler car manufacturer. Mr. Stockton calculated just

compensation based largely on a “lost profits” method.

Specifically, Mr. Stockton posited two “but for worlds” where Chrysler liquidates

in bankruptcy at some point in April 2009. The two “but for worlds” are as follows (1) a

Chapter 11 bankruptcy where there is an orderly wind-down of Chrysler’s operations and

Guetterman continues to operate under its existing franchise agreements either for (i)

three years or (ii) seventeen months, depending on how long the wind-down takes to

complete, and (2) immediate liquidation of Chrysler in which Guetterman’s Chrysler

dealership continues to operate indefinitely as a “branded” Chrysler dealer, under a

licensing agreement with third party. Mr. Stockton testified that these “but for worlds”

were provided to him by counsel. Tr.2544:17-21.

Under the orderly wind-down scenarios that either last for three years or seventeen

months, Mr. Stockton made the following assumptions. He assumed that the franchise

agreements were not terminated in bankruptcy and are kept in effect for the period of the

wind-down. He further assumed that the United States would have guaranteed the

warranty obligations for the incumbent Chrysler customers. As part of this scenario, Mr.

Stockton assumed that Chrysler would attempt to sell off-lease vehicle returns to the

Chrysler franchisees which would provide the plaintiffs with additional used cars to sell

during the wind-down period.

Under the second scenario, immediate liquidation, Mr. Stockton testified that he

assumed that the United States would have again guaranteed the warranty obligations for

the incumbent Chrysler customers. He further assumed that a consortium of Chrysler

dealerships would have acquired the rights to certain propriety parts and intellectual 45 property, i.e. the Chrysler brand, in the Chrysler bankruptcy and that the plaintiffs would

have been able to operate as Chrysler branded dealerships for the purposes of serving and

selling used Chrysler vehicles, although not with any franchise agreement.24 Under this

second scenario, there is no “Chrysler” and thus no continuing franchise agreement

between Chrysler and the plaintiffs. Further, under this second scenario, the plaintiffs

would continue as “branded” dealers for between seven to ten years.

To set a value for what was “taken” by the government in Mr. Stockton’s “but for

world,” Mr. Stockton calculated how much net profit Guetterman lost under these two

liquidation scenarios by using Guetterman’s 2006, 2007 and 2008 financial statements.

DX138, DX196, DX311. Under Mr. Stockton’s approach, the amount of just

compensation Guetterman is seeking varies depending on the scenario, as follows: (1)

$122,761 for the immediate liquidation scenario; (2) $112,942 for a Chapter 11 three-

year orderly wind-down scenario; and (3) $61,047 for a Chapter 11 17-month orderly

wind-down scenario. Tr.2456:11-19.

I. Mike Finnin Motors

Mike Finnin testified on behalf of Mike Finnin Motors (“Finnin”), the second

Colonial plaintiff, which for the years at issue was located at 4355 Dodge Street,

Dubuque, Iowa. Finnin was incorporated under the laws of Iowa. Finnin’s dealership

included Chrysler and Jeep franchises as well as a Kia franchise acquired in 2007.

24 Mr. Stockton also testified on cross examination that if a consortium of dealers did not purchase the proprietary parts and intellectual property from Chrysler during the Chrysler bankruptcy, some unidentified third party would have and then would have licensed these parts and the brand to the Chrysler plaintiffs, who would thus have been able to continue as Chrysler- branded dealers. Tr.2446:5-10. 46 The Chrysler and Jeep franchise agreements that were rejected in the Chrysler

bankruptcy were awarded to Finnin on November 21, 1994. Finnin’s Chrysler and Jeep

franchise agreements are identical in form and substance to the other franchise

agreements owned by the other representative plaintiffs. DX29 (Jeep Agreement), DX32

(Chrysler Agreement). Mr. Finnin also testified that he understood that, regardless of the

termination provisions in these franchise agreements, state law precluded the termination

of dealerships for unjust reasons.25

On May 13, 2009, Finnin received a letter from Chrysler stating that its Chrysler

and Jeep franchise agreements would be rejected in bankruptcy. The letter is identical to

that received by the other representative plaintiffs in this case. DX446. Mr. Grady,

Director of Dealer Operations, explained that Finnin’s Chrysler and Jeep franchise

agreements were rejected by Chrysler in bankruptcy because the dealership only met 66%

of its MSR and because Chrysler believed that a nearby Dodge dealer was a better dealer

and wanted that dealer to have the Finnin Chrysler and Jeep franchises. DX1315.

After Finnin received the May 13, 2009 letter, Finnin lost use of half of a “10,000

new square foot showroom at [its] main facility” that was dedicated to its Chrysler and

25 Iowa state law provides that a “franchiser shall not terminate or refuse to continue any franchise unless the franchiser has first established, in a hearing held under the provisions of this chapter, that both of the following apply: a. The franchiser has good cause for termination or noncontinuance. b. Upon termination or noncontinuance, another franchise in the same line- make will become effective in the same community, without diminution of the motor vehicle service formerly provided, or that the community cannot be reasonably expected to support such a dealership.” Iowa Code Ann. § 322A.2(1) (West 2009). Iowa state law further provides that “[u]pon hearing, the franchiser shall have the burden of proof to establish that under the provisions of this chapter the franchiser should be granted permission to terminate or not continue the franchise, or to enter into a franchise establishing an additional motor vehicle dealership, or to alter a franchisee’s community.” Iowa Code Ann. § 322A.9 (West 2009).

47 Jeep franchises. Tr.2244:19-21. Finnin also lost the income it could have derived from

“selling the Jeep-Chrysler products, not selling those trade [ins], not performing warranty

work on the Chrysler-Jeep vehicles, not selling parts to our individual clients and our

wholesale accounts, and . . . the blue-sky value for the franchise.” Tr.2249:1-8. Finnin

“sought to get [its] Chrysler franchise back through 747 arbitration [and] spent over

$180,000 trying to get it back, but it was denied by the arbitrator.” TR2249:9-12. Finnin’s

2010 financial statement from the Kia franchise that had been co-located with its

Chrysler franchises showed that Finnin received an annual net profit of $291,742 from

that dealership. DX620. Finnin’s 2011 financial statement from its Kia franchise showed

that it received an annual net profit of $473,108 from that dealership. DX650.

Finnin claims that the rejection of its Chrysler and Jeep franchise agreements in

the Chrysler bankruptcy amounts to a taking of its two franchises based on a theory of

coercion that is the same as that relied on by the Alley’s plaintiffs. Finnin is seeking just

compensation in various amounts depending on two different “but for” liquidation

scenarios posited by its valuation expert Mr. Stockton. As explained above regarding

Guetterman, Mr. Stockton posits two “but for worlds” where Chrysler liquidates in

bankruptcy to establish the value of Finnin’s franchise agreements. Mr. Stockton

calculated the profit Finnin allegedly lost based on these two liquidation scenarios by

using Finnin’s 2006, 2007 and 2008 financial statements. DX137, DX195, and DX310.

Under Mr. Stockton’s valuation approach, the amount of just compensation Finnin is

seeking is as follows: (1) $1,591,912 for the immediate liquidation scenario; (2)

$1,391,138 for the three-year orderly wind-down scenario; (3) $775,040 for the 17-month

orderly wind-down scenario. Tr.2453:15-19. 48 II. SUMMARY OF PLAINTIFFS’ FACT AND EXPERT EVIDENCE

A. Plaintiffs’ Fact Witnesses

i. Steven Rattner

Steven Rattner testified for both the plaintiffs and the United States at trial. He

explained that he was appointed by Timothy Geithner, President Obama’s Secretary of

Treasury, at the end of February 2009 to head a newly formed Auto Team Task Force

(“Auto Team”) at the United States Department of Treasury.26 According to Mr. Rattner,

his role was to assemble and oversee “a team of people who were going to address the

growing crisis in the automobile industry [in 2008-09] and . . . come up with some

policies to ameliorate the situation.” Tr.1607:7-10. He remained in this position from

February 2009 until July 2009. Tr.1607:12-15.

Mr. Rattner testified that he understood that his job on the Auto Team “was a

restructuring exercise in that the Government had put some bridge loans into [Chrysler]

at the end of 2008 . . . [and] it would be the [Obama] Administration that would have to

figure out what, if anything, the Government should do, could do by the way of

permanent financing to make [Chrysler] viable.” Tr.1623:8-18. Mr. Rattner explained

that in carrying out the goals of the Auto Team there was a principle called “shared

sacrifice” which meant they “felt that all the stakeholders in [Chrysler] . . . were going to

26 Mr. Rattner came to the Auto Team with a journalism and finance background. Mr. Rattner was a reporter for the New York Times for over eight years and had been an investment banker for both Lehman Brothers and Lazard Freres before cofounding a private equity firm, the Quadrangle Group. Tr.1606:15-1607:4. After leaving the Auto Team, Mr. Rattner returned to his earlier work in finance and today he is chairman and chief executive officer of Willett Advisors, which manages the personal and philanthropic assets of former New York City Mayor Michael Bloomberg. Tr.1607:16-23. 49 have to make sacrifices and share in them.” Tr.1626:11-16. These sacrifices, Mr. Rattner

testified, would come from “the lenders, the shareholders, the employees, the workers,

the suppliers, and the dealers.” Tr.1627:7-9. Mr. Rattner explained that, for the lenders,

this meant that they would not be able to recover the entirety of the outstanding debt that

Chrysler owed to them. Tr.1628:3-12. Mr. Rattner testified that, for the employees,

shared sacrifice was that their contracts would be renegotiated and that Chrysler’s

obligations to them would be restructured or reduced. Tr.1628:15-17. At that time, the

shared sacrifice of the auto dealers was not discussed.

Mr. Rattner explained that prior to Obama taking office, Chrysler had received a

bridge loan from the Trouble Asset Relief Fund (“TARP”) from the Bush Administration

in the amount of $4 billion on December 31, 2008, and that under the terms of the bridge

loan Chrysler was required to submit a “Viability Plan” to the U.S. Department of

Treasury by February 17, 2009. DX996. Mr. Rattner explained that Chrysler was required

to produce “a plan showing how, in their judgment, with whatever tools and adjustments

or financial support or whatever it was that they thought they needed, a plan that would

allow them to become profitable again and remain viable or profitable . . . for the

indefinite future.” Tr.1630:5-12.

Chrysler’s Viability Plan was prepared by Chrysler, with the help of Robert

Manzo, a restructuring specialist from the Capstone consulting firm who was retained by

Chrysler starting in 2008. Tr.3928:18-24; DX1056. In its plan, Chrysler offered the

following three options: (1) a stand-alone plan, in which Chrysler would continue with

the same management but with an additional $5 billion from Treasury and $6 billion from

the Department of Energy for a total of $11 billion in additional government funding, (2) 50 an alliance with Fiat plan, under which the two companies would work together to

rebuild Chrysler with lighter and more fuel efficient vehicles and also would receive $11

billion in additional government funding, and (3) an orderly wind-down of Chrysler in

bankruptcy plan, which would require $24 billion in debtor-in-possession or “DIP”

financing for a two-year wind-down of operations to allow for the continued production

of cars and trucks. Tr.1720:9-25; DX1056. Upon receiving Chrysler’s Viability Plan,

members of the Auto Team and their experts, including Mr. Mosquet,27 were asked to

review Chrysler’s plan. Mr. Ronald Bloom,28 Mr. Rattner’s deputy who later testified for

the government, was primarily responsible for reviewing Chrysler’s Viability Plan along

with other members of the Auto Team including Brian Osias and Clay Calhoon.29 After

reviewing Chrysler’s Viability Plan, the Auto Team determined that Chrysler could not

survive under the terms proposed. On March 30, 2009 President Obama announced that

Chrysler’s Viability Plan was rejected, and that Chrysler would be given until the end of

April to revise its Viability Plan. DX1133.

Mr. Rattner testified that the Auto Team gave serious consideration to allowing

Chrysler to liquidate in bankruptcy without government involvement but came to

27 As discussed infra, Mr. Mosquet is a senior partner and managing director in the Detroit office of Boston Consulting Group. Since 2005, Mr. Mosquet has worked mainly in the automotive industry. Tr.1858:7-1859:14. 28 As discussed infra, Mr. Bloom was the deputy to Mr. Rattner and later became the head of the Auto Team. Tr.2685:7-15. Mr. Bloom, prior to joining the Auto Team, had worked for the United Steelworkers Union from 1996 to 2008, where he negotiated their collective bargaining contracts and managed their relationship with Wall Street firms interested in investing in steel companies that are unionized. Tr.2682:25-2683:7. 29 Brian Oasis testified, as discussed in greater detail infra, that he was an analyst who worked alongside with Mr. Calhoon and by March 2009 was focused exclusively on Chrysler. Tr.3138:21-3139:2. 51 understand that Chrysler needed to survive in some form so that its suppliers would also

survive. Specifically, Mr. Rattner testified that if Chrysler was no longer making cars and

trucks and instead was liquidated “many of those suppliers would have also been forced

into some form of liquidation, and the problem was not just those jobs that were lost, but

suppliers in this industry typically do not supply just one manufacturer. They supply

multiple, maybe all of them. And so you have Ford, you would have GM, you would

have Toyota, and all the people who operate in the south, potentially not being able to get

parts they needed to make their cars, and it was not inconceivable -- and I don’t think we

were being doomsday folks to say this -- that we thought the whole industry could shut

down, at least for a bit, in a Chrysler liquidation.” Tr.1725:9-22. Mr. Rattner also

explained that the Obama Administration was concerned about unemployment,

particularly in the auto industry, and therefore concluded that keeping Chrysler alive was

important for this reason as well. Tr.1725:8-22.

After Chrysler’s initial Viability Plan was rejected by the Auto Team, but before

another plan was submitted, Mr. Rattner explained that the Auto Team largely took

control of Chrysler’s viability planning and began meeting with Chrysler’s stakeholders,

including its creditors, represented by JP Morgan (the administrative agent for the nearly

$7 billion in debt owned by Chrysler’s first lien lenders), Fiat (Chrysler’s prospective

purchaser), the United Auto Workers (“UAW”), and suppliers. The evidence established

that many of these meetings took place without Chrysler management present.30 As Mr.

30 The evidence established that Chrysler, without the Auto Team’s support, continued to work on an alternative Viability Plan that required government assistance, but which Chrysler hoped would meet the government’s requirements without Chrysler having to enter bankruptcy. As 52 Rattner testified, “between March 30th and the end of April, [the Auto Team], Chrysler,

ultimately the banks, the UAW, various interested parties, attempted and ultimately

succeeded in negotiating a set of go-forward arrangements that each party could live with

and that [the Auto Team] determined would allow Chrysler to achieve viability.”

Tr.1636:10-15.

Mr. Rattner testified that in his role as leader of the Auto Team he negotiated with

Chrysler’s first lien lenders, represented by JP Morgan. Tr.1650:4-1651:16. Mr. Rattner

testified in detail how the Auto Team set the terms and pace of the negotiations with JP

Morgan, where he understood that his “first offer was not going to be [his] last offer, so

[he] deliberately started low[.]” Tr.1652:15-18. He explained that he “spent a good bit of

time -- many hours in a short period of time negotiating with [JP Morgan] and [JP

Morgan] negotiating with [the] other [lenders]” to try and modify the terms of the $7

billion in loans so that Chrysler would not have to file for bankruptcy, but that those

negotiations failed. Tr.1653:21-1654:11. Eventually, the first lien lenders received $2

billion in an agreement approved by the Bankruptcy Court. Tr.1653:8-11.31

Mr. Rattner testified that his deputy, Mr. Bloom, was charged with negotiating an

arrangement with UAW. Tr.1637:4-15. Mr. Rattner testified that the Auto Team “[sat]

down with UAW and attempted to negotiate some restructuring of the [employee’s]

described in more detail in the discussion of Mr. Nardelli and Mr. Bloom’s testimony, this effort by Chrysler failed. 31 As discussed infra, JP Morgan’s advisor John Haeckel testified that after reviewing Chrysler’s Viability Plan, he came to believe that the first lien lenders would never get more than $2 billion from Chrysler if Chrysler entered bankruptcy without government assistance. He thus advised JP Morgan to accept the government’s proposal to relinquish the debt held by first lien lenders for the government’s $2 billion. Tr.2865:25-2866:3. 53 contract and of Chrysler’s obligation to [its employees].” Tr.1628:15-17. These

negotiations eventually led to UAW pension funds receiving shares in New Chrysler.

Specifically, under the prepackaged bankruptcy plan, negotiated by the government’s

Auto Team, in exchange for forgiving $8 billion in fixed obligations owed by Chrysler to

the UAW’s Voluntary Employees’ Beneficiary Association Plan or “VEBA,” UAW

agreed to accept a $4.6 billion unsecured note and stock in New Chrysler. Tr.2720:7-13.

Mr. Rattner explained that the Auto Team also took charge of the negotiations

with Fiat regarding a potential merger with Chrysler. Mr. Rattner described it as “a kind

of three-way negotiation in which Chrysler, Fiat, and the U.S. Government all

participated.” Tr.1636:16-24. The evidence established that under the final negotiated

prepackaged bankruptcy plan, Fiat would take over management of New Chrysler and

receive stock in new Chrysler. Fiat would not, however, have to pay Chrysler for its

interest in New Chrysler. Mr. Rattner stated that consistent with its financing role, the

government had to approve the deal with Fiat. Tr.1636:25-1637:3. Mr. Rattner

acknowledged that the government’s power in this circumstance is known as the “Golden

Rule,” meaning “he who has the gold makes the rules.” Tr.1683:9-12.

Mr. Rattner explained that reducing the number of Chrysler franchises was in

Chrysler’s proposed Viability Plan before the government got involved and thus was

always a part of Chrysler’s viability planning. Tr.1665:13-20. Known in the auto industry

as “dealership rationalization,” the government understood from Chrysler’s submissions

that Chrysler planned to reduce the total number of franchisees and wanted to combine all

brands under one roof to make Chrysler viable. Id. For this reason, “dealer

rationalization,” which was initiated by Chrysler well before the financial crisis, was 54 always going to be part of a final Chrysler Viability Plan. Tr.1665:13-20, Tr.1641:12-21,

Tr.16380:14-17. Mr. Rattner, explained however, that the Auto Team “never got into the

question of which dealers, how, or anything of that sort” but rather was looking at it from

a macro level of how many. Tr.1664:20-1665:12. He also agreed that one of the positives

of moving forward with a Chrysler bankruptcy was that it would allow Chrysler to reduce

its dealership network without having to comply with state franchise laws, which, as

identified in the footnotes for each representative plaintiff, provide significant protections

to car franchisees and limit the circumstances under which dealerships can be terminated.

Put another way, bankruptcy would allow Chrysler to reject franchise agreements without

having to first comply with state laws. Tr.1642:13-25.

Mr. Rattner further explained that the government had hoped that Chrysler would

not have to file for bankruptcy and testified that up to the last minute the government was

willing to provide funding under the terms the government negotiated with Chrysler’s

lenders and others. Tr.1653:24-25, Tr.1654:9-11. However, he also testified that everyone

understood from the beginning of the Auto Team’s review of Chrysler’s Viability Plan

that bankruptcy was an option. Tr.1640:6-22, Tr.1642:4-11. When JP Morgan was not

able to get an agreement from all of Chrysler’s lenders, the government concluded that if

Chrysler, in some form, was going to continue to manufacture cars and trucks, Chrysler

would have to file for bankruptcy under the terms the Auto Team negotiated. Tr.1661:12-

Per the court’s pre-trial order, the government also elicited testimony and evidence

from Mr. Rattner during the plaintiffs’ case-in-chief. In his testimony for the government,

Mr. Rattner explained that Chrysler understood that “it could not be viable unless it had 55 significant sacrifice” from all interested parties including dealers, shareholders, suppliers,

the UAW, and credit groups. Tr.1719:12-16. He explained that he understood at the time

that JP Morgan and the other first lien lenders would not provide Chrysler with any

financing in order to allow Chrysler to continue to operate as an ongoing concern while

in bankruptcy. Without this debtor-in-possession or “DIP” financing, Chrysler could not

continue to manufacture new cars and trucks. Thus, if Chrysler was to continue to make

cars and trucks during bankruptcy, Mr. Rattner explained that Chrysler needed the federal

government’s assistance. Tr.1722:13-1723:5. Mr. Rattner also made clear in his

testimony that the Auto Team never targeted specific dealers for rejection. Tr.1737:1-6.

ii. Xavier Mosquet

The plaintiffs also presented the testimony of Xavier Mosquet to support their

coercion claim. Mr. Mosquet is a senior partner and managing directing for Boston

Consulting Group (“BCG”) in its Detroit office, and was an advisor to the Auto Team.

Tr.1858:7-20. Mr. Mosquet explained that BCG is a “managing consulting firm present

in several countries around the world” that gives advice to corporations about operation

issues. Tr.1858:21-1859:14. He explained that he is an expert in the automotive industry

and further explained that BCG was retained by the Auto Team in 2009, with Mr.

Mosquet as the team leader, to analyze the Viability Plans submitted by GM and Chrysler

in February 2009. Tr.1859:24-1860:12.

Regarding the Chrysler Viability Plan, Mr. Mosquet explained that Chrysler’s plan

was not viable. The plaintiffs, however, focused Mr. Mosquet’s testimony on his

understanding of Chrysler’s “Project Genesis” plan, which, as described above in

connection with the testimony of the individual plaintiffs, was a voluntary Chrysler 56 program designed to reduce or “rationalize” Chrysler’s dealership network without forced

dealership closures. Tr.1873:3-6, Tr.1874:3-8, Tr.1885:19-23. Mr. Mosquet testified that

neither he nor anyone else at BCG criticized Project Genesis. Tr.1909:17-1910:8. He also

testified that, in comparison to GM, which had not begun to rationalize its dealership

network, BCG had concluded that Chrysler had already done significant dealership

closures and was thus ahead of GM. PX704; Tr.1892:13-20. Mr. Mosquet testified that

BCG concluded that Chrysler had “already gone through a significant number of low

performing consolidations.” Tr.1936:15-20; PX704. Mr. Mosquet further testified that

BCG concluded that any further reduction in the dealership network could result in

eliminating additional good dealers with “limited upside potential.” Tr.1894:11-17;

PX704.

Mr. Mosquet explained that in evaluating Chrysler’s Viability Plan, BCG had not

done any analysis concerning whether further reducing the number of Chrysler dealers

would positively impact Chrysler’s sales or increase its profitability. He also testified that

no one at BCG had analyzed the health of the overall dealership network. Tr.1900:11-

1901:5, Tr.1901:15-18. He testified that he understood that Fiat’s plan for the Chrysler

dealerships was the same as Project Genesis. Tr.1882:1-4. Mr. Mosquet concluded by

stating that only Chrysler was in the position to determine the appropriate size of its

dealership network. Tr.1962:12-23, Tr.1963:4-6.

iii. Alfredo Altavilla

In accordance with the court’s pre-trial order, the court allowed the parties to

introduce the video deposition of Alfredo Altavilla, Fiat’s Head of Business Development

and CEO of Fiat Powertrain Technology, in lieu of his attendance at trial. In his 57 deposition, Mr. Altavilla testified regarding the negotiations between the government and

Fiat and regarding Fiat’s interest in the size and composition of Chrysler’s dealership

network.

Mr. Altavilla explained that there had been an initial term sheet negotiated

between Fiat and Chrysler regarding an “alliance” before the Auto Team got involved.

He testified that the second term sheet between Fiat and Chrysler was significantly

renegotiated by the Auto Team. Depo. 60:8-25. Specifically, Mr. Altavilla explained that

during his first meeting with Mr. Bloom from the Auto Team, Mr. Altavilla learned that

the government would be Fiat’s “main counterpart for executing the alliance[.]” Depo.

67:20-68:5. He went on to explain that the second term sheet had no provisions that were

promoted or suggested by Chrysler and that in negotiating the second term sheet it was

understood that the Auto Team expected additional concessions from both sides. Depo.

177:15-178:3. Mr. Altavilla explained, however, that neither in the first or second term

sheet executed between Chrysler and Fiat was there any mention of reducing the

dealership network by a specific number of dealers. Depo. 154:4-22, Depo. 152:23-153:4.

Mr. Altavilla testified that part of the reason that Fiat was interested in Chrysler was

because Chrysler had an extensive dealership network. Depo. 140:20-25. He testified that

Fiat eventually came to understand from Chrysler why a reduction in the size of the

dealership network made sense and deferred to Chrysler’s judgment when Chrysler

proposed accelerating Project Genesis with the more ambitious “Project Tiger.”

58 Ultimately, Project Tiger became the basis for Chrysler deciding which franchise

agreements to reject in the bankruptcy.32 Depo. 146:4-147:11.

B. The Plaintiffs’ Experts

i. Dr. Donald Marron

The plaintiffs presented the testimony of Dr. Donald Marron, Ph.D., an economist

and Institute Fellow and Director of Economic Policy Initiatives at the Urban Institute in

Washington D.C. and president of Marron Economics, LLC, an economic consulting

firm. Tr.2047:1-6. Dr. Marron was called to explain why, in his view, the terms the Auto

Team negotiated in its prepackaged bankruptcy plan did more than protect the

government’s financial interests. Dr. Marron opined that the government’s negotiated

terms were designed to achieve valid public policy goals including saving jobs and

pensions.

Dr. Marron holds an A.B. in mathematics from Harvard University and a Ph.D. in

economics from the Massachusetts Institute of Technology and is an expert in the fields

of public finance and industrial organization. Tr.2047:7-11. From 2002 through early

2009, Dr. Marron served in senior economic policy positions in the United States

Congress and the White House. Tr.2047:19-21. His positions included being the

Executive Director of the Joint Economic Committee, Acting Director of the

Congressional Budget Office (“CBO”), and Senate-confirmed member of the Council of

Economic Advisors. Tr.2047:21-25. In his role at CBO he “directed a staff of about 230

employees that were charged with working on a broad range of economic and budget

32 As will be discussed in greater detail infra, Project Tiger was a plan proposed by Chrysler in April 2009 just before it entered bankruptcy. DX1167. 59 issues.” Tr.2047:25-2048:2. From August 2007 until January 2009 he served at the White

House Council of Economic Advisors as a consultant, then senior economic advisor, and

then as member where he was “actively engaged in responding to the financial crisis,

including the creation and use of the Troubled Asset Relief Program.” Tr.2048:5-11. He

has published numerous articles and papers on the economics of public policy and has

provided testimony to committees of the U.S. Congress on more than twenty occasions.

Tr.2048:19-24.

Dr. Marron offered several opinions relevant to the government’s motivation in

providing Chrysler with financial support during the economic crisis and opined that the

government, in providing funding and in requiring certain actions in exchange for

government financing, was acting in its governmental capacity and not simply as a

private lender. Dr. Marron’s opinions are summarized as follows.

First, Dr. Marron opined that “[t]he United States experienced a remarkably severe

financial crisis and economic downturn starting in 2007. The main causes include[d]

excesses in mortgage lending and fragility of a highly leveraged financial system reliant

on ample liquidity.” He further testified that “[g]overnment policy errors contributed to

the financial crisis and the severity of the economic downturn.” Tr.2055:23-2056:4.

Second, Dr. Marron opined that “[t]he government had unique power to combat

the financial crises and was correct to use it. Many companies directly benefited from

that support, but the purpose was not to help individual companies. Instead, the goal was

to support essential parts of the economy, and, in so doing, stem job losses and avoid an

even more severe economic downturn. The Chrysler . . . bailout[], for example, [was]

intended to support the domestic auto industry as a whole, including suppliers and other 60 auto manufacturers[.]” Tr.2058:25-2059:10. Dr. Marron explained that having learned its

lesson from inaction during the Great Depression, the government acted in order “to

support the economy as a whole and [to] avoid a downturn as severe or worse than in the

Great Depression.” Tr.2061:17-19.

Third, Dr. Marron testified that it was his opinion that “[t]he government did not

act in a commercial manner in rescuing Chrysler. The government did not have a

commercial motive. It sought to protect the broader economy, not earn a commercial

return. The government did not seek commercial returns. Instead, it gave Chrysler

substantial subsidies.” Tr.2062:24-2063:4. Dr. Marron explained that during the financial

crisis the “government did not have a commercial motivation in enacting TARP” but

rather aimed to support the American economy and prevent job loss. Tr.2063:10-14. Dr.

Marron noted that the government’s concern of “shared sacrifice” is not something a

private lender would have considered but is a public policy consideration made by the

government when acting in its governmental capacity. Tr.2065:5-9. Additionally, Dr.

Marron opined that the “government knowingly subsidized Chrysler, offering financial

terms much more generous than private investors would accept” and that this was further

evidence that the government was not acting as a private lender. Tr.2065:9-11. Dr.

Marron acknowledged that “[s]ome of the government’s actions did parallel those a

commercial lender or financier might take” but that ultimately “[t]he Chrysler bailout as a

whole was decidedly non-commercial.” Tr.2065:10-13, Tr.2065:24-25.

Fourth, Dr. Marron testified that it was his opinion that the government was not

acting as a private lender because the loans to Chrysler were highly subsidized.

Tr.2066:1-6. Specifically, Dr. Marron explained that “the government did not invest in 61 the companies on commercial terms” but rather “expected to lose money.” Tr.2066:6-8.

In support of his opinion, Dr. Marron relied on contemporaneous reports by the Office of

Financial Stability (“OFS”), the CBO, and the Office of Management and Budget

(“OMB”). He noted that OFS in 2009 published three estimates of the Automotive

Industry Financing Program,33 with subsidy rates ranging from 43% to 60%, meaning

that the government understood that it would not likely receive repayment. PX257. For

example, Dr. Marron explained that in its first estimate OFS calculated that the

government had made $75.9 billion in loans and equity investments to auto companies

but that the securities it received were worth only $30.5 billion. Tr.2068:8-15. Dr. Marron

noted that this meant the $45.4 billion difference was a subsidy to the auto companies,

which was about 60% of the overall investment. Id. Dr. Marron explained that for the

other two estimates calculated by OFS, the subsidization rate was consistent with the first

estimate. Dr. Marron went on to explain that the CBO and OMB reported similar

numbers and subsidization rates. Based on these rates, Dr. Marron concluded that the

government acted in its governmental capacity and not as a private lender when it bailed

out Chrysler. Tr.2076:9-15.

Dr. Marron acknowledged on cross examination that all the reports that he relied

on included figures that encompassed all or nearly all of the government’s loans to the

auto industry and not just to Chrysler. Tr.2126:8-2129:20. Additionally, on cross

examination, Dr. Marron acknowledged that New Chrysler repaid all its federal loans to

33 This program provided capital to both Chrysler and GM as well as their captive finance companies, Chrysler Financial and General Motors Acceptance Corporation, and auto part suppliers. Tr.2117:18-25. 62 the United States. He explained, however, “when the loans were first made, the analysts

would have assumed there was some probability of default and that would have been

built into their estimated subsidy rate . . . [a]nd by the end, where it turned out after the

fact that this loan didn’t default, that adjustment goes away.” Tr.2138:12-24.

ii. David Berliner

David Berliner, who received a B.A. degree in economics from Lafayette College

and an M.B.A. from the University of Michigan, also testified for the plaintiffs. He is a

licensed Certified Public Accountant as well as a Certified Insolvency and Restructuring

Advisor and a Certified Turnaround Professional. Tr.100:3-7. Mr. Berliner is currently a

partner at BDO, an international accounting, tax and consulting firm, where he oversees

business restructuring and turnaround services. Tr.99:21-100:8. He has been involved in

several bankruptcy cases involving the liquidation of “large corporations including Sports

Authority Holdings, Malibu Lighting, Furniture Brands International, American Home

Mortgage, and Pillowtex Corporation.” Tr.101:7-11. He also “served as the financial

advisor to the official committee of unsecured creditors in the bankruptcy of Daewoo

Motor America, Inc.” Tr.101:18-20.

Mr. Berliner offered his opinion that “the Chrysler dealers whose franchises were

terminated and made worthless in June 2009 would have fared better and their franchises

would have retained significant value if the U.S. Government had not acted as it did in

2009.” Tr.102:3-7. Specifically, Mr. Berliner testified that “absent the financial assistance

from the Government, Chrysler would have filed for an ordinary liquidation in

bankruptcy and would not have terminated existing dealer franchises as it did in 2009”

and “under this but for scenario . . . the rejected dealers would have generated revenues 63 and earnings for a period of at least 20 months or longer during a Chrysler 2009

liquidation, and therefore, the rejected dealership franchises would have had substantial

value.” Tr.102:8-19. Mr. Berliner posits that had the government not gotten involved in

providing financial assistance to Chrysler, Chrysler would have begun a Chapter 11

liquidation bankruptcy with debtor-in-possession or DIP financing so that Chrysler could

continue manufacturing at least some of Chrysler's vehicle lines with valid warranties. He

further opined that Chrysler would not have rejected any franchise agreements if Chrysler

had entered Chapter 11 without government assistance. Tr.131:5-18.

Mr. Berliner explained that, in his view, had the government not provided

assistance to Chrysler, Chrysler would have sold its assets in a Section 363 bankruptcy

sale. Although described in more detail by former Bankruptcy Judge Judith Fitzgerald,

plaintiffs’ bankruptcy expert, Mr. Berliner explained that “Section 363 sales are any sale

of a debtor’s assets conducted under the authority of the Bankruptcy Court . . . and may

include individual assets belonging to the debtor, a combination of assets, or

substantially, all of the debtor’s assets.” Tr.131:20-25. Mr. Berliner explained that in his

opinion Chrysler “would have begun a Section 363 asset sale process to attempt to sell its

valuable vehicle lines, such as Jeep, Dodge Ram Truck, and Town & Country/Dodge

Minivan[.]” Tr.132:7-11. Mr. Berliner testified that “more than one potential bidder

would have submitted a qualifying bid . . . and Chrysler would have held an auction in

order to select the highest and best bid.” Tr.135:20-24. Mr. Berliner explained that he

based his conclusion on the assumption that “[b]idding would have been competitive, in

part due to the interest in obtaining the valuable Chrysler brands and also in part, out of

concern that a competitor might win one of these or more of these iconic brands at too 64 low a price,” and because through bankruptcy the assets would be taken free and clear of

all liens and claims. Tr.135:24-136:6.

Mr. Berliner further explained why he believed that Chrysler would have likely

received DIP financing. Tr.137:5-6. Mr. Berliner stated that “[i]f the debtor does not have

sufficient cash to conduct the asset sales and to cover the costs of the liquidation process,

the debtor will seek Bankruptcy Court permission to obtain debtor-in-possession or DIP

financing to provide the necessary funds.” Tr.137:20-24. Mr. Berliner reasoned that a

debtor would seek DIP financing because “[i]f the debtor has only limited funds to

conduct a sale process, then the liquidation sales must be done in an accelerated time

frame which generally results in lower prices than an orderly sale process.” Tr.137:8-12.

Mr. Berliner opined that Chrysler would have sought and would have obtained some DIP

financing from “its secured lenders, Cerberus [the then-owner of Chrysler], a stalking

horse bidder for the Chrysler brands, or a state government [where] a plant producing

Chrysler’s valuable brands was located.” Tr.138:10-14. Mr. Berliner testified that these

entities would have been incentivized to provide DIP financing in order “to ensure the

liquidation process and sale of assets was done over a reasonable time frame and in an

orderly manner” to maximize the value of the assets. Tr.138:19-24. Mr. Berliner went on

to state that “even if no DIP financing was provided to Chrysler . . . one or two brands

would have still been sold, maybe at a lower sales price” and the “Chrysler dealers would

still have been able to continue providing service and parts and selling used vehicles to

their customers and still may have received some new vehicles to sell in the future from

the acquirer of the brands.” Tr.129:11-23.

65 Mr. Berliner next opined that warranty work would continue at all the plaintiffs’

franchises because, in his view, the government would have put into place some type of

warranty program to guarantee the outstanding warranties of Chrysler car owners. Mr.

Berliner explained that he believed that “[i]f nothing else, the government would likely

have insisted that there was a warranty program to ensure public safety, consumer

protection, and prevent the collapse of the U.S. automotive industry. Tr.140:7-11.

Specifically, Mr. Berliner testified that “given the large number of Chrysler vehicles on

the roads in early 2009 . . . a recall warranty program would have been put in place in a

Chrysler 2009 liquidation.” Tr.141:2-6.

Regarding the plaintiffs’ franchises, Mr. Berliner opined that “no Chrysler dealers

would have been immediately terminated in a Chrysler 2009 liquidation.” Tr.141:7-9.

Mr. Berliner testified that “there was no short-term benefit to Chrysler rejecting

dealership agreements” and that Chrysler would not have rejected any agreements in

bankruptcy. Tr.144:15-17, Tr.144:23-145:2.

Mr. Berliner testified that he supported his opinions based on evidence he

examined from three other automobile bankruptcies in the United States: Daewoo Motors

America, Saab America, and American Suzuki Motor Company. Mr. Berliner explained

that Daewoo Motors America (“DMA”) was the U.S. import and distribution arm of

Daewoo Motor Company, which in 2002 had a network of 525 dealerships. Tr.145:14-19.

He explained that DMA was forced to file for Chapter 11 bankruptcy in the United States

in 2002 after its parent company was placed into reorganization status in South Korea.

Tr.145:20-24. Mr. Berliner testified that “[a]s part of the DMA bankruptcy, the company

entered into long-term agreements with the buyer of Daewoo to provide service, warranty 66 repairs and Daewoo parts to the U.S. market through the DMA dealership network” and

that “approximately 450 of the DMA dealers entered into agreements with the buyer and

remained in business for many months, providing service and warranty repair work and

selling used cars.” Tr.145:24-146:8.

Next, Mr. Berliner testified regarding the fate of Saab America after Saab

Automobiles went into bankruptcy. He testified that, following that bankruptcy, the 188

dealers in the dealership network stayed open for a period of time to service cars and sell

used vehicles. Tr.146:13-22. Finally, Mr. Berliner testified about the American Suzuki

Motor Corporation (“Suzuki”) bankruptcy in 2012. Mr. Berliner explained that at the

time Suzuki filed for bankruptcy, it had “220 automobile dealerships, 900

motorcycle/ATV dealerships, and over 780 outboard marine dealerships.” Tr.146:24-

147:2. Mr. Berliner explained that Suzuki undertook an orderly liquidation process where

it entered into a Service and Parts Agreement with its dealers where Suzuki would honor

all warranties and allow the dealers to continue to provide warranty service and sell the

remaining new automobiles. Tr.147:8-22.

Mr. Berliner testified these historic examples of prior auto bankruptcies together

with his expert opinions supported his conclusion that “Chrysler dealers would have

continued in business, earning profits by performing a range of services for a period of

time” if Chrysler had filed for Chapter 11 bankruptcy without government assistance.

Tr.149:10-13. He testified that “[s]ome of the valuable Chrysler brands, such as Jeep,

Dodge RAM trucks, and minivans, would be sold to an acquirer in a 363 sale” and that

the “acquirer would seek to restart production as soon as possible, likely sometime in late

2009 or 2010.” Tr.149:13-17. Mr. Berliner concluded that if the 363 purchaser did not 67 have an existing dealership network, the Chrysler dealers could potentially continue in

business indefinitely and have their franchise agreements assumed by the new

manufacturer. Tr.149:18-23. Mr. Berliner acknowledged that even if the Section 363

acquirer in bankruptcy had a dealership network, “there would be some transition period

of one to two years after the Section 363 sale where it would be necessary for the

acquirer to utilize the existing Chrysler dealers to sell new vehicles and provide service

and warranty repairs until the acquirer’s dealer network was ready.” Tr.149:24-150:5.

Mr. Berliner explained that during this transition period, the Chrysler dealers would be

able to continue to provide service and warranty work and sell some new Chrysler

vehicles as well as used vehicles, and, at the end of the transition period, would either

remain dealers or would wind-down their operations. Tr.150:6-13. Mr. Berliner reiterated

that dealers would have had a “minimum of 20 months and potentially longer” from the

date of the filing of a Chrysler bankruptcy in a “but for world” without government

funding, and that the plaintiffs would have been able to derive profits from their

operations for this period. Tr.151:1-7.

On cross examination, Mr. Berliner admitted that it is not uncommon for a debtor

in bankruptcy to reject executory contracts, like franchise agreements, as Chrysler did in

its bankruptcy, based on its business judgment. Tr.194:5-15, Tr.195:5-6. Mr. Berliner

also admitted on cross examination that he had no opinion as to who would have acquired

Chrysler’s assets in a 363 sale. Tr.197:10-14. He explained that he “believed” that there

would be an acquirer, that the sale would occur within four to six months, and that, as a

result, the plaintiffs would have had sixteen to twenty months to perform service and

warranty work. Tr.201:8-17, Tr.153:12-20. Mr. Berliner further admitted on cross 68 examination that some of the Chrysler franchisees would likely have had their

agreements rejected in the bankruptcy and that only some would have been given new

franchise agreements with the Section 363 purchaser. Tr.203:19-204:25. In this

connection, Mr. Berliner explained that he assumed that Chrysler franchisees would have

access to financing to purchase new cars from Chrysler (known as floor plan financing)

and that there would be DIP financing in place to allow Chrysler to orderly wind-down in

a bankruptcy. Tr.230:1-6, Tr.233:16-24.

Finally, regarding the other auto bankruptcies he relied on, Mr. Berliner admitted

on cross examination that there were some important distinctions between those

bankruptcies and what would have happened to Chrysler had the government not

intervened. First, he acknowledged that franchise agreements were rejected in the Saab

bankruptcy. Tr.262:22-263:10, Tr.153:12-20. Next, he acknowledged that the Suzuki

bankruptcy involved an auto distributor going bankrupt, and not the manufacturer.

Finally, in the case of Suzuki, he acknowledged that the manufacturer continued to

provide financial assistance that would not have been available to Chrysler in a “but for

world” bankruptcy. Tr.263:23-265:10.

iii. Maryann Keller

The plaintiffs presented the testimony of Ms. Maryann Keller, an automotive

industry expert with decades of experience conducting automotive industry financial

research and analysis. She is currently the principle of Maryann Keller & Associates, a

position she has held since January 2001. Tr.1070:17-22. She holds a bachelor’s degree

in chemistry from Rutgers University and a master’s degree from Bernard Baruch School

at the City University of New York. Tr.1073:14-17. She has “advised clients on issues 69 across the automotive supply chain, from component companies to retail sales area.”

Tr.1071:11-14. Ms. Keller has been “qualified as an automotive expert in three

proceedings, the first in the International Court of Arbitration in Hong Kong; a second in

the State of Virginia; and, finally, in the Bankruptcy Court in New York City.”

Tr.1071:18-22. She has lectured about the automotive industry at Columbia University,

Harvard, NYU, MIT, and the Economic Club of Detroit. Tr.1072:19-21. Ms. Keller has

also authored two books on the automotive industry and written columns on the

automotive industry for the Christian Science Monitor, Motor Trend Magazine, and

Automotive Industries. Tr.1072:23-1073:1.

Ms. Keller testified that she was asked to opine on what would have happened if

“the federal government had not provided financial assistance to Chrysler LLC in 2009

[and] the company would have restructured in a bankruptcy proceeding.” Tr.1073:18-22.

She testified that in her opinion Chrysler’s assets that would have attracted multiple

buyers and that Chrysler would have continued to manufacture vehicles during the

bankruptcy. She also opined that plaintiffs would have been able to continue to sell

Chrysler vehicles and would not have rejected any franchise agreements in a bankruptcy

without government involvement. Tr.1074:11-1075:1.

Ms. Keller testified that the most prized assets of Chrysler would have been the

Jeep brand, the Dodge RAM truck brand, and the Chrysler family of minivans.

Tr.1076:2-14. Ms. Keller testified that there would likely have been at least 12 companies

interested in purchasing Chrysler’s assets and continuing to manufacture Chrysler

vehicles. She explained that without having to abide by UAW contracts and pay union

wages she believed Chryslers’ assets would become more valuable and would have 70 attracted more interest from potential purchasers. Tr.1086:12-21. She identified the

following entities as potential purchasers of Chrysler’s assets: The Blackstone Group;

The Fiat Group, Ford Motor Company, Geely, General Motors, Magna International,

Inc., Mahindra & Mahindra Limited, PSA Peugeot Citroen, Renault, Tata Motors,

Tracinda Corp., and Volkswagen Group. Ms. Murphy testified as to why each of these

entities was in a position financially to purchase Chrysler’s vehicle lines in a Section 363

sale and why it would have made financial sense for them to do so. Tr.1086:22-1102:23.

First, Ms. Keller testified that in her opinion the Blackstone Group would “have

targeted Chrysler’s physical assets in addition to its brands and intellectual property.”

Tr.1087:7-9. Ms. Keller explained that she believed the Blackstone Group would be a

potential Section 363 purchaser in part because it was a large private equity firm with

“$31.8 billion in assets under management with $821.3 million in revenues” during 2007

and that it had attempted to acquire “Chrysler in the spring of 2007 from Daimler” but

had lost to Cerberus. Tr.1087:1-6.

Second, Ms. Keller testified that Fiat also would have been a potential Section 363

purchaser because “the combination of these two companies was ideal . . . Fiat’s

expertise was small fuel-efficient cars while Chrysler’s expertise was trucks and sport

utility vehicles” and because “Fiat had the ability to make Jeep a major international

brand and to add Italian designed cars to the North American portfolio.” Tr.1089:8-19.

She explained that Fiat, which paid nothing for Chrysler under the government's

prepackaged bankruptcy plan, was in a financial position to purchase Chrysler’s assets

because in 2007 it had earned €2.1 billion on €59 billion in revenue. Tr.1088:2-7.

71 Third, Ms. Keller opined that Ford would have been a potential bidder because its

financial conditions were “impressive” in 2007, with $13 billion in cash on hand and

access to more than $10 billion in credit in 2008. Tr.1090:1-3. Ms. Murphy testified that

she believed “Ford had the wherewithal to have been a bidder for select Chrysler assets

that complemented its . . . portfolio including the Jeep brand.” Tr.1090:3-6.

Fourth, Ms. Keller opined that Geely, a Chinese automotive manufacturing

company headquartered in Hangzhou, Zejiang would have been a potential Section 363

purchaser. Ms. Keller explained that “[b]y the end of 2007, Geely recorded, in Hong

Kong dollars, 11.3 billion in revenues and recorded . . . record breaking profits of Hong

Kong dollars [of] 320 million before taxes.” Tr.1090:7-10. She explained that she

believes that at the time of a Chrysler bankruptcy, Geely was “well capitalized for both

domestic and international growth.” Tr.1090:15-16. Ms. Keller further testified that

Geely’s subsequent “acquisition of Lotus and its subsequent acquisition of Volvo

demonstrated its ability and willingness to acquire international automotive assets that

would add to its brand portfolio and its technical expertise.” Tr.1090:17-21. Ms. Keller

also noted that Geely “actually attempted to purchase some or all of Fiat Chrysler in

2018” to further support her opinion that Geely would have been an interested bidder in

Chrysler’s assets if there had been an open Section 363 sale. Tr.1091:11-14.

Fifth, Ms. Keller opined that General Motors could have been a potential buyer of

“select Chrysler brands that complemented its own product portfolio, especially Jeep

after it discontinued the Hummer brand,” after GM emerged from bankruptcy at some

point in 2008. Tr.1092:8-13.

72 Sixth, Ms. Keller testified that Magna International, a Canadian global automotive

part supplier, could have been a prospective bidder on Chrysler’s assets in the event of an

open Section 363 auction. Ms. Keller explained that Magna in 2007 “had over 25 billion

in revenue and over 68 million in net income.” Tr.1092:16-17. Ms. Keller testified that

“Magna was financially tied to Chrysler as a major supplier of components for all

Chrysler vehicles” and thus would have had an interest in bidding for Chrysler’s assets.

Tr.1092:19-21. She went on to explain that in 2007, when Chrysler was for sale, Magna

had made a bid of $4.7 billion and that Magna would likely attempt to purchase

Chrysler’s assets again in a Section 363 sale. Tr.1092:22-1093:1.

Seventh, Ms. Keller testified that Mahindra & Mahindra Limited (“Mahindra”), an

automotive and farm equipment manufacturer based in Mumbai, India, would have been

another potential purchaser of Chrysler’s assets in a Chrysler bankruptcy. Ms. Keller

explained that by “the end of fiscal year 2008, ending March 31, 2008, Mahindra had

produced more than 2 million vehicles . . . [and had a] gross income . . . [of] $3.05

billion.” Tr.1093:18-25. Ms. Keller testified that she believed that Mahindra would have

been interested in purchasing Chrysler’s assets because “it would have benefited from

entering the global light vehicle segment on a major scale” and “would have targeted

Chrysler’s Jeep and Dodge truck brands.” Tr.1094:1-9. Ms. Keller also noted that her

opinion was supported by the fact that Mahindra representatives met with Chrysler in

early 2008 to discuss the possible acquisition of certain Chrysler assets. Tr.1094:5-7.

Eighth, Ms. Keller testified that PSA Peugeot Citroen (“PSA”), a French

automobile company, would be another likely bidder on Chrysler’s assets in a

bankruptcy. She explained that in 2007, PSA had earned a profit of €1.8 billion and had 73 sold over 3.4 million vehicles. Tr.1094:15-18. She opined that “PSA had been seeking to

return to the United States . . . [and] the French Government had guaranteed financial

assistance to PSA during the financial crisis.” Tr.1094:15-24. Ms. Keller stated that

PSA’s interest in Chrysler’s assets would have stemmed from the fact that “the Chrysler

product portfolio would fill gaps, especially for light trucks in [PSA’s] portfolio . . . and

the Chrysler acquisition would have provided a [United States] dealer body . . . that

would have granted [PSA] franchises to those dealers without the burden of having

dealers make additional facilities investments.” Tr.1094:24-1095:8.

Ninth, Ms. Keller testified that Renault, the second largest auto manufacturing

company in France, would have also been an interested bidder. Ms. Keller explained that

in 2007 Renault generated €40.6 billion in revenue and earned 2.7 billion in profit, and

that it would have likely been interested in returning to the United States market through

an acquisition of Chrysler assets. Tr.1095:18-25.

Tenth, Ms. Keller testified that Tata Motors (“Tata”), an automobile manufacturer

based in Mumbai, India, would have also been a potential bidder on Chrysler’s assets in

order to expand its international market share. Ms. Keller explained that “Tata wanted to

become an international automaker” which is evidenced by its 2008 acquisition of Jaguar

Land Rover from Ford and the fact that in early 2008 Tata was in talks with Chrysler

about selling the Jeep brand in India. Tr.1096:17-1097:18.

Eleventh, Ms. Keller opined that Tracinda Corp, a privately-owned investment

company based in Beverly Hills, California, would have been another potential

purchaser. Ms. Keller explained that “on April 5th, 2007, Tracinda made a $4.5 billion

cash offer to DaimlerChrysler for its U.S.-based unit” and that it would have likely made 74 similar efforts to purchase Chrysler’s assets in bankruptcy in 2009. Tr.1098:3-6. Ms.

Keller also explained that Tracinda would have been a likely 363 purchaser because it

had made other forays into the automotive industry by purchasing large amounts of

shares in GM and Ford. Tr.1098:9-19.

Finally, Ms. Keller opined that the Volkswagen Group (“VW”) would have been a

potential purchaser of Chrysler’s assets in a Section 363 sale. She explained that in 2007

VW had earned €6.5 billion in pre-tax profit and “was a financially strong company and

had previously acquired auto companies and successfully integrated them into its

business.” Tr.1098:24-1099:3. Ms. Keller testified that although VW had success in

many global markets, “its presence in the North American market lagged because the

company did not have what are called crossover sport utility vehicles [and] pickup

trucks,” which a purchase of Chrysler’s assets in a 363 sale would have provided.

Tr.1099:3-7.

Ms. Keller went on to explain, after listing the 12 different potential Section 363

purchasers, that her conclusion that some company would have purchased Chrysler’s

assets and made use of its vehicle lines is supported by historical examples in the

automotive industry. She explained that “[t]he modern auto industry is notable for the

willingness of buyers to purchase the assets of financially distressed, even bankrupt

automakers.” Tr.1100:5-7. She further testified that Chrysler brands like Jeep would have

attracted a number of buyers both for the name recognition and the distribution network.

For example, Ms. Keller noted that the Jeep brand was purchased by Chrysler in 1987

when it bought American Motors. Tr.1101:25:1102:18. She explained that Chrysler made

this purchase even though American Motors was in financial distress and that Chrysler 75 decided to preserve the dealership network in order to preserve an expertise in Jeep

service and a distribution network. Tr.1102:24-1103:11.

Ms. Keller also pointed to the sales of MG Rover, Lotus, Saturn, Hummer, and

Saab, including some while the brand was in bankruptcy. She explained that each of these

brands attracted potential buyers despite less than ideal financial conditions, which, in her

opinion, demonstrated that automakers have an appetite for purchasing brands with name

recognition in order to revitalize them. Tr.1104:15-1105:16 (MG Rover), Tr.1105:17-

1106:10 (Lotus), Tr.1106:11-1109:8 (Saturn), Tr.1109:9-1110:7 (Hummer), Tr.1110:8-

1111:19 (Saab). She went on to explain that economic indicators predicted a rebound in

auto sales which would have made Chrysler’s assets even more valuable. Specifically,

Ms. Keller relied on the fact that S&P 500 was up 25% between March and May 2009,

the Consumer Confidence as measured by the University of Michigan was up 20% in the

same time period, and gas prices were on the decline. Tr.1112:7-1113:9. She also noted

that used vehicle values are a “effective predictor of future auto demand” and that used

vehicle prices were steadily increasing though the first half of 2009. Tr.1114:25-1115:3.

Ms. Keller testified that all these factors indicated that there would have been a

strong market for Chrysler’s assets with many potential bidders, which would have

resulted in higher value for Chrysler and in turn its creditors had the government not

intervened. She opined that it was because the government intervened that other willing

purchasers did not come forward. Tr.1121:3-25. Ms. Keller further explained that

“Chrysler would have been a highly desirable partner for a number of the world’s

automakers because of its brand recognition, its desirable truck portfolio, and other

vehicle offerings. And the company coming out of bankruptcy would have been freed of 76 those debt obligations and labor costs that were really [Chrysler’s] major liabilities.”

Tr.1121:11-17.

On cross examination, Ms. Keller admitted that she was not offering an opinion as

to which of the companies discussed would have purchased Chrysler’s assets in a Section

363 sale or how much those companies would have had to pay for Chrysler’s assets.

Tr.1123:11-23, Tr.1124:2-14. She also admitted that in preparing her testimony she did

not conduct an analysis of how profitable any of Chrysler’s products lines were at the

time. Tr.1151:23-1152:9. Additionally, throughout her cross examination she admitted

that for the 12 companies she proffered as potential Section 363 buyers, she did not

consider such factors as whether those companies had ever expressed an interest in

buying Chrysler, or had the financial ability to pay for Chrysler’s assets in an amount

sufficient to meet its debt, at the time of the Chrysler bankruptcy in April 2009.

Tr.1155:21-24, Tr.1159:22-25, Tr.1160:15-16.

Ms. Keller was confronted on cross examination with an article from May 31,

2009 in the New York Times in which she was quoted as saying that she believed that

Chrysler as well as GM had too many dealer showrooms to be profitable and that there

was an advantage in reducing these dealers in bankruptcy.34 Tr.1148:1-1149:11.

Government counsel also asked Ms. Keller about an April 30, 2009 article she authored,

published in the Detroit News, where she espoused the belief that Chrysler was a failing

34 In her May 31, 2009 New York Times article Ms. Keller is quoted as saying that “GM and Chrysler bore costs associated with their huge dealer networks, which they can now streamline [and] [o]nly through bankruptcy could this be accomplished without huge expenses and litigation with individual dealers.” Tr.1148:3-8.

77 auto manufacturer that had been written off by its owner Cerberus, that no entity would

step in to provide Chrysler with sufficient money to keep Chrysler going, and that the

best result that could be hoped for the Chrysler-Fiat alliance was that not too much

money was lost.35 Tr.1180:19-22, Tr.1182:25-1184:15; DX1602.

iv. Judge Judith Fitzgerald

The plaintiffs also offered the opinion testimony of the Judith Fitzgerald, a retired

federal bankruptcy judge. Judge Fitzgerald was “sworn into the Western District of

Pennsylvania [as a bankruptcy judge] on October 30, 1987, [and] sat for nearly twenty-

six years before [her] retirement in May 2013.” Tr.521:7-11. She was also “designated to

sit in the District of Delaware for twenty years, the Eastern District of Pennsylvania for

eight, and the District of the United States Virgin Islands for nine.” Tr.521:12-16. Prior to

serving as a bankruptcy judge, she served for “12 years as an Assistant United States

Attorney in the Western District of Pennsylvania.” Tr.521:17-19. She has taught

numerous law classes on commercial transactions, bankruptcy, and contracts. Tr.521:25-

522:2. She is currently “a shareholder, member of the board, and vice president of the law

firm of Tucker Arensberg, PC, which is based primarily in Pittsburgh, Pennsylvania.”

Tr.520:21-24. Judge Fitzgerald testified that she was retained by the plaintiffs “to look at

but for scenarios that would address what Chrysler may have been able to do . . . in the

absence of government action, and to compare that with the real world franchise

35 In the Detroit News article Ms. Keller wrote “Daimler and Cerberus have written off their investment in [Chrysler].” She explained that Cerberus “seemed to know [it was] acquiring a hollow auto business since [it] immediately spoke about forming partnerships and affiliations to compensate for the lack of homegrown models.” She explained that she believed that Chrysler would need more than $6 billion to continue and that she could not “imagine any lender stepping up with new loans.” DX1602. 78 terminations that occurred in the actual Chrysler bankruptcy case.” Tr.522:11-17. Judge

Fitzgerald explained that she arrived at three opinions: (1) Chrysler could not have

survived outside of bankruptcy without government assistance, (2) plaintiffs’ dealerships

would have retained value as part of Chrysler’s sale of assets, restructuring, or merger

with another entity in a bankruptcy proceeding, and (3) plaintiffs’ franchises would have

had value during an orderly wind-down of Chrysler regardless of whether there was a

sale of Chrysler assets. Tr.562:20-563:22.

Judge Fitzgerald began her opinion testimony by describing the bankruptcy

process and how the Chapter 11 bankruptcy was applied to Chrysler. Tr.574:10. She

explained that United States bankruptcy law serves several basic purposes including (1) a

means by which a debtor can process creditor claims as a collective rather than on an

individual basis, (2) providing a fresh start for a debtor, (3) preserving going concern

values, (4) strengthening a company’s balance sheets, and (5) offering a liquidation

alternative to entities that would not be able to reorganize without the bankruptcy

process. Tr.574:11-24. Judge Fitzgerald explained that when a debtor files for bankruptcy

it must provide the court with schedules and statements of its financial affairs which

includes a list of known claims against the debtor. Tr.575:10-24. Judge Fitzgerald

testified that a corporation would choose a Chapter 11 bankruptcy because it “is designed

to keep the company’s management operation[al] . . .during its bankruptcy” while it

attempts to negotiate how the claims of its creditors are handled and how to reorganize.

Tr.577:7-18.

Judge Fitzgerald explained that when a company files a voluntary petition for

bankruptcy it creates an estate that “is comprised of all the property and property interests 79 of the debtor . . . in order to maximize[e] its value to pay creditors.” Tr.578:20-579:4. In a

Chapter 11 bankruptcy, “the debtor remains in possession and has the status of a trustee

for most purposes.” Tr.579:7-9. She went on to explain that “creditors” are prioritized

with secured creditors having the highest priority followed by unsecured creditors.

Tr.579:25-580:15.

Next, Judge Fitzgerald explained the role of the Section 363 asset sale. She

explained that Section 363 sales are used to dispose of a debtor’s assets while it

determines its longer-term needs. Tr.587:3-7. Judge Fitzgerald testified that “[d]ebtors

frequently prosecute motions to sell assets during their bankruptcies . . . [because they]

are typically brought as ‘free and clear’ proceedings, so that the purchaser can acquire the

assets without the debtor’s liabilities, including contingent and unliquidated claims.”

Tr.588:24-589:5. She further explained that “[g]enerally, a debtor will retain professional

advisors with skill in selling the particular assets available to provide an estimate of their

value and/or to market them through a private sale or at auction.” Tr.589:17-20. “When a

debtor proposes to sell valuable assets, it is customary to file a motion to establish bid

procedures that set out . . . the time frame and terms on which due diligence can be

conducted, identifies the assets to be sold, how to qualify a purchaser, and any required

deposit.” Tr.589:24-590:4.

Judge Fitzgerald also testified about the executory contracts, i.e., the franchise

agreements held by the plaintiffs with Chrysler. Tr.591:4-10. Judge Fitzgerald explained

that a debtor can either assume the executory contract, assign it to a third party, or reject

the executory contract pursuant to Section 365 of the Bankruptcy Code. Tr.591:11-16.

“Rejection of an executory contract such as a franchise agreement is merely a breach that 80 indicates that the debtor will no longer perform.” Tr.592:5-7. Judge Fitzgerald testified

that bankruptcy judges “are aware that rejection is not the same as termination and the

consequences of rejection are governed by applicable nonbankruptcy law.” Tr.592:7-10.

She explained that rejection of an executory contract only frees the debtor from an

obligation to perform and that the other party to the executory contract can recover

damages by filing an unsecured debt claim in the bankruptcy. Tr.592:5-593:11. Judge

Fitzgerald explained that, based on her experience with the rejection of executory

contracts in bankruptcy proceedings, the rejection order in the Chrysler bankruptcy was

not typical because it contained provisions enjoining the plaintiffs from holding

themselves out as authorized dealers or performing services or maintenance on Chrysler

vehicles, which effectively terminated the franchise agreements rather than just

announcing, through rejection, Chrysler’s intent not to perform its obligations under the

franchise agreement. Tr.595:4-10.

Next, Judge Fitzgerald explained that collective bargaining agreements and

pension obligations, although executory contracts, are treated differently from other

executory contracts in bankruptcy. Tr.597:17-23. Judge Fitzgerald opined that the

government “had a strong motivation in driving the sale to Fiat that included Fiat’s

assumption of much of Chrysler’s debt” because “[h]ad Chrysler gone out of business

and terminated the pension plans, the Government would have had a substantial outlay of

funds from the Pension Benefit Guaranty Corporation, called the PBGC, to the retirees.”

Tr.598:24-599:5. Judge Fitzgerald opined that without government involvement, the new

Chrysler entity would have entered negotiations about having to assume the employer's

obligations. Tr.600:17-25. 81 Judge Fitzgerald testified about the use of cash collateral in a Chapter 11

bankruptcy. She explained that cash collateral is defined by Section 363(a) of the

Bankruptcy Code as cash, deposit accounts, and other cash equivalents. Tr.601:10-18.

Judge Fitzgerald went on to explain that a debtor in bankruptcy can only use cash

collateral with the creditor’s consent or a court order. Tr.601:18-20. Judge Fitzgerald

testified that, in her experience, “the debtor and lender will negotiate the terms of a cash

collateral order and stipulate to the terms of the use of cash collateral and the form of

adequate protection” for the creditor. Tr.602:5-8.

The final element of a Chapter 11 bankruptcy about which Judge Fitzgerald

testified concerned DIP financing. She explained that during a bankruptcy a debtor can

obtain and incur normal unsecured debt that it would normally incur during the course of

operating its business. Tr.602:22-25. However, Judge Fitzgerald explained that in order

to incur secured or DIP debt, the debtor needs the bankruptcy court’s approval. Tr.603:6-

7. She explained that DIP financing has “superpriority” status and gets paid ahead of all

other claims, including the secured debt that was previously incurred. Tr.603:24-604:2.

She explained that secure creditors have a right to and often object to the proposed DIP

financing. Tr.603:20-23. Judge Fitzgerald explained that few creditors will provide DIP

financing as a secondary lien and that a secured lender often will provide the DIP

financing to avoid further deterioration of its collateral and to maximize the recovery it

can receive from the bankruptcy. Tr.606:16-22.

It is against this backdrop that she offered the following three opinions about the

differences between the government's negotiated bankruptcy plan and what she opined

would have occurred if Chrysler had filed for a Chapter 11 bankruptcy without the 82 government’s terms. First, Judge Fitzgerald opined that during an orderly wind-down in a

Chapter 11 bankruptcy, “Chrysler would carry out its obligation to maximize value,”

which would involve hiring experts, analyzing the value of its assets, marketing and

selling those assets, assuming or rejecting supplier contracts in accordance with the sale

of viable lines, rejecting unnecessary executory contracts, and distributing the proceeds

of sales to creditors. Tr.630:8-23. Judge Fitzgerald explained that, in her opinion, based

on the Viability Plan that Chrysler submitted to the government, Chrysler would have had

over $1 billion in cash at the time of the bankruptcy filing and that she believed the

bankruptcy court would have authorized the use of the cash collateral to maximize

Chrysler’s value for Chrysler’s creditors. Tr.632:10-15.

Judge Fitzgerald opined that the Chrysler wind-down would have played out in the

same manner as the bankruptcies of Hostess and American Suzuki Motors Corporation

(“AMSC”). Tr.649:12-652:12. Judge Fitzgerald testified that both the Hostess and AMSC

bankruptcies are indicative of how the Chrysler bankruptcy would have proceeded

because they involved an orderly wind-down and asset sale of a large corporation which

retained its stores and dealers during the bankruptcy. Id. Judge Fitzgerald explained that

as part of the wind-down in bankruptcy, plaintiffs’ franchises would have been retained

because the dealers would have preserved the economic value of Chrysler’s assets. In

support of this contention, Judge Fitzgerald also relied on the bankruptcies of Daewoo

Motor America and Saab Cars North America, where the respective companies’ dealers

remained functioning through the course of the bankruptcy to maximize value for

creditors. Tr.657:2-658:1. She explained that “[d]ealerships were not liabilities of

Chrysler, and as a liquidating entity, Chrysler would not have received any direct benefit 83 in the form of cash or liquid assets from an expedited termination of dealerships.”

Tr.661:12-16. Thus, Judge Fitzgerald concluded that in an “orderly wind-down, Chrysler

likely would have made every effort to support the franchises, to keep them in operation

while going out of business sales are undertaken and the bankruptcy was administered.

Chrysler dealerships would have remained in business, servicing and maintaining

vehicles and providing parts for as long as there were Chrysler cars, minivans and trucks

on the highway.” Tr.662:1-8.

Second, Judge Fitzgerald opined that if Chrysler were sold in a Section 363

bankruptcy sale, the plaintiffs’ franchise agreements would have been assumed and

would have continued to have value. Tr.681:24-682:7. She explained that she believed

that to “minimize their losses and maximize their recoveries, the first lien lenders likely

would have worked with Chrysler through a Chapter 11 to effectuate a sale of Chrysler’s

core business as a going concern” which would have included providing “defensive” DIP

financing. Tr.682:22-683:1. Judge Fitzgerald explained that at the time of a Chrysler

bankruptcy, lenders were beginning to provide DIP financing at record levels. Tr.694:3-7.

She further explained that in “the context of a 363 sale for the core business to a strategic

buyer, it is improbable that the buyer would have agreed to have been bound by the

existing terms of the UAW collective bargaining agreement[.]” Tr.699:1-5. Judge

Fitzgerald further stated that “as part of a sale of assets to a strategic buyer, the buyer . . .

would have analyzed each one of the executory contracts . . . to determine whether the

contracts should be assumed and assigned to the buyer or rejected by the estate.”

Tr.703:24-704:4. Judge Fitzgerald concluded that in her 363 sale scenario, Chrysler

would not have benefited from the rejection of its franchise agreements, and Chrysler’s 84 dealers would have been able to continue their business operations and preserve their

value during the bankruptcy and potentially for as long as there were new cars and used

cars that needed service and maintenance. Tr.705:18-23.

Finally, Judge Fitzgerald opined that, regardless of whether Chrysler pursued an

orderly wind-down or was sold in a 363 sale, she believed that the dealerships would not

have had their franchise agreements rejected and thus could have continued in operation

servicing cars and selling used cards during the course of any bankruptcy for at least

several months. Tr.710:7-20.

On cross examination, Judge Fitzgerald clarified several of the assumptions

underlying her opinions. First, she admitted that she assumed that the government would

provide a warranty program to cover Chrysler’s outstanding warranties. Tr.742:5-16.

Second, she assumed that in absence of government financial assistance, dealers would

have helped fund Chrysler’s bankruptcy or would have purchased Chrysler’s assets.

Tr.743:22-744:7.

On cross examination, Judge Fitzgerald conceded that Chrysler would have

required between $12 to $20 billion dollars in DIP financing in order to stay operational.

She further conceded that her reliance on the Hostess bankruptcy, which only required

$75 million in DIP financing, and the Daewoo bankruptcy, which required only $1.65

million in DIP financing, were not analogous to Chrysler’s situation. Tr.785:17-786:2,

Tr.799:20-800:17. Similarly, she conceded that the because American Suzuki received

DIP financing from its parent company, it was also very different from the circumstances

Chrysler faced. Tr.789:20-794:4.

85 v. Diane Anderson Murphy

The Alley’s plaintiffs, as noted above, presented Diane Anderson Murphy as their

valuation expert. Ms. Murphy was tasked with valuing each of the Alley’s plaintiffs’

franchise agreements for purposes of determining lost economic value in a “but for

world” without government financial assistance to Chrysler. Ms. Murphy is the director

of the valuation services group of Moss Adams LLP. Tr.1398:19-22. She began working

at Moss Adams in 1994 and currently leads Moss Adams’ “business appraisal practice

within the firm’s automotive and dealer service practice, which focuses on automobile,

heavy equipment, commercial truck, RV, motorcycle, and power sports dealers.”

Tr.1398:23-1399:3. She is an accredited senior appraiser in business valuation with the

American Society of Appraisers and has been active in business appraising for over thirty

years. Tr.1399:4-8. As a member of Moss Adams’ automotive and dealer services

practice, she has provided valuation and value-related consulting services to well over

1,500 dealership appraisal projects that range from single-point dealerships to groups of

dealerships. Tr.1399:13-19. She has “served as coauthor for several versions of the

National Automobile Dealers Associations’ dealership valuation guide.” Tr.1400:9-14.

She is also an associate member of the of the National Association of Dealer Counsel, a

member of the American Society of Appraisers, and a member of the Washington State

Auto Dealers Association. Tr.1400:24-1401:3. She explained that she was “engaged to

provide a valuation opinion as of two dates, December 31, 2008 and April 30, 2009 . . .

under two scenarios, continued production of Chrysler cars and trucks and continued

production of only Chrysler trucks[.]” Tr.1401:9-15.

86 Ms. Murphy explained that she was tasked with determining the economic value

of the Alley’s plaintiffs’ franchise agreements in a “but for world” without government

financial assistance. She testified that she employed the “standard fair market value,

which is the price, expressed in terms of cash equivalents, at which property, here the

Chrysler franchise, would change hands between a hypothetical willing and able buyer

and a hypothetical willing and able seller.” Tr.1403:1-6. Specifically, she explained that

she used the income approach to determine the value of the plaintiffs’ franchises at these

two times. Tr.1404:16-19. Ms. Murphy testified that she considered numerous factors

including those related to the national economic outlook, the local economic outlook, and

the historical sales and profitability of the franchises in formulating her values for each

franchise. Ms. Murphy explained that her assumptions were that the government would

provide no financial assistance, that Chrysler entered bankruptcy on the date of the

valuation, and that the franchise agreements were in full force and effect on the valuation

date.36 Tr.1407:4-23.

Ms. Murphy then testified about her valuation methodology. First, she explained

that in valuing the franchise agreements held by the plaintiffs she “considered only the

Chrysler franchise-related assets” owned by the plaintiffs, which included all intangible

assets/income streams including used car sale and customer pay work. Tr.1410:18-

1411:16. She explained that in her many years of experience in valuing dealerships she

“cannot recall a single instance where a purchaser of a franchised dealership sought to

pay only for the revenue streams associated with the new car department, OEM [original

36 As discussed supra, the Alley’s plaintiffs are no longer relying on the December 31, 2008 date and thus Ms. Murphy’s calculations for that date are not evaluated in this opinion. 87 equipment manufacturer – here, Chrysler] parts and sales and warranty repairs and not for

the additional departments of the dealership franchise, including used car sales, customer

pay and other parts and service.” Tr.1411:17-1412:2. Ms. Murphy opined that the

franchise agreement, although only enumerating specific rights of the franchisee, is

always valued as both the rights guaranteed, such as new car sales, but also other income

streams that are clearly derived from those rights. Tr.1412:3-12. She explained that this is

further supported by the terms of the franchise agreement, which require that the

franchisees have facilities to handle new and used vehicle sales as well as have sufficient

parts stocked for both warranty and customer pay work. Tr.1415:7-15; DX1224.

Additionally, Ms. Murphy explained that Chrysler also “required its franchised dealers to

report all departmental operations in monthly financial reports submitted to [Chrysler].”

Tr.1416:5-7.

Next, Ms. Murphy explained how she was able to separate the used cars for “dual”

dealer plaintiffs, i.e. dealers with franchise agreements with two different manufacturers

or OEMs, when the financial statements provided by the plaintiffs only identified total

used car sales and did not break them down by the OEM. Tr.1417:4-14. She explained

that “[u]nder the used-to-new formula, one assumes that the sale of used cars follows the

same rate of sales as branded cars, both Chrysler and non-Chrysler.” Tr.1417:14-17. She

explained that she also used the used-to-new formula to estimate the proportion of service

and parts income streams, which on the income statements are also not separated by

manufacturer. Tr.1417:23-1418:2.

Ms. Murphy explained that she considered three different valuation approaches

before deciding on the income approach: the income approach, market approach, and 88 asset-based approach. Tr.1418:13-1419:1. Under the income approach, “estimated future

returns are discounted to present value at an appropriate rate of return for the

investment.” Tr.1418:15-17. Under the market approach, “market transactions involving

companies that are similar to the subject business” are used to set the price of a franchise.

Tr.1418:18-22. Finally, the asset-based approach values the assets minus the liabilities of

the business. Tr.1418-23-1419:1. Ms. Murphy explained that she chose to value the

plaintiffs’ franchises using the income approach “because it represents the amount a

prudent investor would pay for the franchisee’s expected future cash flows based on

market rates of return and the franchise’s specific risks.” Tr.1419:2-6.

Ms. Murphy explained that in applying the income approach, “expected future

returns from an investment in the form of cash flows are discounted to present value at an

appropriate rate of return for the investment.” Tr.1425:22-25. She explained that “[t]he

selected discount rate . . . should reflect the degree of uncertainty or risk associated with

returns and returns available from alternative investments,” and that the higher the

uncertainty, the higher expected rate of return, which results in a lower value for

investment. Tr.1425:25-1426:5. She explained that in her income approach she used a

discounted cash flow analysis, where “future cash flows are discounted to present value

using an appropriate discount rate or rate of return.” Tr.1427:23-1428:4. Cash flows are

forecasted for a discrete period; Ms. Murphy explained that she used a period of five

years and then projected growth at a constant rate in perpetuity. Id. Ms. Murphy further

explained that she “applied a discounted cash flow analysis whereby cash flow is defined

as earnings before interest and taxes, commonly referred to as EBIT, minus income taxes

on EBIT, plus noncash expenses, plus or minus adjusted working capital changes, minus 89 capital expenditures, equals free cash flow, which we call debt free, and all of this cash

flow is before any non-flooring interest expense [i.e. the cost of borrowing to buy cars

from the manufacturer].” Tr.1428:11-18.

She explained that “the first step in valuing a company is typically an examination

of the dealership’s historical cash flow and an investigation into the history, location, and

general background of the dealership to provide a context for the business and its

financial results.” Tr.1433:11-15. Ms. Murphy explained that she used a historical trend

over approximately five years preceding the valuation dates. Tr.1433:22-23. Ms. Murphy

then made adjustments to the earnings that she believed would be representative of

normalized results in income flow by identifying atypical expenses or sales and removing

them from the trend. Tr.1433:24-1434:3. She also took into consideration the industry’s

financial health, local area economic expectations, and other factors that may affect

potential cash flow. Tr.1434:16-22. Based on this valuation method, Ms. Murphy

calculated what she believed each of the Alley’s plaintiffs’ franchise agreements were

worth on the two valuation dates she was given by counsel.

Set forth below are the franchise valuations and amount of just compensation she

calculated for each of the Alley’s plaintiffs based on the assumptions she was given for

the April 30, 2009 taking date:

90 Plaintiff Cars & Trucks Continue Trucks Continue Production Production Livonia Chrysler Jeep, Inc. $4,464,000 $3,705,000 Taylor-Parker Motor Co. $686,000 $558,000 Barry Dodge, Inc. $1,124,000 $859,000 Whitey’s Inc. $524,000 $292,000 Cedric Theel, Inc. $709,000 $621,000 RFJS Company, LLC $1,766,000 $1,329,000 Jim Marsh American Corp. $8,302,000 $6,512,000

Tr.1406:2-20.

On cross examination, Ms. Murphy clarified that her valuations of the franchise

agreements included not only discounted cash flow but also tangible assets such as

equipment, parts, land, and cash that would be included in a sale. Tr.1542:2-22.

Additionally, she clarified that all her valuations assumed that the dealerships were

ongoing businesses. Tr.1548:9-11. She admitted on cross examination that it would have

been difficult for vehicle customers and for auto dealers to finance their inventory

through borrowings on the valuation dates she was given, but that she did not consider

how those issues would have impacted the value of the franchise agreements. Tr.1563:12-

19. She further admitted that she assumed that there would be no disruption in the

plaintiffs’ ability to sell new cars at any time and that if there were a disruption it would

change her income assumptions and thus would change her valuation. Tr.1747:9-14.

vi. Dr. John Nevin

Dr. John R. Nevin, Ph.D., an Emeritus Professor at the University of Wisconsin,

Madison, School of Business, testified on behalf of the Colonial plaintiffs. Tr.1965:16-

19. He holds a B.S. in Marketing from Southern Illinois University (1965) and a Master

of Science degree in Marketing (1968) and Doctor of Philosophy in Marketing (1972)

91 from the University of Illinois. Tr.1965:19-23. He has over “40 years of experience in

analyzing, research[ing], and teaching in the field of channel distribution and distribution

supply chain management.” Tr.1968:3-5. In 1970, Dr. Nevin was appointed to an

assistant professorship at the School of Business at the University of Wisconsin,

Madison, became an associate professor in 1977, a full professor in 1983, and an

emeritus professor in 2012. Tr.1966:4-8. He was the executive director of the Granger

Center for Supply Chain Management from 1992 to 2016 as well as the Executive

Director for the Center for Brand and Product Management from 2003 to 2007 and 2010

to 2013. Tr.1966:13-18. Dr. Nevin has served as a member of the Editorial Board for the

Journal of Marketing, the Journal of Retailing, the International Marketing Review,

Advances in Distribution Channel Research, and the Journal of Marketing Channels.

Tr.1967:8-12.

Dr. Nevin explained that he was retained by the Colonial plaintiffs to explain the

nature of franchise agreements, the underlying rational for the franchise business model,

the history of auto dealership franchising and its regulatory environment, and how market

value of an auto dealership is determined. Tr.1967:15-1968:1. He was not asked and did

not present a valuation of the franchise agreements for the two Colonial plaintiffs.

Dr. Nevin explained that “[i]n the most general sense, a franchise is a legal

agreement between two independent parties whereby one of those parties, the franchisor,

grants a license to the other party, the franchisee, to sell the trademarked product or

service, and, in return, receives a payment or royalty and conformance to quality

standards.” Tr.1968:17-22. Dr. Nevin testified that “the strategic essence of the franchise

business model can be accurately explained by identifying three critical components of 92 the franchise system: the brand, the operating system, and the ongoing support provided

by the franchisor to the franchisee.” Tr.1970:12-16. He went on to explain that “the brand

creates the demand, allowing the franchisee to initially obtain customers,” “the operating

system essentially delivers the promise, thereby allowing the franchisee to maintain

customer relationships and to build loyalty,” and finally, “the ongoing support and

training provides the impetus for growth, offering the franchisee the tools and tips to

expand its customer base and build its market share.” Tr.1970:17-1971:2.

Dr. Nevin explained that there were “two different types of franchises, a product

distribution or traditional franchise and a business format franchise.” Tr.1971:3-8. Dr.

Nevin explained that the plaintiffs’ franchise agreements with Chrysler were product

distribution or traditional franchises where “the franchisor provides relatively little in the

way of management and marketing assistance to the franchisees.” Tr.1971:9-11. He

explained that auto companies choose to distribute their product through franchisees

because it allows for expansion with limited capital and human resources, reduction in

distribution costs, and access to individuals who are highly motivated and know the local

market. Tr.1972:15-20.

Dr. Nevin then went on to explain the history of auto dealer franchise agreements

in the United States. Specifically, he noted that there were, beginning in the 1950s,

federal and state laws “passed to address the perceived inequality in the power

relationship between the auto manufacturer and auto dealers and the concern over the

large capital investments in acquiring or building dealerships and sustaining their

operations.” Tr.1976:14-18. Dr. Nevin explained that state laws protect franchisees from

being terminated, protect a franchisee’s business territory, and provide several other 93 protections. Tr.1977:8-1980:1. He explained that “a franchised automobile dealer’s

exclusive territory is a valuable property right.” Tr.1980:4-5.

Dr. Nevin testified how automobile franchises are typically valued, including the

concept of “blue sky” value in a dealership. He explained that dealerships are valued by

adding the market value of the franchisee’s tangible assets – real estate, inventory,

furniture, fixtures, equipment, etc. – to the franchise’s intangible value, which in the auto

dealership industry is known as “blue sky,” or good will. Tr.1982:3-8; PX284. Dr. Nevin

went on to explain that “[t]he lower the perceived risk associated with a franchisee’s

expected pre-tax earnings, the higher the blue sky multiple in the resulting franchise

valuation.” Tr.1982:24-1983:2. Dr. Nevin testified that a number of commercial services

accurately estimate blue sky value for auto brand franchises by considering such things as

“earning growth expectation of the franchise, buyer demand for the products in the

franchise, real estate, market vehicle preferences in the market, market representation,

other dealers, and customer relations,” and that the “blue sky” multiple usually ranges

between two and eight times net profits from all income streams of the dealership.

Tr.1984:14-1985:3.

Importantly, in the same article that Dr. Nevin relied on to explain “blue sky”

value, the authors explained that a dealership may not have any “blue sky” or intangible

value when there are extreme economic circumstances. The article “Auto Dealership

Valuation: A Discussion of Applicable Methods, Part 1” stated “[t]here are rare instances

when the net asset value is appropriate, such as when a dealership is valued in a

liquidation setting, or during severe economic uncertainty, such as the Great Recession of

2008 and 2009. During the recession there were few dealership transactions, and it was 94 not uncommon for the dealerships that did sell, particularly domestic dealerships

(General Motors, Ford, and Chrysler), to sell at or near net asset value.” PX295.

vii. Edward Stockton

Edward Stockton testified as the Colonial plaintiffs’ valuation expert. Mr.

Stockton has a bachelor’s degree in economics for Western Michigan University and a

master’s degree from the Department of Agriculture in resource economics at the

University of Arizona, where his concentration was applied econometrics. Tr.2337:7-11.

Mr. Stockton is currently the Vice President of Fontana, a company that “provides highly

focused economic consulting services and expert testimony regarding the retail motor

vehicle industry and other industries throughout the United States.” Tr.2337:12-17. Mr.

Stockton testified that during his time at Fontana he has performed 30,000 hours of work

focused on issues related to the retail automotive industry, which includes studies on

franchised operations that have sold various vehicle lines. Tr.2338:1-13. Mr. Stockton

has provided expert testimony on behalf of the consumer class in the Volkswagen diesel

emissions lawsuit and a lawsuit against Wells Fargo concerning the opening of

unauthorized accounts, where he consulted on issues related to compensation and

economic loss. Tr.2339:19-2340:20.

Mr. Stockton testified that he was retained to “calculate value associated with the

Finnin and Guetterman dealerships under two families of scenarios. The first is . . .

call[ed] the historical scenario, and this is not based on a hypothetical world. This is

based on an estimate of the value of their franchises historically at the time of the taking.

The second is, in a liquidation scenario, . . . the question whether Finnin and Guetterman

could demonstrate value to continuing operations or have incremental value generated 95 from their franchises within liquidation.” Tr.2342:4-15. He went on to explain that he

“wasn’t asked to consider whether there would be a successor OEM [ another car

manufacturer] or a continuation of new vehicles. I don’t have an opinion that there would

or would not be.” Tr.2342:15-18.

Before explaining his assumptions and calculations, Mr. Stockton explained his

overall understanding about how a businesses’ economic value is determined. Mr.

Stockton explained that he understands the economic value of a business to be “equal to

the discounted present value of the expected benefits provided by the firm to its owner.”

Tr.2348:15-19. Mr. Stockton further explained that a “discounted present value is the

point of indifference between the acquisition or sale of a certain current amount of profit

or benefit and an uncertain future amount.” Tr.2348:24-2349:3. Mr. Stockton ultimately

explained that “the economic value of the firm reflects the sum of current and expected

future earnings after accounting for present judgments of risk, uncertainty, relative return,

and liquidity.” Tr.2350:17-20.

Mr. Stockton also testified that he believed that the “the property allegedly taken

from Plaintiffs consisted of their Chrysler brands’ franchises; namely, Chrysler and Jeep

from Finnin and Chrysler-Jeep-Dodge RAM from Guetterman. Used here, the franchise

includes items of value such as rights to use and display trademarks, contractual

protections, territorial distinction, limited right to territorial exclusivity, access to training

and marketing materials, opportunities associated with new products, statutory

protections applied to franchisees, rights to purchase proprietary parts, products, tools,

repair codes, market information, access to residual product demand in the market, and

other elements of value associated with franchise operations.” Tr.2356:3-16. He went on 96 to explain that both Finnin and Guetterman were dual dealers which required a valuation

based on the removal of economic value of capacity of their overall dealership

operations. Tr.2357:5-14. However, he noted that “[t]he sale of a firm is not generally or

necessarily equal to the economic value of the firm to its owners.” Tr.2358:3-5.

Mr. Stockton testified that fair value “is an unbiased price at which a firm would

change hands under an orderly exchange, in the absence of compulsion, where both

parties enter the transaction with relevant and symmetrical knowledge.” Tr.2358:18-21.

However, Mr. Stockton testified that he was unable to calculate fair value for either the

Guetterman or Finnin franchises because “[t]he factual circumstances surrounding the

valuation of the Plaintiffs’ dealerships at the time of the alleged taking creates a fissure

between the prices at which the Plaintiffs’ property might have sold and the concept of

just compensation for the property taken.” Tr.2359:4-9, Tr.2590:12-16 (explaining that

fair market value “didn’t exist at that time”). Instead he explained that “it is possible to

form reasonable and reliable estimates of the economic value of property allegedly taken

from plaintiffs by evaluating the profit stream that franchises would have generated.”

Tr.2360:16-20. He further explained that he calculated two sets of values: (1) historical

values, i.e., the value of plaintiffs’ franchise agreements if Chrysler had continued, and

(2) “but for” values, i.e., the profits that plaintiffs would have earned if Chrysler had

liquidated. He explained that in creating his calculations he only looked at financial data

through December 2008. Tr.2363:23-24. He went on to explain that in his “but for world”

he looked at “the incremental value that ongoing franchise affiliation would have

conveyed to Plaintiffs in a liquidation environment versus what actually occurred.”

Tr.2365:9-12. 97 For his “but for world” scenario, Mr. Stockton testified that he “selected an

effective date of May 2009 to assess incremental profitability but considered dealership

data only through December 2008,” which he maintained employed data that was highly

conservative in calculating lost profit. Tr.2365:22-24. He further explained that in his

liquidation analysis he did not assume a purchase of Chrysler or any value flowing from

the production of new vehicles; he did, however, assume that Chrysler retains a minimum

infrastructure throughout the bankruptcy and that its warranties would still be honored.

Tr. 2366:5-20.

Mr. Stockton then detailed his assessment of the risk factors in his historical and

“but for” scenarios. He explained that in “the historical scenario, the Government agrees

to support ongoing Chrysler operations, but in connection with this agreement, mandates

the rationalization of the dealer network, which ultimately results in a reduction in the

count of Chrysler dealerships by approximately 25 percent.” Tr.2413:16-21. Mr. Stockton

explained that for Finnin he posited four fair value valuations and two profit contribution

valuations in order to show that Finnin had value in his historical scenario. Mr. Stockton

explained that in his four fair value valuations, he assumes that Finnin sells its Chrysler

and Jeep franchises to a purchaser that “already holds the facility capacity to incorporate

those lines” and who has some underutilized personnel capacity so that it can do so by

adding non-facility fixed expenses equal to 66.7-75%. Tr.2424:15-21. Then he either

gave a terminal multiple of either four or five. He further explained that he analyzed

Finnin’s profit contribution analysis for 2006 to 2008, financial statements from 2006

through 2008, Finnin’s new and used vehicle and parts and service sales volume from

2006 to 2008, the sale volume forecast for the Chrysler group, and the Dealer Cut 98 Discount Factor. Tr.2434:17-2437:18. As a result, Mr. Stockton concluded, based on the

following historical scenarios, that Finnin would have had the following values:

Fair Value Based on 2/17/2009 Chrysler Viability Plan, One-Fourth $1,242,192 reduction in Projected Non-Building Related Fixed Expenses and Terminal Value Calculated Using Multiple of 4 Fair Value Based on 2/17/2009 Chrysler Viability Plan, One-Fourth $1,358,928 reduction in Projected Non-Building Related Fixed Expenses and Terminal Value Calculated Using Multiple of 5 Fair Value Based on 2/17/2009 Chrysler Viability Plan, One-Third $1,465,048 reduction in Projected Non-Building Related Fixed Expenses and Terminal Value Calculated Using Multiple of 4 Fair Value Based on 2/17/2009 Chrysler Viability Plan, One-Third $1,602,843 reduction in Projected Non-Building Related Fixed Expenses and Terminal Value Calculated Using Multiple of 5

Tr.2452:9-2453:1.

Mr. Stockton went on to explain that for his historical scenario he also proffered

two valuations based on a profit contribution analysis. He explained that he estimated the

sales volume of the business based on the 2006-08 averages for Finnin, taking into

consideration Chrysler’s forecasts in its February 2009 Viability Plan. Tr.2438:17-24. He

further explained that “[t]he baseline figures also do not incorporate any benefit from

restructure or the fact that survival would have occurred in a market with fewer

intrabrand competitors.” Tr.2439:9-12. Furthermore, Mr. Stockton noted that he spoke

with Finnin’s banker and was told that “Finnin regularly left its credit lines untapped and

had extensive credit available,” and thus would have been able to properly finance the

dealership in the future. Tr.2440:23-2441:1. Mr. Stockton next explained that he applied

a discount rate of 25% to Finnin, which means that for every dollar that Finnin could be

expected to earn he would only count 75 cents. Tr.2442:7-10. Based on these

99 assumptions, Mr. Stockton posited two different profit contribution values based on

different terminal value multiples:

Profit Contribution Value Based on 2/17/2009 Chrysler $3,247,903 Viability Plan and Terminal Value Calculated using Multiple of 4 Profit Contribution Value Based on 2/17/2009 Chrysler $3,554,167 Viability Plan and Terminal Value Calculated using Multiple of 5

Tr.2453:5-10.

It was against this background (which was based on the government having given

assistance to Chrysler but where the franchise agreements were not rejected) that Mr.

Stockton offered his final opinions on value for each of the franchises in the “but for

world” where the government did not provide Chrysler with financial assistance and the

franchise agreements were not rejected. He explained that he had several alternative

valuations, the first being “an immediate liquidation of Chrysler in which dealerships

continue operation indefinitely. The second is a Chapter 11 scenario in which Chrysler’s

dealer network continues to operate for three years. The third contemplates an orderly

wind-down of operations over a 17-month period.” Tr.2442:19-24. He explained that he

did not consider scenarios where the purchaser of Chrysler’s assets continues the

manufacture and sale of new vehicles, and that he did not attempt to calculate the fair

value for these scenarios because there were too many complications. Tr.2442:24-

2443:10.

For the first Chapter 11 scenario, Mr. Stockton assumed that the government

would guarantee warranty obligations for incumbent customers and that the dealerships

would acquire the rights to certain proprietary parts and would continue to be able to

100 operate as branded Chrysler dealers. Tr.2446:5-10. For the second Chapter 11 scenario,

Mr. Stockton assumed that the Chrysler dealership network would survive for another

three years, and he discounted any value of operations for longer than three years and

allowed for the ongoing service of existing customers to include used vehicles, parts, and

customer pay and warranty service. Tr.2445:8-17, Tr.2446:21-25. Finally, he testified

regarding his third scenario – an orderly-wind-down scenario in which, using the same

assumptions as in the Chapter 11 scenario, he examined if the dealerships would continue

for only seventeen months. Tr.2445:18-22. Mr. Stockton explained that for each of these

scenarios he calculated the used car sale volume based on new sales volume between

2006 and 2008 and that he calculated warranty work based on three prior years of new

vehicles sales, while customer pay was based on seven years of prior sales of new

vehicles. Tr.2450:8-2451:16.

Based on these assumptions and calculations, Mr. Stockton came to the following

conclusions as the Finnin’s value in a “but for world” without government financing:

Chrysler Liquidation Scenario $1,591,921

Chrysler Chapter 11 Scenario $1,391,138

Chrysler Orderly Wind-Down Scenario $775,040

Tr.2456:15-19.

Next, Mr. Stockton explained how he applied the valuation scenarios he used to

value Finnin to value Guetterman’s franchise agreements. Mr. Stockton acknowledged

that he could not demonstrate that Guetterman would have had fair value had Chrysler

not rejected his franchise agreements in the Chrysler bankruptcy because “it is not clearly

101 demonstrable that Guetterman’s value would have intersected with those of a

hypothetical buyer such that an exchange could be developed.” Tr.2454:20-23. Rather,

Mr. Stockton explained that the profit contribution was the best way to determine

Guetterman’s historical value and that he employed a 40% discount rate to account for

the risk of possible termination. Tr.2455:23-2456:3. The valuations were as follows:

Profit Contribution Value Based on 2/17/2009 Chrysler Viability $114,106 Plan and Terminal Value Calculated using Multiple of 4 Profit Contribution Value Based on 2/17/2009 Chrysler Viability $124,434 Plan and Terminal Value Calculated using Multiple of 5

Tr.2456:11-16.

Finally applying the same methodology and assumptions as outlined in his Finnin

testimony, Mr. Stockton posited the following “but for” valuations for Guetterman:

Chrysler Liquidation Scenario $122,761

Chrysler Chapter 11 Scenario $112,942

Chrysler Orderly Wind-Down Scenario $61,047

Tr.2456:16-19.

On cross examination, Mr. Stockton admitted that he was neither a certified public

accountant, accredited in business valuation, or a bankruptcy expert. Tr.2474:12-2475:1.

Mr. Stockton also clarified that he had “valued the suite of benefits associated with the

franchise” and that he has not valued any other benefits. Tr.2479:25-2480:2.

102 III. THE GOVERNMENT’S FACT AND EXPERT EVIDENCE A. The Government’s Fact Witnesses

i. Robert Nardelli

Robert Nardelli was the CEO of Chrysler from late 2007 until early 2009. Mr.

Nardelli explained that as CEO of Chrysler his job was to “provide oversight to [his]

direct-reports, to lay out a strategic plan and provide . . . day-to-day operational inputs.”

Tr.3332:4-10. He explained that under Chrysler’s corporate structure, Chrysler had a

board of managers responsible for providing “oversight to the business, capital allocation,

and strategic direction.” Tr.3332:19-21. He explained that at the time he became CEO of

Chrysler in 2007, Chrysler was doing well but that it began experiencing financial

difficulty in early 2008. Tr.3333:24-3334:24. Mr. Nardelli testified that prior to his going

to Congress in November 2008 for a bridge loan from the federal government, Chrysler

had sought other loans “but it was kind of for naught.” Tr.3337:8-10.

Mr. Nardelli testified that he thought Chrysler would run out of cash early in 2009

if it did not get a loan from the government, and that without government financing

Chrysler would have to entered into bankruptcy at that time. Tr.3345:5-7, Tr.3345:1-14.

Mr. Nardelli explained that Chrysler provided a Viability Plan to Congress in December

2008 which estimated that in order to wind-down Chrysler and provide its dealers with

support and floor plan financing Chrysler would need between $17 to $20 billion.

Tr.3348:16-3349:11; DX956. He testified that Chrysler had gone to its first lien lenders

and was told that they would not provide Chrysler with the DIP financing it would need

for an orderly wind-down of its operations. Tr.3358:4-22. He explained that during the

103 financial meltdown in 2008-09, dealers were having a difficult time obtaining the floor

plan financing needed to keep buying Chrysler’s cars and trucks. Tr.3356:7-3358:3.

Mr. Nardelli testified that Chrysler’s board of managers voluntarily approved the

terms of the $4 billion bridge loan Chrysler received from the federal government under

TARP on January 2, 2009. DX1000; Tr.3367:24-3370:22. Mr. Nardelli went on to testify

that after securing the government bridge loan, Chrysler “had been trying vigorously to

get the First Lien Lenders to agree to a debt restructuring acceptable to the U.S. Treasury

Department but that no progress had been made.” Tr.3372:12-15; DX1263.

He testified that eventually Chrysler was presented with the prepackaged

bankruptcy plan negotiated by the Auto Team. Tr.3373:6-11. He further testified that

Chrysler understood that if it decided not to accept the prepackaged bankruptcy terms and

instead decided to enter Chapter 11 on its own, the government would provide $750

million to Chrysler to facilitate an orderly liquidation. Id. He explained that when

Chrysler voted in favor of the government’s prepackaged Chapter 11 bankruptcy plan,

including the 363 sale to Fiat, he did not feel that he was being “forced” to vote in favor

of bankruptcy. He testified that every member of the board used “good business

judgment” when voting in favor of bankruptcy. Tr.3382:21-3383:17, Tr.3384:3-17.

In deciding to accept the prepackaged bankruptcy terms presented by the

government, Mr. Nardelli testified that he considered that if Chrysler did not accept the

prepackaged plan, Chrysler would have to cancel its warranties, stop new car production,

and force significant job losses. Tr.3384:21-3385:16. Mr. Nardelli explained that

Chrysler had spent months trying to reach an agreement with key stakeholders on

concessions that would allow Chrysler to reorganize outside of bankruptcy, but was 104 unable to achieve the needed concessions. He thus concluded that the government’s

prepackaged bankruptcy plan was the only option available to keep the Chrysler brand

alive in some form. Tr.3387:13-3389:4.

On cross examination, Mr. Nardelli testified that when he went to Congress in

November and December 2008, he had hoped that Chrysler would remain a stand-alone

company and would be able to avoid bankruptcy. Tr.3403:13-21; DX956 (“Chrysler

believes that participating in the restoration of [Chrysler’s] long-term viability without a

bankruptcy filing significantly improves the outcome for all constituents.”). Mr. Nardelli

testified on cross examination that Chrysler’s proposed stand-alone plan had the support

of Chrysler’s entire board. Tr.3414:3-7. Mr. Nardelli did not recall Project Genesis or any

Chrysler dealership reduction plans. Tr.3412:14-22. Mr. Nardelli testified that he

disagreed with the government’s decision to reject Chrysler’s Viability Plan and that

when Mr. Rattner and Mr. Bloom informed him on March 9, 2009 that the government

was rejecting the February 2009 plan, he wrote a letter reaffirming Chrysler’s position.

Tr.3424:7-3427:17, Tr.3428:7-18; PX637. He emphasized, in his letter, that Chrysler’s

viability would be enhanced by a strategic partnership with another car manufacturer but

that an alliance was not critical to Chrysler’s long-term viability. PX637; Tr.3428:19-

3429:4. Finally, he reinforced in his March 10, 2009 letter Chrysler’s desire to not go

through a bankruptcy. PX637; Tr.3429:13-22.

Mr. Nardelli testified that, up until Chrysler’s board voted to go into bankruptcy,

Chrysler was continuing to work on a stand-alone plan. Tr.3441:23-3443:13; DX1203.

Mr. Nardelli explained that with the April 17, 2009 re-engineered plan Chrysler

submitted to the Auto Team he still hoped that Chrysler would be able to secure $11 105 billion in government financing. Tr.3441:4-13; DX1203. Mr. Nardelli testified that his re-

engineered April 2009 plan still proposed the voluntary consolidation of dealerships and

did not call for the forced termination of any franchises. Tr.3444:1-19. Mr. Nardelli

testified further on cross examination that after the Auto Team rejected his April 2009 re-

engineered plan, Chrysler had “no more alternatives as far as going forward as a stand-

alone business.” Tr.3452:24-3453:7.

ii. Steven Landry

Steven Landry, the Executive Vice President of sales and marketing for North

America and parts and service globally for Chrysler in 2008 and 2009 was called by the

government to explain Chrysler’s dealership rationalization, i.e., reduction programs.

Tr.3458:5-6. Mr. Landry explained that he was in charge of the field organization that

oversaw the dealership network. Tr.3460:2-16. He testified that he reported to Jim Press

and that Peter Grady, Director of Dealer Operations, reported to him. Tr.3460:17-3461:9.

Mr. Landry testified about the history of the Chrysler dealership network and how

beginning in 1998 Chrysler had been trying to reduce the number of Chrysler dealers.

Tr.3463:24-3464:9. He explained that at first, Chrysler formulated “Project 2000” to try

“to determine what is the right number of Chrysler dealers . . . [and] the best way to

manage [Chrysler’s] dealer network[.]” Tr.3464:10-15. Mr. Landry went on to explain

that in 2003 Chrysler began “Project Alpha” to reduce the number of dealers. Tr.3465:9-

14. He explained that Project Alpha “was designed to get three brands under one roof,

give the dealer some elbow room,” which grew in 2008 into Project Genesis, designed to

reach the same goals as Project Alpha but at a faster rate. Tr.3479:14-3480:4. Mr. Landry

further explained that in 2007 and 2008, Chrysler incurred some costs associated with the 106 dealership network, including providing material and salaried individuals to run the field

organization to assist the dealers. Tr.3467:18-3468:9. Mr. Landry testified that in 2008 he

believed that there were too many dealerships in Chrysler’s dealership network.

Tr.3479:10-21.

Mr. Landry explained that he helped prepare the “Washington Plan,” which was

part of the Viability Plan, and that the Washington Plan had included a reduction in the

dealership network. Tr.3517:2-3519:7; PX548. Mr. Landry then testified that Project

Genesis grew into Project Tiger within the framework of a Chrysler bankruptcy.

Tr.3561:23-3562:5. He explained that Project Tiger grew out of Chrysler realizing that it

could achieve the goals set forth in Project Genesis at a much faster rate through the

rejection of franchises in bankruptcy. Tr.3564:11-13, Tr.3573:17-25.

Mr. Landry further explained that he had a role in setting the criteria to determine

what dealers would have their franchises rejected in the April 2009 bankruptcy.

Tr.3575:9-15. Mr. Landry explained throughout his testimony that Chrysler attempted to

judge dealers based on a variety of factors including Minimum Sale Responsibility

(“MSR”),37 facilities, sales, etc., in order to retain the best dealers to preserve the

Chrysler brand. Mr. Landry testified that the decision to reject the dealers in bankruptcy

was necessary for Chrysler’s survival. Tr.3611:23-3612:4.

37 Each franchise agreement required franchisees to meet MSR. Mr. Landry explained that the MSR was calculated by taking the number of new Chrysler vehicles registered in a state and comparing that number to the number of total new vehicles registered in that state to determine the market share for Chrysler vehicles in that location. An MSR was then set based on the number of new vehicles the franchisee would need to sell for Chrysler to maintain its market share. Put another way, the MSR was used to determine if a dealership held the same market share in its sales locality as Chrysler held either on the state or national level. 107 On cross examination, Mr. Landry admitted that when Chrysler presented the

Washington Plan, Chrysler believed that Project Genesis was a successful means for

rationalizing its dealership network. PX548; Tr.3642:17-3643:16. He also admitted that it

was Chrysler’s position that the best way to rationalize the dealership network was

through encouraging dealers to combine or sell to one another on a voluntary basis.

Tr.3654:20-3655:7, Tr.3673:9-11. Mr. Landry admitted that he was opposed to a Chrysler

bankruptcy and acknowledged that he sent an email to others within Chrysler stating to

“Fight against 363” because they could “do it cheaper outside BK” and that he could

move 650 dealers cheaper than bankruptcy would cost. PX646; Tr.3679:15-23.

iii. Peter Grady

As discussed above, Peter Grady, Director of Dealer Operations for Chrysler

beginning in January 2009 until June 2009, also testified on behalf of the government.

Tr.3758:15-17, Tr.3759:3-5. Mr. Grady explained that as the Director of Dealer

Operations he oversaw the management of Chrysler’s U.S. dealership network.

Tr.3758:20-3759:2. He explained that Chrysler was trying to combine all of its brands

under one roof in order to strengthen the profitability of its dealerships. Tr.3762:1-10.

Mr. Grady testified that when Chrysler learned that bankruptcy was likely, Chrysler

“viewed that as an opportunity to accelerate the rationalization of the dealer network.”

Tr.3763:20-24. He explained that he believed that dealer rationalization by rejecting

franchise agreements in bankruptcy would increase Chrysler’s profitability in the long

term because it would allow for a leaner and more efficient dealership network, which

would help maximize sales. Tr.3764:15-3765:11. He explained that in creating the

criteria for those franchise agreements to reject in bankruptcy, Chrysler relied on 108 assessments of the dealers from the various regional business centers. Tr.3766:8-23. Mr.

Grady testified that the government played no role in selecting the criteria for rejecting

the 789 franchise agreements in bankruptcy, or in deciding which specific franchise

agreements to reject. Tr.3766:25-3767:11.

Mr. Grady went on to explain that Fiat supported Chrysler’s decision to reject 789

franchise agreements. Tr.3768:4-6. He explained that Chrysler worked with Fiat to

determine the best dealership network for Chrysler after it emerged from bankruptcy.

Tr.3768:8-18; DX1038. Mr. Grady testified that he worked with Piertro Gurlier, the head

of network development for Fiat, and another Fiat executive in developing the final post-

bankruptcy Chrysler dealership network. Tr.3768:19-3769:13.

As discussed above, Mr. Grady explained that 789 dealers were rejected based on

an evaluation of eight criteria: (1) whether the franchise was meeting its MSR, (2) the

franchise’s Scorecard for Sales,38 (3) whether the franchise facility had adequate capacity

and met Chrysler’s standards, (4) the franchise location, (5) the franchise’s financial

strength, (6) the franchise’s management, (7) whether the franchise had a “dual” or

competitor’s dealership under the same roof, and (8) whether it was a single point

franchise, meaning it did not have all three Chrysler brands under one roof. Tr.3598:18-

3602:21.

38 Mr. Landry explained that each year a dealer received a scorecard for its performance where the dealers’ “service and parts operations, their profitability, their ability to go forward with working capital, [and] things of this nature, which are typical OEM dealer placement metrics.” Tr.3766:14-19.

109 As discussed above, Mr. Grady then went through the criteria for each of the

representative plaintiffs and explained why each was rejected. Mr. Grady explained that

Taylor’s three franchises were rejected because together they had only met 36% of its

MSR, sold less than 100 new Chrysler vehicles the previous year, and were co-located

under one roof with a Chevrolet franchise. DX1315. Mr. Grady testified that Theel’s

Dodge franchise agreement was rejected because Theel’s MSR was only 70%, it was a

single Dodge franchise dealer, and it had a dual dealership with Toyota. DX1315. Mr.

Grady explained that Whitey’s Chrysler franchise was rejected because it only met 45%

of its MSR, was a dual dealership with a Lincoln franchise, and was only a single

Chrysler franchise dealer. DX1315. Mr. Grady explained that RFJS’s Chrysler, Dodge,

and Jeep franchise agreements were rejected because the RFJS dealership was an excess

point, i.e., a location that Chrysler determined was no longer valuable and because the

dealership was operating at a loss and was placed on a finance hold by Chrysler

Financial.39 DX1315. Mr. Grady explained that Marsh’s Chrysler and Jeep franchise

agreements were rejected because Marsh had only met 38% of its MSR, it lacked a

Dodge franchise agreement, and because Chrysler wanted a third-party candidate to run a

Chrysler, Dodge, and Jeep dealership in a different part of Las Vegas. DX1315. Mr.

39 Leland Wilson, the Chief Financial Officer of Chrysler Financial between 2007 and 2010 explained that “floor plan” financing involved dealers “order[ing] cars through Chrysler, Chrysler would ship those cars to the dealers. Each of those dealers that [Chrysler Financial] financed would have a dealer credit line” that would be used to finance the purchase. Tr.3855:9- 11. He went on to explain that “the first lien collateral [for the loan] was the vehicle” and that when the car was sold the proceeds were used to pay off the loan the dealer incurred to purchase the car and allowed the dealer to continue purchasing more new vehicles. Tr.3855:17-23. RFJS was one of the Chrysler franchisees to which Chrysler Financial provided floor plan financing. “Financial hold” meant that Chrysler Financial was no longer willing to extend floor plan financing to RFJS and thus they could not obtain new inventory through their Chrysler Financial credit line. 110 Grady explained that Livonia’s Chrysler and Jeep franchise agreements were rejected in

the Chrysler bankruptcy because Chrysler did not like the location of the dealership and

thought that it would be more profitable to move the Chrysler and Jeep franchises to a

Dodge dealership a few miles away. DX1315. Mr. Grady explained that Barry’s Chrysler,

Dodge, and Jeep franchise agreements were rejected because it only met 42% of its MSR

and because it was considered an excess point and Chrysler wanted to reduce the number

of dealers in the Brockport area. DX1315. Mr. Grady explained that the Guetterman

Chrysler, Dodge, and Jeep franchise agreements were rejected because the dealership

only met 53% of its MSR, was considered an excess point in the Cairo area where

Chrysler wanted to reduce its number of franchisees, was placed on a financial hold by

Chrysler Financial, and had a competitive dual Ford dealership attached to the Chrysler

showroom. DX1315. Finally, Mr. Grady explained that Finnin’s Chrysler and Jeep

franchise agreements were rejected because the dealership only met 66% of its MSR and

because Chrysler believed that a nearby Dodge dealer was a better dealer and wanted that

dealer to have the Finnin Chrysler and Jeep franchises so that this other dealer could have

all three under one roof. DX1315.

On cross examination, Mr. Grady stated that he did not have any discussions with

the United States government until May 11, 2009 regarding dealer rationalization but

would not necessarily have been aware if there had been any conversations about

dealership rationalization with other Chrysler officials and Treasury. Tr.3818:1-3819:10.

Mr. Grady also acknowledged that the February 17, 2009 Viability Plan envisioned the

continuation of Project Genesis, not involuntary dealership terminations. Tr.3824:12-15.

111 iv. Thomas LaSorda

The government called Thomas LaSorda, who was the CEO of Chrysler from

September 2005 until August 2007 to testify. Tr.4342:21-23. Mr. LaSorda became the

Vice Chairman and President of Chrysler when Cerberus bought Chrysler in 2007 until

he retired on April 30, 2009. Tr.4343:2-24. Mr. LaSorda explained that during his tenure

as CEO he consistently sought alliances and partnerships with other auto manufacturers

from around the world. He testified that he wasn’t, however, able to accomplish such an

alliance by the time that Chrysler was purchased by Cerberus in 2007. Tr.4357:24-

4358:22. He testified that he attempted to form an alliance with Nissan Renault, but

nothing came of it. Tr.4359:6-9. He went on to explain that the purpose of seeking an

alliance was to combine product lines and to attempt to get additional cash investment

into Chrysler. Tr.4360:2-4361:23. He explained that he went to Honda, Kia, and Hyundai

during this time frame but “[t]hey were not interested in doing any joint programs at all”

and that Toyota also expressed no interest in an alliance with Chrysler. Tr.4365:11-22.

He went on to explain that he also reached out to Volkswagen, various Chinese

manufacturers, and Tata Motors, but he was rejected each time. Tr.4366:1-4368:3. He

explained that he had no interest in forming an alliance with GM because such an alliance

would essentially wipe Chrysler out and destroy all of its jobs and factories because of

the extensive overlap in product lines between the two companies. Tr.4373:17-25. Mr.

LaSorda testified that the only company that expressed any real interest in forming an

alliance with Chrysler was Fiat, but that Fiat was not interest in injecting any cash into

the alliance to help sustain Chrysler. Tr.4365:21-22, Tr.4379:10-20. He explained that

112 Fiat’s interest was because Chrysler and Fiat had different product lines and that their

markets did not overlap. Tr.4375:2-4377:17.

Mr. LaSorda testified that during the 2008-09 financial crisis he recognized the

huge impact a Chrysler bankruptcy would have had, not only on Chrysler’s employees

and its dealers, but also on the companies that supplied Chrysler with auto parts.

Tr.4382:11-4383:19. He explained that he supported the strategic partnership path that

was outlined in Chrysler’s February 17, 2009 Viability Plan because he knew that an

alliance would be important to the long-term survival of Chrysler. Tr.4384:23-4385:5. He

explained that at no time did he feel that the government was forcing an alliance with

Fiat. Tr.4385:16-25. He further explained that he did not feel like the government had

forced Chrysler into bankruptcy. Tr.4389:25-4390:3.

v. Robert Manzo

The government called Robert Manzo to testify. Mr. Manzo was the restructuring

consultant from Capstone, hired by Chrysler in 2008 to address Chrysler’s financial

difficulties. He served “as the lead financial advisor to help lead [Chrysler] through the

series of challenges that [it] faced regarding retaining their viability in terms of a stand-

alone company.” Tr.3928:18-24. Mr. Manzo explained that he worked on a daily basis

with Chrysler management including CEO Bob Nardelli and CFO Ron Kolka. Tr.3930:8-

12. He explained that when he was first contacted by Mr. Nardelli and Mr. Kolka,

Chrysler was in financial straits due to the decline in its sales volume and its high cash

burn rate of $2 billion. Chrysler’s cash burn rate meant that Chrysler had three to four

months to address its problems in before it ran out of cash. Tr.3931:18-3932:9.

113 Mr. Manzo explained that he was involved in Chrysler’s plan to seek financial

assistance from the government beginning in late 2008. Tr.3932:13-24. As part of that

process, he explained he created a hypothetical liquidation analysis Tr.3936:10-23. He

explained that as part of this analysis he assumed that all of Chrysler’s manufacturing

would cease and that Chrysler would have twenty-four to thirty months to complete an

orderly liquidation. Tr.3937:13-20; DX1029. He testified that during that time frame

there “are a number of operational, financial, and legal activities that are occurring” such

as selling equipment off either directly or through auction and taking care of several

outstanding issues. Tr.3939:13-24. He also explained that his liquidation analysis

assumed Chrysler was the only auto manufacturer liquidating at the time and that if there

were other liquidations it would lower the range Chrysler could recover for its assets.

Tr.3940:5-15. Mr. Manzo explained that if any auto part suppliers went bankrupt during

this period, those bankruptcies would have a negative effect on Chrysler’s potential

recovery. Tr.3940:21-3941:5. Mr. Manzo noted that if Chrysler filed for bankruptcy and

received no government assistance, it would immediately cease operating as an ongoing

concern. This would mean that Chrysler would have to shut down vehicle production

during the bankruptcy process. Tr.3941:6-21.

Mr. Manzo discussed in detail his views on which Chrysler lines would likely be

sold in a Section 363 bankruptcy sale. Initially, he determined that the Dodge Ram Truck,

Jeep Wrangler, Dodge Challenger/Chrysler 3000, and Dodge Viper vehicle lines would

be able to have likely been sold to a third-party purchaser. DX1029. He explained that

these were the only profitable Chrysler lines in 2008. Tr.3941:25-3942:19. He further

explained that due to the Great Recession, the proceeds from Chrysler’s sale of the assets 114 in a liquidation would be depressed. Tr.3943:16-3944:23. Mr. Manzo ultimately

concluded that in a liquidation of Chrysler’s assets in bankruptcy, the first lien lenders

would likely recover between $654 million to $2.6 billion on a total debt of nearly $7

billion. DX1029.

Mr. Manzo went on to explain that, in his liquidation analysis, he assumed that the

relaunch of any of the Chrysler product lines purchased by a third party would take

between twelve to twenty-four months. Tr.3944:24-3946:1. He also explained that in his

liquidation analysis he assumed that there would be no DIP financing, because he

understood that the first lien lenders were unwilling to loan Chrysler any more money.

Tr.3946:2-3947:18. He further explained that he assumed in his liquidation analysis that

no more warranty coverage would be provided by Chrysler. Tr.3954:4-9. Mr. Manzo also

talked about his meetings with John Haeckel, the restructuring advisor hired by JP

Morgan on behalf of the first lien lenders. Tr.3964:1-3. He explained that his

conversations with Mr. Haeckel were part of the back and forth a company conducts with

its creditors in order to fully understand the fiscal picture of the company facing

liquidation. Tr.3965:3-21.

Mr. Manzo testified that he was intimately involved in preparing many aspects of

Chrysler’s February 2009 Viability Plan. Tr.3958:15-18. He explained that in a typical

commercial transaction companies will provide lenders with different alternatives as

Chrysler did in its February 2009 Viability Plan. Tr.3960:2-15. He went on to explain

that throughout the Viability Plan review process he participated in the negotiations with

the government, as is typical for a restructuring professional dealing with a company’s

lenders. Tr.3968:3-17. He further explained that throughout this process he was 115 constantly briefing Mr. Nardelli on the Auto Team’s negotiations. Tr.3969:22-3970:2.

This included preparing a presentation about what Chrysler could expect if it had to go

through a Chapter 11 bankruptcy. DX1083. Mr. Manzo testified that Fiat was very

involved with the negotiations. Tr.3972:7-10. Mr. Manzo explained that he was part of

the April 30, 2009 Chrysler board meeting where the board voted in favor of filing for

bankruptcy under the prepackaged terms the Auto Team helped negotiate. Tr.3998:2-21.

On cross examination, Mr. Manzo admitted that when Chrysler filed its Viability

Plan it clearly did not want to file for bankruptcy. Tr.4002:1-7. He further explained that

up until the last minute Chrysler did not want to file for bankruptcy, but that the

government brought the negotiations to an end. Tr.4002:1-4003:25. Specifically, he

recounted an email that the Auto Team’s bankruptcy lawyer, Matthew Feldman, sent on

the early morning of April 30, 2009, the day Chrysler was to file for bankruptcy, which

explained that the Auto Team was not willing to negotiate any longer with the first lien

lenders or any other interested party. PX538; Tr.4012:1-4013:10.

vi. Leland Wilson

The government also called Leland Wilson, the CFO of Chrysler Financial from

2007 until 2011, to testify. Tr.3851:1-9. Mr. Wilson explained that as CFO of Chrysler

Financial he was responsible for “the traditional finance activities, accounting, financing,

financial planning . . . treasury, capital markets . . . risk management . . . [and]

insurance.” Tr.3851:15-19. He explained that when Cerberus bought Chrysler it made

Chrysler Financial a sister company that reported to the same holding company as

Chrysler, rather than being a subsidiary of Chrysler. Tr.3852:7-10. Mr. Wilson testified

that Chrysler Financial was the captive finance company for Chrysler and provided both 116 dealer floor plan financing to 75 to 80 percent of the dealers and retail financing to the

customers. Tr.3852:25-3853:10. He went on to explain that Chrysler Financial provided

financing for leasing Chrysler vehicles, which amounted to approximately twenty percent

of Chrysler’s business. Tr.3854:9-14. Mr. Wilson explained that Chrysler Financial also

offered services to dealers such as capital and real estate loans and various insurance

products. Tr.3854:24-3855:11.

Mr. Wilson explained how floor plan financing with Chrysler Financial worked

for dealers. He testified that dealers would take out loans to purchase new cars from

Chrysler, they would use those new cars as collateral for the loans, and when dealers sold

the cars they would use the profits in order to pay off the loan and free up their credit line

to purchase new cars and begin the cycle again. Tr.3855:12-23.

Mr. Wilson also testified about how Chrysler Financial operated. He explained

that before 2008, Chrysler Financial had $30 billion to conduct its business with funding

from a syndicate of banks. Tr.3857:3-18. The $30 billion was available for 364 days. Id.

He explained that if Chrysler Financial went through the $30 billion it would then

securitize its loans and sell them to investment firms in order to raise more money, which

it would then loan out. Tr.3858:9-19. He testified that when the security market collapsed

in 2008, Chrysler Financial could not sell asset-backed securities any longer and its

creditors became less willing to offer financing. Tr.3860:1-8. He explained that when

Chrysler Financial went to renew its financing in August of 2008, it could only get $23

billion. Tr.3862:17-20. He went on to explain that, because of its reduced financing

capacity, Chrysler Financial had to become more conservative in its loaning practices

117 and, as a result, Chrysler was not able to sell as many cars to its dealers or customers.

Tr.3869:18-21.

Mr. Wilson testified that Chrysler Financials’ relationship with Chrysler was

terminated at the end of April 2009 when Chrysler filed for bankruptcy. Tr.3903:1-4.

Afterward, he explained that Chrysler Financial redirected itself to become a used car

lender. Ultimately, Chrysler Financial was sold to TD bank in 2011. Tr.3905:10-3906:11.

On cross examination, Mr. Wilson admitted that his opinions about dealer’s

accessibility to floor plan financing and the health of the credit market were only his own.

He stated that his conclusions about floor plan financing would not apply to the

representative plaintiffs that did not have floor plan financing. Tr.3910:14-3911:21.

vii. John Haeckel

The government also called John Haeckel, a restructuring representative from

Chilmark Partners, to testify. Tr.2846:5-2847-9. Mr. Haeckel was hired by JP Morgan

and explained that JP Morgan was the lead agent that negotiated with Chrysler on behalf

of the first lien lenders. Tr.2848:9-23. He explained that Chilmark was brought in to

“advise JP Morgan and the bank group more broadly with respect to the loan that they

had made to Chrysler.” Tr.2850:13-15. He explained that he examined the prospects for

the first lien lenders to recover the debt owned by Chrysler in a Chrysler bankruptcy. See

Tr.2852:25-2853:9. He determined that the first lien lenders, as of April 30, 2009, would

likely receive only $680 million on their $6.9 billion in debt if Chrysler did not receive

government assistance. Tr.2865:25-2866:9. He testified that, based his review, he advised

JP Morgan and the first lien lenders that the $2 billion buyout offered by the government

118 was more than they would recover if Chrysler filed for bankruptcy without government

financing. Tr.2868:22-2869:8.

On cross examination, Mr. Haeckel testified that his analysis was based on a

variety of assumptions that influenced his valuation and that a change to any of those

assumptions could have had an impact on the value of Chrysler. Tr.2879:20-2880:25. He

also testified that he did not come to any conclusions about Chrysler’s plan to rationalize

its dealership network or the appropriate size of the dealership network. Tr.2892:2-10. He

also admitted that he did not personally know if any of the first lien lenders other than JP

Morgan, which had refused to provide DIP financing, would have provided Chrysler with

DIP financing or other funding if government financing was not available. Tr.2899:4-15.

viii. Ronald Bloom

The government called Ronald Bloom, Mr. Rattner’s first Auto Team hire. Mr.

Bloom was put in charge of hiring the rest of the Auto Team. Tr.2685:7-15. He described

his position as Mr. Rattner’s deputy and that after Mr. Rattner’s departure in July 2009 he

became the head of the Auto Team. Tr.2685:7-15. Mr. Bloom explained that while Mr.

Rattner primarily focused on GM, he was the leader of the Chrysler team and was

assigned to review Chrysler’s Viability Plan. Tr.2685:16-21. He explained that Mr. Osias

and Mr. Calhoon were on the Chrysler team and that others, including Mr. Wilson, Mr.

Markowitz, and Mr. Malik, were on the GM team. Tr.2686:1-4.

Mr. Bloom testified that “[f]rom the start, the Auto Team followed two clear

directives by Secretary Geithner and Director Summers regarding our approach to

Chrysler and GM. The first directive was to behave in a commercial manner, ensuring all

stakeholders were treated in accordance with business, not political considerations. The 119 second was to refrain from intervening in the day-to-day management of these

companies.” Tr.2686:12-19. He explained that “[a]lthough [the Auto Team] engaged in

dialogue and discussion with company management about the companies’ approaches,

we were not to substitute our judgment about specific decisions for theirs.” Tr.2686:22-

25.

He testified regarding the long-term Viability Plan Chrysler submitted to Treasury

on February 17, 2009. Tr.2687:1-19; DX1056. He explained that Chrysler made clear in

its plan that it was “critical that each of Chrysler’s constituents make significant

sacrifices to accomplish our restructuring plan, including our creditor groups,

shareholders, suppliers, dealers, the United Automobile Workers, and, of course, our own

employees.” Tr.2688:3-8. He testified that this was a sentiment that he also shared.

Tr.2688:12-21. He went on to describe the three different paths Chrysler proposed. He

noted that each required billions of dollars in additional government financial assistance

beyond the $4 billion TARP loan. Tr.2689:1-3. He also noted that Chrysler represented

that all its plans included a commitment to continue working “with its dealer body to

rationalize the number of dealerships” to enhance Chrysler’s long-term viability.

Tr.2691:11-12; DX1058.

Mr. Bloom testified that upon receipt of the February 17, 2009 Viability Plan, he

reviewed it to determine if restructuring Chrysler was viable and if Chrysler would be

able to survive in the long term. Tr.2692:3-19. Mr. Bloom explained that in addition to

the February 17, 2009 Viability Plan, Chrysler sent a confidential submission supporting

its reasoning on February 18, 2009. Tr.2691:13-15; DX1058. As part of that submission,

Chrysler offered an accelerated Project Genesis, whereby it proposed to reduce the 120 number of dealers from 3298 to 2005 over the course of four years. Tr.2822:1-10;

DX1058. Mr. Bloom explained that “[t]he Auto Team spent hundreds of hours studying

the Chrysler plan, analyzing it, testing its assumptions, and critiquing it, all to determine

whether the plan was likely to lead to Chrysler’s long-term viability.” Tr.2693:8-12. Mr.

Bloom further testified that “[a]mong other things, we analyzed whether a reduction in

Chrysler’s deal -- in Chrysler’s dealership network would improve its chances at

viability.” Tr.2695:25-2696:3. Mr. Bloom went on to explain that “[a]fter studying the

issue, we ultimately agreed with Chrysler, that their dealer network was too large, and we

supported their plans to reduce the size of their dealer network.” Tr.2696:14-18.

During the Auto Team’s evaluation process, Mr. Bloom testified that he and other

members of the Auto Team met with Mr. Nardelli at Chrysler’s Warren Michigan truck

plant on March 9, 2009. Tr.2697:15-22. He testified that after the meeting Mr. Nardelli

wrote a letter to him and Mr. Rattner advocating for a Chrysler stand-alone plan.

Tr.2697:23-2698:13.

Mr. Bloom testified that he and the Auto Team came to understand that if Chrysler

was to remain a viable company, the government would have to support the auto part

suppliers. This led to the Auto Supplier Support Program announced on March 19, 2009.

Tr.2700:11-24; DX1095. He testified that the Supplier Support Program “was designed to

provide suppliers with access to up to $5 billion in government-backed protection.”

Tr.2701:1-2.

Mr. Bloom explained that on March 30, 2009 the Auto Team concluded that “even

though Chrysler had made meaningful changes to its cost structure in the years prior to

2009, a combination of a fundamentally disadvantaged operating structure and a limited 121 set of desirable products made stand-alone viability for Chrysler unlikely.” Tr.2706:18-

24. Mr. Bloom explained that on March 30, 2009 President Obama announced that the

government had rejected Chrysler’s Viability Plan, but that Chrysler would have thirty

more days to form an alliance with Fiat that was acceptable, and that the government

would provide up to $6 billion to help the plan succeed. Tr.2709:4-24; DX1137. Mr.

Bloom explained that on that same day, President Obama announced a Warranty

Commitment Program, “to give confidence to GM and Chrysler’s customers” that the

warranty for newly purchased cars would be honored. Tr.2711:17-2712:1; DX1137.

Having concluded that Chrysler would need to partner with Fiat to survive, Mr.

Bloom testified that he “served as the principle negotiator during the Auto Team’s

negotiation of the term sheet with Fiat.” Tr.2703:7-8. As a result of the negotiations,

Chrysler and Fiat signed a new term sheet, in which “Fiat would contribute among other

things, technology, management, and consolidated purchasing power in exchange for

twenty percent of the equity in Chrysler, with the opportunity to receive an additional

fifteen percent if certain performance targets were met.” Tr.2704:23-2705:3.

Additionally, the term sheet was conditioned on $6 billion in government loans, a

restructuring of Chrysler debt, and an industrial restructuring of Chrysler, including its

dealership network. Tr.2705:4-9.

Mr. Bloom testified that from March 31, 2009 until April 30, 2009 there were a

series of meetings between members of the Auto Team and stakeholders in Chrysler,

including Chrysler, Fiat, UAW, and JP Morgan. Tr.2712:23-2713:13. Mr. Bloom

explained that although every party “worked hard to find a path to viability without

bankruptcy, all parties, including Chrysler and Fiat, came to the conclusion in late April 122 2009 that the Fiat-Chrysler alliance could only be accomplished through a restructuring

in bankruptcy.” Tr.2715:11-15. Mr. Bloom stressed that “[u]ltimately, it was Chrysler’s

decision to accept the Government’s financial assistance, to file for bankruptcy in April

2009, and to execute a master transaction agreement with Fiat on April 30th, 2009.”

Tr.2715:16-19. Mr. Bloom testified that the Auto Team “informed Chrysler that Treasury

and the Government of Canada would provide up to $4.5 billion in debtor-in-possession

financing to support Chrysler in bankruptcy if Chrysler elected to move forward with the

Fiat alliance memorialized in the master transaction agreement.” Tr.2716:4-9; DX1277,

DX1287. He went on to explain “the Auto Team, including myself, talked with multiple

banks in an effort to raise debtor-in-possession financing from private sources instead of

the Government. Although we would have welcomed a private entity providing

financing, no private entity was interested, therefore leaving the Government as the

lender of last resort.” Tr.2716:20-2717:1. Mr. Bloom maintained “[a]lthough the

sacrifices made by Chrysler and its stakeholders were difficult, the alternative to

Chrysler’s successful restructuring was liquidation, which would have been worse for

everyone concerned.” Tr.2719:11-14.

Mr. Bloom testified regarding the dealerships, “Early on in our evaluation process,

Chrysler explained to us that the objective of Project Genesis was to realign its dealership

network so that its dealerships sold all three Chrysler brands, Chrysler, Jeep, and Dodge,

and that the number of dealers was better aligned with the sales volume of Chrysler

dealers. Under its then-current network structure, many dealers were selling only one or

two brands, and many dealers sold a relatively small number of vehicles. We understood

from Chrysler that, in its judgment, having too many dealers placed a burden on its 123 prospects for achieving long-term viability and success. This was because, according to

Chrysler, too many dealers eroded the brand equity and Chrysler’s ability to get a fair

price for its products. Chrysler also advised us that having too many dealers forced the

dealers to compete against each other, which led to price-cutting and lower dealer profits,

reducing the ability of the dealers to re-invest in their facilities.” Tr.2721:4-23. He went

on to explain that “[C]hrysler also advised the Auto Team that a more aggressive dealer

rationalization effort would further enhance the prospects for achieving long-term

viability, a judgment we supported.” Tr.2722:2-5. However, he made clear that “[a]s part

of the Auto Team’s due diligence responsibilities, we continued to have some general

discussions with Chrysler during the month of May regarding the status of its dealership

network plans. I did not request and Chrysler did not provide any update to either the

number of dealers Chrysler was considering rejecting or the names of any potential

dealers the company would put forward for rejection.” Tr.2723:15-21. He explained that

the Auto Team “did not get into the details of management decisions behind Chrysler’s

selection of individual dealers to reject.” Tr.2724:15-18. He stated that the only

requirement placed on Chrysler was that the dealer rationalization plan be “based on

objective criteria and be fair and impartial.” Tr.2724:23-2725:3. Mr. Bloom explained he

recalled learning that Chrysler would reject 789 dealership agreements during a May 11,

2009 presentation made by Chrysler. Tr.2725:4-15; DX1309.

On cross examination, Mr. Bloom admitted that prior to working for the

government, he had spent twelve years working for the steelworkers’ union negotiating

collective bargaining agreements. Tr.2737:7-10. Mr. Bloom also acknowledged that the

February 2009 Viability Plan only included an accelerated Project Genesis that would 124 reduce the dealership count through voluntary consolidation. Tr.2741:1-15; DX1056,

DX1058. He agreed that the Chrysler stand-alone plan was off the table because the Auto

Team had determined that Chrysler could not survive long term as a stand-alone entity.

He also agreed that in 2008, he had believed that bankruptcy was the likely outcome for

Chrysler, before he joined the Auto Team. Tr.2770:6-10.

Mr. Bloom further admitted that the government’s idea of shared sacrifice came to

include dealer terminations. Tr.2775:4-14. He also admitted that when the Auto Team

rejected the Viability Plan in March 2009, it required a more aggressive dealer

rationalization approach from Chrysler along with other concessions. Tr.2755:2-14. As

part of that more aggressive rationalization approach, Mr. Bloom understood that

Chrysler had proposed Project Tiger and termination of franchise agreements in

bankruptcy. Tr.2778:8-21. Mr. Bloom received the first draft of Project Tiger on April 7,

2009, one week after President Obama had announced that he was rejecting Chrysler’s

February 2009 Viability Plan. Tr.2820:18-23; DX1167.

Mr. Bloom admitted that Chrysler was not really involved in the negotiations

concerning the Voluntary Employee Beneficiary Association Plan (“VEBA”) and union

benefits, and that during April 2009 the government facilitated negotiations between Fiat

and UAW. Tr.2783:1-5. He also admitted that the VEBA claims would most likely not

have recovered in a Chrysler bankruptcy without government assistance because they

were unsecured debts, and there was a substantial amount of secured debt that had a

higher priority in a bankruptcy. Tr.2792:14-24. Mr. Bloom testified that the bankruptcy

was structured in a manner to give value to the unsecured creditors such as the VEBA

125 and key auto part suppliers, that would have presumably not recovered anything if

Chrysler had filed for bankruptcy without government assistance. Tr.2792:14-24.

Mr. Bloom testified that he understood that, under the government’s negotiated

prepackaged bankruptcy plan, Fiat would take over the management of Chrysler.

Tr.2799:14-17. Mr. Bloom also admitted that the Auto Team viewed providing assistance

to Chrysler and GM as a “multiplier” because there were dozens of companies that might

have gone bankrupt if Chrysler and GM liquidated. Tr.2812:2-9; see also PX635.

ix. Brian Osias

Mr. Osias also testified as a former member of the Auto Team. Prior to serving on

the Auto Team, Mr. Osias worked on President Obama’s transition team “focusing on

tracking and evaluating the Bush Administration’s efforts to support the auto industry.”

Tr.3138:7-10. He explained that he began working at Treasury in January 2009 and

quickly gravitated to the Auto Team. Tr.3138:11-16. He testified that when he became a

member of the Auto Team, he “was brought in as an analyst with skills in research,

forecasting, and analyzing companies’ financials and viability[.]” Tr.3138:21-25.

Mr. Osias explained that he was tasked with analyzing Chrysler’s February 17,

2009 Viability Plan. Tr.3139:14-25. To perform this analysis, he familiarized himself

with the auto industry including “Chrysler’s operational framework, . . . its

manufacturing footprint, dealer network, capital equipment efficiency, power train

technology, and a long list of other important variables.” Tr.3140:9-14. Mr. Osias

explained that “[i]f an investment could not be justified on the basis of the submitted

Viability Plan, we sought to understand what changes Chrysler might need to ensure that

if further taxpayer support were provided to the company, the taxpayers had a strong 126 chance of repayment.” Tr.3144:8-13. He explained that “to accomplish these tasks we

attempted to make every transaction and interaction as commercial as possible.”

Tr.3144:18-20.

He testified “[t]he task force definition of viability had three parts. First, to be

viable, a business must be able to generate positive cash flow and earn an adequate return

on capital over the course of a normal business cycle. Second, the positive cash flow

must account for spending on research and development and capital expenditures

necessary to maintain and enhance the company’s competitive position. Third, a viable

company must have a balance sheet consistent with the cash flow dynamics of the

business and must be capable of weathering typical industry downturns.” Tr.3145:1-12.

He explained that part of the problem with the Chrysler Viability Plan was that Chrysler

had made too many positive assumptions about the auto market to justify its stand-alone

plan. Tr.3150:12-23. He stated that the Auto Team concluded that “[e]ven under

generous assumptions, Chrysler was not viable under its stand-alone viability plan. It was

not close. In all but the most favorable macroeconomic and company-specific cases,

some of which defied logic and history, Chrysler was destined to suffer or fail in the

medium term, and any taxpayer support provided by Treasury would quickly be spent by

the company with little hope of recovery.” Tr.3153:12-19.

Mr. Osias went on to discuss the Auto Team’s examination of a potential merger

between Fiat and Chrysler. Tr.3154:11-17. He explained that Fiat made a powerful

argument for the viability of a merger using more conservative assumptions. Tr.3154:18-

3155:4. Mr. Osias explained that after President Obama stated that the government had

rejected Chrysler’s Viability Plan, he began “analyzing whether the alliance between Fiat 127 and Chrysler was feasible and would result in a viable company.” Tr.3162:23-3163:1. He

explained he “continued to perform due diligence on the potential Chrysler-Fiat alliance

to determine if the proposed alliance would result in a viable company, one with positive

cash flow the Treasury would feel comfortable underwriting with taxpayer money.”

Tr.3163:7-13. He went on to explain that during the viability review process “Chrysler

recognized that one benefit to a bankruptcy process is that it would allow them to

accelerate their dealer rationalization process, . . . at a substantially lower cost than could

be achieved outside of bankruptcy.” Tr.3167:16-20. He further explained “[a]s with other

aspects of the Chrysler-Fiat alliance, Treasury did not have a specific strategy with regard

to the dealers, other than that the company’s dealer network plan must contribute to the

company’s overall viability.” Tr.3168:5-9.

Mr. Osias noted that he understood that “Treasury obviously was not a purely

commercial actor. No wholly commercial actor would have agreed to give Chrysler

money at this point because its prospects were so bleak. We understood that the potential

for return in a structure that actually made sense for Chrysler was very low. Treasury had

other priorities beyond earning a fair return for taxpayers, including preserving jobs and

limiting damages to auto-related communities.” Tr.3170:5-13. Mr. Osias testified that the

Auto Team was “performing this diligence to ensure that if the company was going to be

restructured through a 363 sale, that such a sale was the most efficient option.”

Tr.3176:7-10. The Auto Team, he testified, “had neither the interest nor the ability nor

the mandate to play any specific part in determining which dealers Chrysler and Fiat

wanted to cut” but wanted to ensure that any franchise rejections were based on a

reasonable and fair methodology. Tr.3182:3-19. 128 On cross examination, Mr. Osias admitted that he evaluated all three viability

scenarios equally despite Chrysler advocating for a stand-alone plan. Tr.3195:16-

3196:17. Mr. Osias also admitted that he did not continuously work for the Auto Team;

he did not work for the Auto Team from late February 2009 until March 20, 2009.

Tr.3261:19-3262:8. He reemphasized that his role was to look at the financial

practicability of Chrysler’s viability rather than the political consequences of Chrysler

potentially failing. Tr.3271:5-21. He also explained that the Auto Team only evaluated

whether the franchise rejection criteria were fair and reasonable and was never involved

in identifying any of the franchise agreements to be rejected. Tr.3324:9-3325:11.

According to Mr. Osias, Fiat was not concerned with Chrysler’s dealer rationalization

plans. Tr.3308:15-24.

x. Brian Stern

In addition to Mr. Rattner, Mr. Bloom, and Mr. Osias, the government also called

Brian Stern from the Auto Team to testify. He was with the Auto Team from March 2009

until August 2009. Tr.4308:23-25. Mr. Stern explained that he was recruited by Mr.

Rattner based on his experience as a member of the private equity group at Bank of

America Merrill Lynch Global Private Equity. Tr.4309:4-8. Mr. Stern testified that he

“worked on issues related to Chrysler Financial and General Motors Acceptance Corp.,

GMAC, the financial companies affiliated with Chrysler and General Motors.”

Tr.4309:15-19. He testified that he was on “what was known as the finance companies or

FinCos team because our work focused on Chrysler Financial and GMAC, which were

collectively known as the FinCos.” Tr.4310:16-21.

129 Mr. Stern explained that the “Auto Team worked with Chrysler Financial and

GMAC because Chrysler’s viability depended on financing being available for Chrysler’s

dealers and customers.” Tr.4311:1-2. He went on to explain that this was “[b]ecause

Chrysler was wholly dependent on dealers to sell its automobiles, Chrysler would not be

viable if the dealer network was incapable of financing the purchase of new cars that

would then be offered to consumers to purchase off the dealer’s lot.” Tr.4311:17-21. Mr.

Stern testified that leading up to the financial crisis, Chrysler Financial was the main

financier for Chrysler dealers. Tr.4311:22-24.

Mr. Stern then testified that during the financial crisis, Chrysler Financial

experienced “an extreme liquidity crisis” and that in an email on April 17, 2009, Chrysler

Financials’ CEO Tom Gilman stated that in the event of a Chrysler bankruptcy, Chrysler

Financial would cease lending to Chrysler dealers and retail customers. Tr.4312:1-19;

DX1202. He went on to explain that by late 2008, Chrysler Financial had to shrink the

amount of outstanding retail loans in order to not be in default, which negatively

impacted Chrysler. Tr.4313:2-17; DX1182. Mr. Stern testified that the Auto Team

concluded that Chrysler Financial would require too much assistance to continue as the

financier for Chrysler and that the recapitalized GMAC was the most prudent and

effective deployment of taxpayer capital to ensure that there was sufficient lending

capacity in floor plan and retail auto loan markets. Tr.4314:15-22. He explained that

“[u]ltimately, on April 30, 2009, the day that Chrysler filed for bankruptcy, Chrysler and

GMAC executed a master financial services agreement term sheet” under which GMAC

would provide the financial services to Chrysler dealers and customers. Tr.4316:18-24;

DX1375. This required that Treasury provide $7.5 billion to GMAC and that the FDIC 130 provide assistance to GMAC through its Temporary Liquidity Guarantee Program.

Tr.4317:20-4318:9; DX1336a.

On cross examination, Mr. Stern admitted that he did not consider whether

Chrysler dealers could have obtained floor plan financing from other sources. Tr.4321:3-

11. He also admitted that on April 18, 2009, Chrysler Financial expressed its desire to

continue to provide retail and floor plan financing in the event of a Chrysler Chapter 11

bankruptcy. Tr.4323:8-22. Mr. Stern further acknowledged that Treasury told Congress in

2011 that the reason it provided GMAC with financing was not because it was the most

prudent investment but because of its importance in the auto industry. Tr.4330:11-15;

PX485. He also stated that he had not had any conversations with Chrysler regarding the

best path forward for Chrysler Financial. Tr.4336:9-14.

xi. James Lambright

The government also called James Lambright to testify. Mr. Lambright, from

October 2008 until June 2009, served as the interim chief investment officer for TARP.

Tr.3711:5-10. He explained that “[t]he overarching objective of TARP transactions was

to protect the financial system; however, in structuring individual transactions with

particular companies, our goal was to provide the necessary financial assistance, while at

the same time protecting taxpayers whose funds were being put at risk.” Tr.3713:6-11.

He explained that President Bush took the action of providing loans to Chrysler and GM

from TARP in January 2009 because “Chrysler and GM were on the brink of financial

collapse but had not taken measures to prepare themselves for an orderly restructuring.

Thus, our goal at the time was to provide sufficient financing to keep Chrysler, GM, and

their associated financing companies alive, giving them some time and an incentive to 131 develop paths towards long-term viability, and also give the incoming Obama

Administration flexibility in deciding how and whether to provide further assistance to

these companies.” Tr.3714:1-10.

He went on to explain that “[t]he bridge loans [to Chrysler and GM] were

designed to provide the manufacturers sufficient capital to continue operations for a

period of time, long enough to develop a plan for long-term viability that could be

presented to the new administration.” Tr.3714:16-20. Mr. Lambright further explained

that “[t]he concept of a viability plan and the bridge loan was derived from the legislation

that had passed the House on December 10th, 2008 [but was never enacted].”

Tr.3717:19-21. He explained that his “understanding was that this provision called for

Chrysler to include in its viability plan an explanation of the steps it would take to

improve its operating efficiency in a manner that would allow it to continue

manufacturing and selling cars for the long term.” Tr.3725:20-25.

B. Government’s Expert Witnesses i. Dr. Andrew Carron

Dr. Andrew Carron, Ph.D., is an expert in financial economics, damages, and

valuation. His testimony addressed plaintiff experts’ opinions regarding the value of

plaintiffs’ franchise agreements in a “but for world” where Chrysler entered bankruptcy

without government assistance. He holds a B.A. in economics from Harvard University

and a Ph.D. in economics from Yale University with a concentration in industrial

organization. Tr.2912:21-2913:5. Dr. Carron is currently an affiliated consultant at

National Economic Research Associates (“NERA”) Economic Consulting. Tr.2910:2-3.

From 2013 to 2017, Dr. Carron was the chairman of NERA and from 2006 to 2012, he

132 was NERA’s president. Tr.2910:3-5. He has authored texts, book chapters, and articles

on fixed-income securities. Tr.2912:11-13.

Dr. Carron was retained by the government to opine on two issues. First, Dr.

Carron was asked to opine on “whether Plaintiffs’ Chrysler franchise agreements would

have had value had Chrysler foregone government financial assistance and conducted an

orderly wind-down and liquidation in bankruptcy.” Tr.2913:14-20. As discussed in detail

below, Dr. Carron opined that the franchise agreements at issue would have been

valueless in the plaintiffs’ proposed “but for world” – where Chrysler was acquired in a

Section 363 sale – because a willing buyer in an arms’ length transaction would not have

paid more than zero for their franchise agreements. Tr.2913:23-2914:13.

Second, Dr. Carron was asked to opine on “whether Plaintiffs’ dealerships in the

actual world had substantial value absent those franchise agreements.” Tr.2914:14-16. As

discussed in detail below, Dr. Carron opined that eight out of the nine plaintiffs’

dealerships without franchise agreements with Chrysler retained substantial value in the

actual world, both during and after the Chrysler bankruptcy. Tr.2914:21-24.

Dr. Carron began his testimony by discussing the difference between the income-

producing activities plaintiffs received by having a franchise agreement with Chrysler

and the income-producing activities that were not directly dependent on the franchise

agreements. He explained that the franchise agreements allowed a franchise holder to sell

the manufacturer’s new cars and trucks, purchase new cars and trucks from the

manufacturer, and provide warranty repair and maintenance work on those cars and

trucks that is paid for by the manufacturer at a negotiated rate. Tr.2915:10-16. He went

on to explain that other income streams are not franchise dependent. He testified that a 133 “franchise agreement is not required for the sale of used cars[,] the sale of finance and

insurance products[,] customer pay . . . repair service and parts[, and] physical assets,

such as land, buildings, and general tools.” Tr.2915:15-23.

Dr. Carron challenged the opinions of the plaintiffs’ experts that evaluated the lost

value of the plaintiffs’ franchise agreements by not distinguishing between franchise

dependent and non-franchise dependent income streams. Tr.2915:23-2916:2. As a result,

he asserted, the plaintiffs’ experts were “unable and . . . do not, in fact, isolate, identify,

or estimate the value brought to a dealership by the Chrysler franchise agreement.”40

Tr.2916:3-2916:5.

Dr. Carron testified that for purposes of his valuation analysis he assumed a “but

for world” where “Chrysler would have declared bankruptcy on December 31, 2008 or

April 30, 2009 and subsequently liquidated its assets through an orderly wind-down

without financial support from the Government.” Tr.2916:12-16, Tr.2917:1-5. Dr. Carron

explained that, for purposes of his analysis, Chrysler would have ceased manufacturing

new vehicles during this wind-down period and would have stopped shipping parts to the

40 As discussed above, Ms. Murphy testified on behalf of the Alley’s plaintiffs that she did not separately value the “franchise agreement” because, in her opinion, there is no distinction between valuing a franchise and a dealership. Dr. Nevin, in his testimony on behalf of the Colonial plaintiffs, explained that in the auto dealership industry there is a unique method of measuring the value of the intangible benefit of having a franchise agreement with a specific manufacturer using what is called a “blue sky” multiple. This multiple is applied to the value of the assets of the franchise to determine how the “brand” franchise agreement increases the value of franchise to a potential buyer. As discussed above, the references Dr. Nevin relied upon in his testimony regarding blue sky indicated that in 2009, there was no “blue sky” value for Chrysler dealerships and thus a buyer wanting to purchase a Chrysler franchise would not have paid a multiple above “asset” value. Finally, Mr. Stockton, also on behalf of the Colonial plaintiffs, valued the Finnin and Guetterman franchises in his “but for world” to include income streams not directly related to what the manufacturer is obligated to provide under the franchise agreements. 134 dealers. Tr.2917:5-11. He further explained that he assumed plaintiffs would have been

able to continue as Chrysler, Jeep and/or Dodge dealers during the wind-down.

Tr.2916:16-24. He also assumed that the plaintiffs would generate income from their

directly-related franchise activities, such as used car sales and customer pay service. Id.

Using the above-noted assumptions, Dr. Carron opined on the value of plaintiffs’

franchise agreements. He focused on the income streams tied directly to the plaintiffs’

franchise agreements: the right to sell new cars, the right to purchase new cars, and the

right to be paid for warranty work. Dr. Carron concluded that with the assumptions he

used, none of plaintiffs’ franchise agreements would have had any value. Each of Dr.

Carron’s opinions will be discussed in turn.

Dr. Carron started by explaining why, in his opinion, plaintiffs would not see any

value in being able to sell new Chrysler cars or trucks. Dr. Carron testified that “new car

sales are typically the least profitable of a dealer’s major activities and can often even

lead to losses.” Tr.2919:17-20. He explained that this least-profitable aspect of plaintiffs’

dealerships would have become worse in a “but for world” where the new cars in the

plaintiffs’ inventory might be discontinued. Tr.2920:1-11. He stated that “[t]he cost of the

vehicles purchased [by the franchisees] prior to the bankruptcy would have been

significantly higher than the price customers would have been willing to pay for them

after bankruptcy.” Tr.2920:24-2921:2. Dr. Carron reasoned that “[b]uyers tend to be

adverse to discontinued brands due to the lack of warranty coverage, ceased production

of parts, among other reasons.” Tr.2922:3-6. Dr. Carron thus concluded that no value to

the franchise agreements could be attributed to the sale of existing vehicles on the

plaintiffs’ lots. See Tr.2922:17-19. 135 Dr. Carron also explained that the cars on plaintiffs’ lots would have resulted in

losses for plaintiffs because, contrary to plaintiffs’ experts’ opinions, without

“government financial assistance, there would have been no manufacturer warranty

coverage.” Tr.2922:21-22. Dr. Carron testified that he rejected the notion, advocated by

plaintiffs’ experts, that the federal government would have paid for warranty work in a

“but for world.” He testified that “[p]laintiffs’ experts did not provide support for their

opinions that a program would have been established to provide warranty coverage

during a hypothetical Chrysler liquidation.” Tr.2923:13-16, Tr.2923:17-2924:16.41 Dr.

Carron opined that cars without a manufacturer’s warranty would “signal a lower level of

product quality to customers, lowering the price they would be willing to pay.”

Tr.2925:19-12. Dr. Carron further opined that even if dealers purchased third-party

warranty coverage for their new vehicles, they would have discounted them by the

amount of the cost of the warranty, around $2,000. Tr.2926:3-19.

In further support of his opinion that franchisees would not see any value

associated with a franchisee’s ability to sell new cars in the “but for world,” Dr. Carron

testified regarding the lack of retail financing. Dr. Carron testified that retail financing at

the time of the “but for world” was hard to come by, and that all plaintiffs relied to some

extent on Chrysler Financial to provide retail financing for their customers. Tr.2928:1-4.

He explained that by 2008, Chrysler Financial was facing its own liquidity crisis and that,

41 Dr. Carron dismissed the notion that the limited warranty program offered by the government for March 2009 was evidence of a government commitment to a continued warranty program. He explained that the March warranty program was designed to encourage the sale of Chrysler cars and trucks but that without a government commitment to keep the Chrysler brand, there would have been no reason to continue the warranty. Tr.2923:19-2924:22. 136 by the time that Chrysler would have filed for bankruptcy in a “but for world,” Chrysler

Financial would not have been in the position, without government assistance, to provide

retail financing to customers. Tr.2932:8-18. Dr. Carron explained that even for those

dealers who did not overly rely on financing from Chrysler Financial, obtaining retail

financing would have been difficult during the year or two in question. He testified that

the “overall volume of outstanding auto loans and leases in the US decreased eighteen

percent between April 2008 and April 2009, as consumers paid down outstanding loans

and fewer new loans were being made.” Tr.2933:21-25.

Dr. Carron testified based on the data from the plaintiffs’ financial statements that

“[a]n average price decline of a little more than 3% would reduce the profits of new car

sales to zero.” Tr.2938:5-7. The plaintiffs’ financial statements showed an average mark

up in May 2009 of 3.18%. See Tr.2938:4-14. Dr. Carron further opined that plaintiffs

would have lost money on their inventory in a “but for world” without government

assistance. Relying on data from other manufacturers with discontinued lines, including

Mazda Tribute, Suzuki, and Saab, Dr. Carron opined that the new cars on plaintiffs’ lots

would have declined in value by at least 15% and up to 25%. Tr.2948:19-23.

Specifically, Dr. Carron explained that when Mazda discontinued the production

of its Mazda Tribute SUV in 2011, the value declined by 4.5% during the six months

following the announcement, while a similar SUV like the 2011 Ford Escape rose by

1.5% leading to an overall 6% decline of relative price of the Mazda Tribute. See

Tr.2937:10-Tr.2946:1. Regarding the decline in the value of Suzuki cars during its

bankruptcy, Dr. Carron noted that news reports during the Suzuki bankruptcy indicated

137 that dealers were offering discounts ranging from twenty to twenty-five percent for their

new vehicle inventory. Tr.2943:15-16.

Dr. Carron explained that he thought that the Saab bankruptcy provided the most

reliable comparison to what would have happened in the “but for” without government

financing world because like Chrysler, Saab as the manufacturer went bankrupt.42 Dr.

Carron explained that, where the manufacturer no longer manufactures cars and is not

able to offer a warranty, it is very difficult for a dealer to sell its remaining new car

inventory. In Saab’s case, the new cars on dealer lots declined by an average of 42%.

Tr.2945:16-2947:8. Dr. Carron further supported his opinion with the analysis done by

Chrysler’s first lien lenders who had estimated that new Chrysler cars and trucks would

be discounted between 50% to 75%. Tr.2948:5-12.

Dr. Carron next explained why he believed that the franchisees would not see any

value in the second right provided in franchise agreements, the right to purchase

additional new cars from Chrysler. He challenged Mr. Berliner’s contention that, in a

“but for world,” plaintiffs would have derived a benefit from having access to the 9,580

new cars Chrysler had not yet sold at the time of its bankruptcy. Dr. Carron opined that

Chrysler would have likely sold these vehicles at a bulk auction open to both Chrysler

dealers and non-Chrysler dealers to obtain maximum value for the cars. Tr.2953:16-21.

Dr. Carron further opined that even if Chrysler were acquired by another manufacturer in

a 363 sale, there “[was] no indication . . . at the time that an acquirer would have resumed

42 Dr. Carron explained that plaintiffs’ reliance on the Daewoo bankruptcy was misplaced because the Daewoo involved only the distributor and DIP financing was available, which Dr. Carron concluded would not have been available in a “but for” Chrysler bankruptcy. Tr.2943:20- 2944:25. 138 production of any, much less of most or all, of Chrysler’s existing brands.” Tr.2956:3-6.

Relying on the work of Mr. Manzo, Dr. Carron questioned whether any lines but for the

Jeep Wrangler line would have been acquired and stated that he saw no evidence to

suggest that production of all Chrysler lines would have resumed in bankruptcy without

interruption. He also opined that the lack of floor plan financing for most dealers would

have made the ability to purchase new cars difficult even if Chrysler continued to

manufacture cars. It was for all of these reasons that Dr. Carron concluded that the right

provided in the franchise agreement to buy and then sell additional Chrysler vehicles in

the “but for world” would not have had any value. Tr.2957:20-22.

Regarding the value derived from the right to perform warranty work, the third

value Dr. Carron attributed to a franchise agreement, Dr. Carron opined that this right

was also valueless in a “but for world” without government financing. Dr. Carron

testified that if Chrysler filed for bankruptcy without government assistance, all the

outstanding warranty claims, which for these plaintiffs totaled $198,741 by the end of

April 2009, would have gone unpaid. Tr.2961:21-2962:6. Dr. Carron explained, as noted

above, that he believed it was unreasonable to assume that there would have been a

program to honor outstanding warranties in a “but for world.” He thus concluded that

plaintiffs would have received no value for their franchise agreement based on their

ability to perform warranty work. Instead, he opined that the plaintiffs would have lost

the money due to them by Chrysler for warranty work they performed but for which they

had not have been paid. Tr.2962:7-12.

Dr. Carron concluded his testimony regarding his first opinion by stating that, had

the dealerships chosen to sell their Chrysler franchise agreements immediately before a 139 Chrysler bankruptcy or during the bankruptcy, a willing buyer would not have paid

anything for the franchise agreements because none of the express rights provided for in

the intangible franchise agreements – the right to sell Chrysler cars and trucks, the right

to purchase Chrysler cars and trucks directly from Chrysler, and the right to perform

warranty work – would have produced any profit in a “but for world” where Chrysler

went into bankruptcy without government assistance. See Tr.2963:7-12.

Dr. Carron did not consider any loss attributable to the plaintiffs’ other income

streams, which Ms. Murphy and Mr. Stockton asserted were also attributable to the

franchise agreement, including customer pay work, used car sales, and the sale of

insurance and other commercial products. He did, however, provide an analysis in his

second opinion to show that, for most of the plaintiffs, there was no evidence that profits

from these income streams diminished in the period that would have coincided with a

bankruptcy wind-down of Chrysler in a “but for world.”

Dr. Carron focused his second opinion on the value of the plaintiffs’ dealerships in

the actual world, after their franchise agreements were rejected in bankruptcy. Dr. Carron

explained that in valuing the plaintiffs’ dealerships without a Chrysler franchise

agreement, he took into account the goodwill, expertise, and revenues the plaintiffs

derived from their other business lines, such as new car sales and warranty repairs under

their non-Chrysler franchise agreements, used car sales, and customer-pay repairs.

Tr.2989:14-18. Dr. Carron explained that, in the actual world, several of the plaintiffs

were able to retain much of the value associated with Chrysler-related work because, by

virtue of the government’s contribution, Chrysler continued as a brand. Thus, they were

140 able to obtain Chrysler parts for repairs and sell their remaining Chrysler vehicles with

warranties.43 Tr.2990:20-2991:5.

For the six representative plaintiffs that continued in business as car dealerships

under other franchise agreements (Theel, Marsh, Guetterman, Finnin, Taylor, and

Whitey), Dr. Carron explained that, in the actual world, the termination of their Chrysler

franchise agreements did not result in any discernible loss of income or net profits.

Tr.2994:2-3002:3. Dr. Carron testified that he came to the same conclusion for Barry

Dodge, the only dealership to continue as a used car dealership. Barry’s net profits either

remained stable or grew in the three years after the rejection of its Chrysler franchise

agreements as compared to the three years before the rejection of the Chrysler franchise

agreements. Tr.3002:4-3003:11.

For the two remaining plaintiffs, Livonia and RFJS, which did not continue their

operations, he could not reach a conclusion about the value of the dealerships in the

actual world. Tr.3003:12-3005:24. Dr. Carron explained that Livonia transferred its

unsold used vehicles to another company owned by the same owner as Livonia, Century

Sales, which also sold Mitsubishi vehicles and used vehicles. Tr.3003:12-22. He noted

that although Livonia did not continue to operate after the rejection of its Chrysler

franchise agreements, Livonia eventually was awarded Chrysler franchises in 2015 and is

currently selling Chrysler and Jeep vehicles. Tr.3003:23-3004:12. Regarding RFJS,

because it did not have a permanent franchise agreement it was not like the other

43 Aspects of Dr. Carron’s opinion were confirmed by the fact that certain plaintiffs, as discussed infra, were able to sell their new car Chrysler inventory to other Chrysler dealerships without sustaining a loss, and were also able to sell or use much of their remaining Chrysler parts and service equipment without taking a loss. 141 plaintiffs and, therefore, Dr. Carron explained that he could not come up with a valuation.

Tr.3004:13-23. The RFJS franchise agreement was set to expire in October 2009 and

RFJS never turned a profit in the actual world. Tr.3004:24-3005:6.

On cross examination, Dr. Carron admitted that he did not consider the impact that

the financial recovery had on the revenues of the plaintiffs’ dealerships after the 2008-09

recession. Thus, he could not say if the steady profits or increased profits he examined in

the actual world were attributable to the recovery or the value of the dealerships

themselves. Tr.3014:2-3016:15. Dr. Carron also admitted that he did not consider what

dealership profits would have been after 2009 if the plaintiffs had retained their Chrysler

franchise agreements. Tr.3023:1-15. Dr. Carron further admitted that if the plaintiffs were

required to purchase a third-party warranty in order to sell the new vehicles on their lots it

was possible that they would see a profit (not a loss). Tr.3084:7-3085:11.

ii. Donald MacKenzie

The government called Donald MacKenzie, the “founder and CEO of Conway

MacKenzie, Inc. . . . a global financial consulting and advisory firm,” as its second

expert. Tr.4022:24-4023:2. Mr. MacKenzie is a “certified turnaround professional,

certified public accountant, and [has] a Bachelor of Science in accounting from Michigan

State University.” Tr.4023:5-7. Mr. MacKenzie is “frequently engaged to provide advice

and counsel by auto-related entities, including original equipment manufacturers

[OEMs,] . . . suppliers who manufacture and sell vehicle parts and systems directly to

OEMS, which are commonly referred to as tier one suppliers; other suppliers further

down the supply chain; which include tier two, tier three, and raw materials suppliers;

and also, financial institutions and investors.” Tr.4023:5-14. Mr. MacKenzie has also 142 served as a Chief Restructuring Officer (“CRO”) for numerous middle market companies,

as well as for automotive companies including large tier one automotive parts suppliers.

Tr.4024:23-4025:4.

Mr. MacKenzie offered two opinions on behalf of the government based on his

experience with the auto industry. First, he opined that “without financing from the U.S.

Treasury, Chrysler would have immediately liquidated in bankruptcy.” Tr.4027:18-20.

Second, he opined that “had Chrysler immediately liquidated in bankruptcy, all of

Chrysler’s dealer franchise agreements, including the Plaintiffs’, would have been

rejected and had no value.” Tr.4027:21-24.

In support of his opinion that Chrysler would have been forced to liquidate in a

“but for world” without government assistance, Mr. MacKenzie began by explaining the

financial history leading up to the Chrysler bankruptcy, including Chrysler’s 1979

financial difficulties, its sale to Daimler in 1998, and its sale to Cerberus in 2007.

Tr.4029:8-4030:25. He testified about the $4 billion bridge loan Chrysler received from

the government in December 2009, the credit crunches effecting the auto market, the

actual world bankruptcy, and Fiat’s purchase of Chrysler. He explained that in

developing his “opinions . . . [he] assumed that Chrysler had received the $4 billion of

bridge financing that was approved by the U.S. Treasury on December 31st, 2008 but did

not receive any additional government financing and filed for bankruptcy protection on

April 30th, 2009.” Tr.4039:16-21.

Mr. MacKenzie explained that in the actual world on April 30th, 2009, Chrysler

had $407 million in usable cash but was burning through tens of millions of dollars per

day while it continued to manufacture cars. Tr.4046:12-18. He opined that Chrysler 143 would have been forced to liquidate without government financing because no financial

institution would have been willing to provide DIP financing or any other financial

assistance to Chrysler in April 2009. Tr.4047:7-17. He explained that because Chrysler

had a high cash burn rate and a low amount of cash on hand it could be insolvent, which

would result in the Chapter 11 bankruptcy being converted into a Chapter 7 bankruptcy.

Tr.4045:8-10.

Mr. MacKenzie explained that there would have been a significant negative

impact on Chrysler’s lenders, dealers, suppliers, employees, and consumers if it had been

forced to liquidate. Tr.4050:19-23. Mr. MacKenzie further explained that in December

2008, Chrysler’s warranty obligations totaled $3.75 billion, and that given the low

amount of cash Chrysler had on hand it would not have had funds available to finance a

warranty program during a liquidation. Tr. 4060:22-4063:24. He also testified that at the

time Chrysler would have filed for bankruptcy all of Chrysler’s vehicle lines were

unprofitable. For example, in 2008 the Jeep brand had a negative $88 million worth,

Dodge Ram Truck was worth a negative $111 million, and Chrysler Town & Country

was worth a negative $25 million. Tr.4064:19-4065:2.

Mr. MacKenzie testified that, because Chrysler’s manufacturing operations were

all interconnected, the sale of any individual Chrysler vehicle line would have been

difficult and that this would have reduced the value of Chrysler’s lines in liquidation.

Tr.4065:24-4067:9. Ultimately, Mr. MacKenzie concluded that under a liquidation of

Chrysler, there would have been no recovery for any creditors beyond the secured

lenders. Tr.4071:21-4072:4.

144 In his second opinion, Mr. MacKenzie opined that in a Chrysler liquidation, all of

the Chrysler franchise agreements, including those of the plaintiffs, would have been

rejected. He explained that franchise agreements are executory contracts that can be

rejected in a Chapter 11 bankruptcy and if they are not rejected must be assumed by

another entity. Tr.4073:5-20. In a Chapter 7 liquidation, Mr. MacKenzie explained that

“if a contract is not explicitly assumed by the trustee, the contract is automatically

deemed to be rejected.” Tr.4073:21-23. Mr. MacKenzie further explained that if Chrysler

entered bankruptcy and was no longer manufacturing new cars, or shipping new cars, or

reimbursing warranty work, all of which Chrysler was obligated to do under its franchise

agreements, the CRO would have had a fiduciary duty to reject the franchise agreements

because they imposed obligations on Chrysler that Chrysler would not be able to fulfill.

He explained that where the franchise agreements would not generate any profits but

potentially subject Chrysler to financial claims from the franchisees, the franchise

agreements would be rejected in bankruptcy as soon as possible. Tr.4075:18-4077:2.

Finally, Mr. MacKenzie explained how and why his opinions about a Chrysler

bankruptcy without government financing differed from plaintiffs’ experts. Mr.

MacKenzie testified that he could not find support for plaintiffs’ assumption that Chrysler

would have had $2 billion on hand rather than the $400 million he identified. According

to Mr. MacKenzie, because some of that extra $1.6 billion was held by foreign entities

and $846 million of that total was held as collateral by Chrysler’s secured lenders, the

extra dollars plaintiffs’ experts identified would not have been available to help Chrysler

get through a wind-down without the consent of Chrysler’s creditors. Tr.4078:25-

4079:18. Next, Mr. MacKenzie testified that Mr. Berliner’s assumption that there would 145 have been DIP financing was not supported. Mr. MacKenzie explained that in the actual

world, it was understood that neither Cerberus nor JP Morgan, first lien creditors, were

willing to provide DIP financing to keep Chrysler continuing as an ongoing concern.

Tr.4079:19-4081:10. Mr. MacKenzie testified that if there would have been other sources

of DIP financing Chrysler would not have needed the $4 billion bridge loan it sought

from the government. See Tr.4081:8-10.

Mr. MacKenzie explained why he believed that Mr. Berliner’s assumption that the

government would have funded a warranty program was not supported. Mr. MacKenzie

testified that there is no evidence that the government would have funded a warranty

program if it had decided not to otherwise provide Chrysler with financial support.

Tr.4084:23-4085:1. Mr. MacKenzie testified that Mr. Berliner’s opinion that in the first

few months of an unassisted Chrysler bankruptcy it would have been business as usual

for the dealers was not supported. According to Mr. MacKenzie, Mr. Berliner failed to

acknowledge that business as usual would not have been possible if no new vehicles were

being produced and Chrysler was not able to meet its warranty obligations or supply

franchisees with Chrysler parts. Tr.4087:13-4092:15.

Finally, Mr. MacKenzie testified that Mr. Berliner’s reliance on the Daewoo,

Saab, and Suzuki bankruptcies was misplaced. He explained several of the major

differences between those bankruptcies and a Chrysler bankruptcy without government

assistance. Specifically, he testified that in those bankruptcies there was no economic

crisis, there was a parent company not going through bankruptcy, and there was

continued production of supplies and service during the bankruptcy. Tr.4094:2-4104:8.

146 iii. Judge Robert Gerber

The government called Robert E. Gerber, a retired United States Bankruptcy

Judge, who served for more than fifteen years in the United States Bankruptcy Court for

the Southern District of New York to address the opinions offered by Judge Fitzgerald.

Tr.4162:23-4163:2. Judge Gerber is currently Of Counsel to the law firm of Joseph Hage

Aaronson LLC where he provides fiduciary, alternative dispute resolution, and consulting

and expert testimony services. He is also an Adjunct Professor of Law at Columbia

University Law School, a contributing author to Collier on Bankruptcy, and a Fellow of

the American College of Bankruptcy. Tr.4170:11-22. During his judicial tenure, Judge

Gerber oversaw many bankruptcy cases, including the GM bankruptcy which followed

the Chrysler bankruptcy. Tr.4171:21-4172:3.

Judge Gerber broke his testimony into three parts (1) bankruptcy law and practice,

(2) the real-world facts, and (3) a discussion of the bankruptcy cases that Judge Fitzgerald

relied on. Judge Gerber first testified about bankruptcy law and practice. Tr.4172:10-14.

He explained that liquidity in a Chapter 11 bankruptcy is “paramount.” Tr.4172:25. Judge

Gerber stated that “Chapter 11 cases live, or die, based on their available liquidity, the

cash they need to operate every day.” Tr.4173:14-16. He also stated that when all the

assets of a debtor are subject to liens, the lien holders have “substantial . . . influence over

the Chapter 11 case.” Tr.4174:16-25. Judge Gerber explained that when Section 363 sales

are used in a Chapter 11 bankruptcy, “bankruptcy judges approve 363 sales, if, but only

if, the debtors lack the liquidity to allow the Chapter 11 case to proceed by . . .

confirmation of a reorganization plan.” Tr.4175:15-21.

147 Judge Gerber testified about DIP financing and how approval of DIP financing is

secured. Tr.4184:10-13. He explained that DIP financing differs from the use of cash

collateral which is subject to a lien. He testified that “DIP financing is required . . . when

use of cash collateral alone will not do.” Tr.4186:7-9. Judge Gerber explained that

“[s]ources of DIP financing will vary with the amount of cash that’s required[.]”

Tr.4186:18-20. He explained that “[p]re[-bankruptcy]petition secured lenders are, indeed,

a fairly common source of DIP financing, but where the debtor’s assets are already

entirely subject to prepetition liens, and . . . the prepetition lenders are already

underwater, generalizations as to prepetition lenders’ willingness to lend more, based on

observations of the broader universe of financing transactions, are of little or no value.”

Tr.4187:15-23. Judge Gerber thus took issue with Judge Fitzgerald’s characterization of

the government’s control of the bankruptcy process as “unusual.” He opined that because

the government was providing billions of dollars in DIP financing that the government’s

involvement in shaping the bankruptcy terms was not unusual. Tr.4189:15-20. He

explained that DIP lenders normally “exert significant influence over their borrowers as a

condition to their providing DIP financing loans.” Tr.4190:4-6.

Judge Gerber testified that he also disagreed with Judge Fitzgerald’s contention

that the speed with which the Chrysler 363 sale took place was unusual. Tr.4193:14-17.

Judge Gerber testified that in large bankruptcies 363 sales have become the norm so that

the bankruptcy estate can survive long enough to pay back its creditors. Tr.4193:18-

4199:9.

Judge Gerber also testified about why the actual world facts needed to be

considered in formulating a “but for world” bankruptcy without government assistance. 148 Judge Gerber testified that he reviewed the declarations that Robert Manzo, Thomas

LaSorda, and Robert Nardelli filed with the bankruptcy court, and that these declarations

confirmed that there would not have been any DIP financing available to Chrysler.

Tr.4208:4-4211:11. Judge Gerber thus found Judge Fitzgerald’s opinion that someone

would have provided DIP financing to Chrysler in the “but for world” to be unsupported.

He explained this was because her opinion rested solely on “what lenders sometimes do,

and what the first lien lenders might theoretically have been motivated to do,” and not on

real-world facts. Tr.4211:12-16. Judge Gerber further explained that the declarations filed

in the actual Chrysler bankruptcy also would have ruled out financing by Fiat or from the

dealers, as Judge Fitzgerald opined. Tr.4211:24-4212:8.

Judge Gerber next challenged Judge Fitzgerald’s assertion that there would have

been multiple bidders for Chrysler’s assets if there had been an open 363 sale in a “but

for world.” Judge Gerber testified that Thomas LaSorda filed a declaration with the

bankruptcy court in which LaSorda, consistent with his testimony in this court, stated that

the government was the last hope because no other auto company was willing to form an

alliance with Chrysler despite his extensive efforts. Tr.4217:4-23.

Finally, Judge Gerber took issue with Judge Fitzgerald’s opinion that the Suzuki

and Hostess bankruptcies were appropriate comparisons for what a Chrysler bankruptcy

would have looked like without government financing. Tr.4233:8-20. Judge Gerber

testified that American Suzuki “was a distributor but not a manufacturer,” which

distributed vehicles manufactured by its Japanese parent company Suzuki. Tr.4233:21-

4234:4. Therefore, Judge Gerber explained, American Suzuki did not face the same

financing and liquidity problems that Chrysler would have faced in its “but for world.” 149 Tr.4234:4-11. Judge Gerber further noted that American Suzuki had sufficient liquidity

from its parent and thus would have enough cash to complete the Chapter 11 bankruptcy.

Judge Gerber testified that Judge Fitzgerald “fail[ed] to note the essential role played by

the Japanese parent in the American Suzuki bankruptcy and the absence of any such

benefactor in Chrysler.” Tr.4236:18-21.

Judge Gerber next explained that the Hostess bankruptcy was much smaller than

that of Chrysler, Hostess was in a more stable financial position, and Hostess had the

funding it needed to remain in business during its bankruptcy. Tr.4237:22-25. He also

noted that the Hostess stores were owned and operated by Hostess, which meant that

Hostess had the responsibility of exacting extra value from them. The Chrysler franchise

agreements, in contrast, were not assets of Chrysler but liabilities. Tr.4239:13-24.

On cross examination, Judge Gerber acknowledged that the government’s decision

to become the DIP financing lender was not consistent with traditional lending practices

because the government agreed to take a priority lower than preexisting creditors who

already were not likely to be paid in full. Tr.4244:17-21, Tr.4246:4-9. Judge Gerber also

acknowledged that the 363 sale in the actual Chrysler bankruptcy was different from a

typical 363 sale in that any party wanting to bid for Chrysler’s assets had to agree to

honor the collective bargaining agreements and the UAW Retiree Settlement Agreement

the government had negotiated. Tr.4282:3-25. He also agreed that Chrysler, as an entity,

would not have had any interest in what would happen to its contracts with third parties

once its assets were acquired by another entity. Tr.4281:21-24.

150 iv. Joseph T. Gardemal

The government presented the testimony of Joseph T. Gardemal III, a managing

director with the firm Alvarez & Maral, an international consulting firm, to respond to the

valuations performed by Ms. Murphy and Mr. Stockton. Tr.4417:9-22. Mr. Gardemal is a

certified public accountant, a certified valuation analyst and a certified fraud examiner.

He holds a certification in distress business valuation and is accredited in business

valuation by the American Institute of Certified Public Accountants. Tr.4418:2-7. He has

been an auditor, forensic accountant, and valuation professional for over thirty years.

Tr.4418:11-12. He testified that for the past twenty years he has served as an auditor,

valuation professional, and financial consultant to the automotive retail industry and has

valued over 100 dealerships. Tr.4418:13-19.

Mr. Gardemal offered the following five opinions regarding Ms. Murphy’s expert

report: (1) Ms. Murphy appropriately assumed that without government financing

Chrysler would have had to enter bankruptcy, (2) Ms. Murphy erred in valuing the entire

dealership and not just the franchise agreement, (3) Ms. Murphy’s assumptions about the

“but for world” were unreasonable and contradicted by the facts, (4) Ms. Murphy’s

assumption that a Section 363 purchaser would have assumed the franchise agreements of

the entire Chrysler dealership network was unreasonable, and (5) Ms. Murphy’s valuation

opinions were faulty because her growth rate, discount rate, and the terminal value she

selected were incorrect and unsupported. Tr.4422:3-4423:10.

Mr. Gardemal offered the following three opinions regarding Mr. Stockton’s

valuation analysis: (1) that Mr. Stockton appropriately assumed Chrysler would enter

bankruptcy in his fair value and lost profit analysis, (2) that some of Mr. Stockton’s 151 assumptions were contradicted by the facts, and (3) Mr. Stockton’s valuation and lost -

profit scenarios were fundamentally flawed because he failed to provide guidance on

which of his multiple (seventeen months, three years or ten years) liquidation scenarios

was the appropriate measure, and because he ignored or under-allocated fixed expenses

in reaching his profit contribution calculations. Tr.4423:13-4425:4.

Mr. Gardemal testified that, had Ms. Murphy and Mr. Stockton made the correct

assumptions, they would have reached the same conclusion he reached: That at the time

of the valuation dates of December 2008 or April 2009, the plaintiffs’ franchise

agreements would have had zero value. Tr.4426:4-9.

Turning first to Mr. Gardemal’s disagreements with Ms. Murphy’s valuation

opinions, Mr. Gardemal testified that Ms. Murphy made a fundamental error by

conflating the value of the plaintiffs’ franchise agreements with the value of their

dealerships. According to Mr. Gardemal, Ms. Murphy “inappropriately includes assets

and profits unrelated to the Chrysler franchise agreement, and she therefore doesn’t value

the franchise agreement.” Tr.4428:17-20. Specifically, Mr. Gardemal stated that Ms.

Murphy failed to acknowledge that some of the plaintiffs’ income streams were not

dependent upon the plaintiff having a Chrysler franchise agreement. Tr.4428:24-4429:3.

Mr. Gardemal testified, consistent with Dr. Carron’s testimony, that Ms. Murphy should

have limited her calculations to the income streams derived solely from new Chrysler

vehicle sales, Chrysler warranty work, and discounted sales of Chrysler parts, the three

sources of income provided by Chrysler to franchisees. Tr.4429:15-20.

Mr. Gardemal also testified that Ms. Murphy’s various assumptions regarding the

“but for world” were unreasonable and unsupported. Mr. Gardemal stated that Ms. 152 Murphy’s “assumption that the Chrysler franchise agreements continue on indefinitely is

unreasonable and renders her analysis unreliable.” Tr.4436:18-20. Mr. Gardemal

explained that Chrysler in the “but for world” would have immediately liquidated and

terminated production of all of its vehicle lines upon entering bankruptcy. Tr.4437:8-

4438:2. Mr. Gardemal thus determined that Ms. Murphy’s conclusion that plaintiffs’

franchise agreements should have been valued as ongoing Chrysler franchises was not

supported. He noted that not only was her conclusion inconsistent with the reality of

Chrysler’s circumstances, but that plaintiffs’ expert, Mr. Berliner, conceded that in the

event of a bankruptcy Chrysler would have had to shut down all of its manufacturing

facilities and part depots for a period. Tr.4439:24-4440:7.

Mr. Gardemal testified that Ms. Murphy’s assumption that a Section 363

purchaser would have maintained or assumed the entire Chrysler dealership network was

also unreasonable. Tr.4443:25-4444:4. He noted that Ms. Murphy’s assumption was

contradicted by the plaintiffs’ expert, Mr. Berliner, who testified that some plaintiffs

would likely have been eliminated during or right after the bankruptcy. Tr.4445:3-12. Mr.

Gardemal noted that Ms. Murphy failed to consider the “risk that a new entity would

choose to retain none or only some of Chrysler’s prebankruptcy franchises.” Tr.4446:15-

17. He explained that she did not consider the fact that several of the plaintiffs had failed

to meet the MSR over the course of four to five years and thus ran the risk of being

rejected in a Chrysler bankruptcy as low-performing franchisees. Tr.4446:23-4447:12. He

testified that “[i]n this case, with Chrysler in bankruptcy, and evaluating which dealership

contracts to reject, dealers not meeting their MSR would necessarily be at a higher risk of

rejection than dealerships meeting their contractual obligations.” Tr.4448:18-22. 153 Mr. Gardemal concluded his critique of Ms. Murphy’s valuation by discussing

three methodological flaws. First, Mr. Gardemal challenged Ms. Murphy’s “expected

growth rate projections.” He stated that the growth rate projections, “do not appear to be

supported by the historical performance of the Model Plaintiffs and are not supported by

automotive industry data known at the valuation dates.” Tr.4449:21-25. Mr. Gardemal

noted that Ms. Murphy assumed that during a Chrysler bankruptcy not only would

Chrysler not lose any market share, but that Chrysler’s annual sales would grow by 11

percent. Mr. Gardemal testified that this assumption ran counter to the data of what

happened during the 2008-09 financial crisis. Tr.4450:13-22. Mr. Gardemal testified that

even Chrysler, in its Viability Plan, estimated retail sales to increase only by 5.2 percent

from 2009 to 2010, 4.4 percent from 2010 to 2011, and 4.5 percent from 2011 to 2012,

with government assistance. Tr.4450:23-4451:2.

Mr. Gardemal also challenged Ms. Murphy’s discount and capitalization rates. He

testified that they were “understated and inconsistent with the economic facts,” resulting

in overstated values for the representative plaintiffs. Tr.4453:3-8. Specifically, Mr.

Gardemal testified that her discount rate on future profits failed to capture the high risk

associated with a potential purchase of the plaintiffs’ Chrysler franchise agreements. Mr.

Gardemal explained that Ms. Murphy used a small company risk premium ranging

between 7.2 and 8.7 percent but should have used a 9.7 risk percentage premium.

Tr.4457:1-8. Mr. Gardemal also testified that Ms. Murphy’s discount rate was too low for

individual franchises because she did not consider specific factors related to their

businesses, such as which Chrysler brands they offered or their past performance.

Tr.4457:12-4449:20. 154 Finally, Mr. Gardemal challenged Ms. Murphy’s terminal value calculation

because it failed to account for the distress faced by Chrysler and “the significant

volatility to which the Model Plaintiffs were subject.” Tr.4459:21-4460:1. Mr. Gardemal

testified that Ms. Murphy’s annual growth rate of 5%, was improper because the

plaintiffs never saw such a high annual growth. Mr. Gardemal noted that Barry’s Auto

was the best performing dealer with an annual growth rate of 4% while Jim Marsh saw an

annual decline of 22% between 2006 and April 2009. Tr.4461:10-15. Mr. Gardemal

testified that the “perpetual growth rate of 5 percent is also in contrast to Chrysler’s

projections at February 2009 that the [Seasonally Adjusted Annual Rate (“SAAR”)]

would increase at an annualized rate of 4.5 percent -- that’s the SAAR for the industry,

not specific -- assuming receipt of government funding.” Tr.4461:16-20. Thus, Mr.

Gardemal concluded that Ms. Murphy’s terminal rate was unfounded and thus unreliable.

Next, Mr. Gardemal disputed Mr. Stockton’s valuation on two grounds. First, he

opined that Mr. Stockton’s “assumptions are unreasonable, inappropriate, and

contradicted by the economic evidence” and thus his valuations are unreliable. Tr.4464:1-

5. Specifically, Mr. Gardemal explained that Mr. Stockton assumed for his fair value and

profit contribution value that the government would be providing some financial

assistance. Tr.4465:16-18.

Second, Mr. Gardemal testified that “Mr. Stockton’s profit contribution

calculations for Finnin and Guetterman are flawed and, as I understand it, irrelevant to a

taking case. But even if they were relevant, by either ignoring or underallocating fixed

expenses, Mr. Stockton has overstated any hypothetical lost profits for these two Model

Plaintiffs.” Tr.4470:18-24. Mr. Gardemal explained that Mr. Stockton’s profit 155 contribution is flawed because he makes aggressive future sale volume projections for the

income streams he valued and because he includes profits from income streams that were

not associated with the franchise agreement. Tr.4472:1-5. Mr. Gardemal opined that these

errors in Mr. Stockton’s assumptions made Mr. Stockton’s valuations based on lost net

profits in a “but for world” unreliable.

v. Professor Daniel R. Fischel

The government’s last expert was Daniel R. Fischel, the “president of Compass

Lexecon, a consulting firm that specializes in the application of economics to a variety of

legal and regulatory issues.” Tr.4645:23-4646:1. Professor Fischel is also the Lee and

Brena Freeman Professor of Law and Business Emeritus at the University of Chicago

Law School. He previously served as the Dean of the University of Chicago Law School,

the Director of the Law and Economics Program at the University of Chicago, and as

Professor of Law and Business at the University of Chicago Graduate School of

Business, the Kellogg School of Management at Northwestern University, and the

Northwestern University Law School. Tr.4646:2-10. He has “served as a consultant or

advisor on economic issues to, among others, the United States Department of Justice, the

United States Securities and Exchange Commission, the National Association of

Securities Dealers, the New York Stock Exchange, the Chicago Board of Trade, the

Chicago Mercantile Exchange, the New York Mercantile Exchange, the United States

Department of Labor, the Federal Deposit Insurance Corporation, the Resolution Trust

Corporation, the Federal Housing Finance Agency, and the Federal Trade Commission.”

Tr.4646:20-4647:5. He is also “a member of the American Economic Association and the

American Finance Association.” Tr.4647:6-7. Professor Fischel has testified in over 50 156 proceedings in federal and state courts as an expert in valuation, financial institutions,

regulation of financial markets, the economic analysis of damage claims, and the

economics of government contracts and public and private markets. Tr.4647:15-25.

Professor Fischel offered five opinions, as follows: (1) Chrysler would have

needed to liquidate in December 2008 or April 2009, (2) Fiat would not have entered into

a business combination with Chrysler absent government funding, (3) the $24 billion that

Chrysler needed in DIP financing was unavailable in the private lending market, (4) the

terms of the government’s assistance were consistent with a commercial desire to protect

capital, and (5) plaintiffs’ claims are speculative and contradicted by the relevant

economic evidence. Tr.4649:11-4650:4.

Professor Fischel testified that Chrysler was insolvent by December 2008 and that

without government financial assistance Chrysler would have immediately liquidated.

Tr.4655:16-4656:1. He stated that “Chrysler’s liabilities exceeded its assets” and that

“Chrysler’s financial statements show that the fair value of its financial liabilities was

only 59 percent of the book value of those same liabilities as of December 31st, 2008.”

Tr.4656:4-11. Professor Fischel further testified that the value of Chrysler’s debt declined

from sixty-three cents on the dollar in April 2008 to only twelve cents on the dollar in

April 2009. Tr.4656:18-24. Professor Fischel noted that even with the $4 billion bridge

loan, Chrysler would have been insolvent in April 2009. Tr.4659:22-4660:15. He

explained that the value of Chrysler’s assets declined substantially during this time, that

Chrysler incurred more debt during this period, and that the value of that debt continued

to decline. Tr.4660:8-4662:4.

157 Next, Professor Fischel opined that the economic evidence demonstrated that Fiat

would not have entered into a business combination with Chrysler absent government

funding. Tr.4665:2-8. Professor Fischel noted that in the actual world, Fiat and Chrysler

signed a non-binding term sheet in January 2009 that was conditioned on Fiat not

providing any cash and Chrysler receiving $7 billion more from the government.

Tr.4665:17-4666:1. Professor Fischel noted that even the March 30, 2009 amended term

sheet was conditioned on Chrysler receiving $6 billion in government funds. Tr.4666:10-

13. Professor Fischel testified that Fiat’s financial condition during 2008 and early 2009

was deteriorating and that Fiat expected to have a negative cash flow for portions of

2009. Tr.4666:13-4667:5. Additionally, Professor Fischel noted that Daimler was not

interested in saving Chrysler, having just sold 80% of its stake in Chrysler in 2007 and

wanting to offload its remaining 20% interest in late 2008. Tr.4667:17-4669:7.

Professor Fischel testified that the DIP financing Chrysler needed for an orderly

bankruptcy would not have been available in the private lending market. Tr.4669:8-12.

Professor Fischel explained that in December 2008, Chrysler estimated that it would need

$12 to $15 billion for a short one-year bankruptcy and would need up to $17 to $20

billion if there was a lack of financing for its dealers. Tr.4669:13-20; DX956; Tr.4670:4-

9; DX1056. Professor Fischel explained the absence of private lending was evident from

the fact that no private DIP funding of the size required by Chrysler was provided to any

company in 2008 or 2009. Tr.4670:10-16; DX1609. Professor Fischel also noted that

plaintiffs did not identify any “plausible source of private DIP financing for Chrysler”

and that their suggestion that the first lien lenders would have provided DIP financing is

158 inconsistent with the economic evidence that shows that Chrysler’s debt was

continuously being devalued. Tr.4671:2-3, Tr.4671:12-4672:2.

Professor Fischel opined that the conditions placed on Chrysler by the government

were consistent with a lender that “seek[s] to reduce the ability of the borrowers to take

on excessive risk” in order to ensure that the loan will be repaid. Tr.4676:7-11. However,

on cross examination Professor Fischel conceded that the government had public policy

goals in mind as well in providing financing to Chrysler. Tr.4766:11-16.

Professor Fischel testified at length about his disagreement with Ms. Keller’s

opinion that any of the companies identified by Ms. Keller would have been potential

buyers of all Chrysler assets at a Section 363 sale. He testified that Blackstone would not

have been a potential purchaser because it had experienced financial losses in late 2008

and lacked liquidity, and that Blackstone had stated in the first quarter of 2009 that

“lenders continued to severely restrict commitments to new debt [which] limit[ed]

industry-wide leveraged acquisition activity levels in both corporate and real estate

markets.” Tr.4696:2-24.

Next, Professor Fischel explained why Geely or any other Chinese automobile

manufacturer would not have been potential purchasers of Chrysler. He explained that in

Geely’s 2008 annual report, Geely stated that it was not interested in investing in

deteriorating automobile markets, and that the president of Shanghai Automotive

Industry Corporation said in early 2009 said that there were no acquisition targets in 2009

and that Geely had no plans for acquisitions in the immediate future. Tr.4697:2-17.

Professor Fischel continued to explain that Magna, an Indian automobile

manufacturer, would also not have been a potential 363 purchaser. Its credit rating was 159 downgraded in late 2008 and early 2009 and it was reducing discretionary spending and

deferring capital spending given the decline in auto sales. Tr.4697:18-4698:5. Professor

Fischel testified that Mahindra & Mahindra, another Indian automotive company, would

not have been a potential 363 purchaser because it had stated in January 2009 that it was

not “interested in buying nonenvironmentally friendly vehicles, which likely would have

limited its interest in Chrysler, and Mahindra planned to enter the U.S. market with its

own fuel-efficient SUV.” Tr.4698:6-11.

Professor Fischel then discussed Peugeot (“PSA”) and Renault and explained why

they also would not have been potential 363 purchasers of Chrysler’s assets. He

explained that PSA had been downgraded by Standard & Poor’s and Moody’s in late

2008 and early 2009 because of negative cash flow and a material deterioration in PSA’s

financial flexibility as a result of the reduction in global demand for cars. Tr.4698:12-20.

Additionally, Professor Fischel explained that Renault’s credit had also been downgraded

by Standard & Poor’s in late 2008 and early 2009 because of the global economic

recession, which would have meant that Renault also would have been in no position to

purchase Chrysler’s assets. Tr.4698:21-25.

Professor Fischel explained that Tata Motors would not have been in a financial

position to purchase Chrysler’s assets because its credit had been downgraded by both

Standard & Poor’s and Moody’s twice between November 2008 and March 2009, and

Tata was facing a decreased amount of sales through 2008 and early 2009. Tr.4699:10-

24. Professor Fischel also noted that by March 2009 “Tata faced imminent refinancing

needs, tight liquidity position, weak capital structure, and challenging market conditions.”

Tr.4699:21-24. 160 Professor Fischel next explained that Tracinda also would not have been a

potential 363 purchaser given that it had sold 7.3 million shares of its common stock in

Ford and intended to reduce its holdings in Ford by selling all of its remaining shares. He

further explained that Tracinda had announced in October 2008 that it was shifting its

investment strategy to gaming, hospitality, and energy. Tr.4699:25-4700:15.

Finally, Professor Fischel explained that neither GM or Ford would have been in a

position to purchase Chrysler’s assets because they were facing a liquidity and financial

crisis of their own and both had their credit scores downgraded several times by the credit

rating agencies between 2008 and 2009. Tr.4700:16-4701:15.

Professor Fischel also disputed Ms. Keller’s claims that the economy was

improving in early 2009. Professor Fischel testified that it was irrelevant that the

economy in early 2009 was slightly better than in later 2008 because “[t]he economy was

terrible in both periods, and the market for M&A was consequently very poor in both

periods.” Tr.4701:25-4702:3. Professor Fischel explained that Ms. Keller ignored broad

evidence about the economy and instead cherry-picked four data series to suggest that

there was a favorable climate for investors to purchase Chrysler’s assets. Tr.4702:11-18.

He testified that “[e]ven if these were the relevant economic indicators, it is well known

that economic recovery does not mean an immediately favorable M&A environment.”

Tr.4702:19-21. Professor Fischel noted that Ms. Keller ignored other important

measurements of economic activity such as unemployment claims, new manufacturing

orders, and the sale of light duty vehicles. Tr.4704:15-4705:3.

Finally, Professor Fischel explained why Ms. Keller had not established that a 363

purchaser would have retained the entire dealership network, which Chrysler had on 161 multiple occasions stated was over-dealered. Tr.4706:14-19. Professor Fischel explained

that even if the examples that Ms. Keller relied on were relevant, “Ms. Keller appears to

recognize that franchise agreements are often terminated in such situations . . . [i]n

particular, she notes that in the cases of Saturn, Hummer, and Saab, the buyers sought to

or did terminate many or all of the dealership franchises.” Tr.4707:21-4708:1.

Professor Fischel testified that Judge Fitzgerald’s assertions regarding a potential

363 purchaser were also speculative and unsupported. Professor Fischel testified that

Judge Fitzgerald overlooked the economic facts known at the time, including the fact that

several of the potential purchasers she identified were known to have no interest or were

not in a financial position to make an offer. Tr.4708:10-4710:1. Professor Fischel noted

that Judge Fitzgerald’s assertion that DIP financing would have been available to

Chrysler absent government assistance was also unsupported and inconsistent with

known economic evidence. Specifically, Professor Fischel noted that despite stating that

first lien lenders would have provided some DIP financing in the “but for world,” it was

known that no such financing was offered by the first lien lenders or anyone, which is

why Chrysler had to approach the government as a lender of last resort. Tr.4710:2-

4712:17. Professor Fischel noted the fact that there was some DIP financing available for

other bankruptcies “provides no reliable evidence about what they would have done for

Chrysler.” Tr.4714:6-11.

Professor Fischel testified that Judge Fitzgerald also failed to establish how the

plaintiffs’ franchise agreements would have had value in a liquidation. He explained that

Judge Fitzgerald did not have any support for her opinion that a hypothetical 363

purchaser would not have rejected the plaintiffs’ franchise agreements just as Chrysler 162 did. Tr.4714:15-25. Professor Fischel testified that he also found Mr. Berliner’s opinions

about a hypothetical Chrysler liquidation under Chapter 11 speculative and unsupported

by the economic evidence. Tr.4718:5-10.

On cross examination, as noted above, Professor Fischel agreed that Treasury’s

investment in Chrysler was not made purely for the purposes of seeing a return on any

prior investment. Tr.4765:1-25. Professor Fischel agreed that part of the government’s

motivation in aiding Chrysler was to save the American auto industry and economy.

Tr.4736:5-8, Tr.4738:10-13, Tr.4766:11-16. Professor Fischel also acknowledged that he

agreed with Judge Gerber’s assessment that no rational lender would have provided DIP

financing at a lower priority of repayment than preexisting creditors who were already

unlikely to be paid in full. Tr.4738:24-4739:23.

IV. FINDINGS OF FACT AND CONCLUSIONS OF LAW

A. Legal Framework

In A&D Auto Sales, the Federal Circuit held that there may be circumstances

where the government is liable for a Fifth Amendment taking based on actions taken by a

third party at the direction of the government or on the government’s behalf. 748 F.3d at

1154. The Circuit in A&D Auto Sales distinguished between government actions that

have unintended or collateral effects on third parties and do not give rise to a taking,

citing Omnia Comm. Co. v. United States, 261 U.S. 502, 510-11 (1923), and government

actions involving third parties that may give rise to a taking. A&D Auto Sales, 748 F.3d at

1153-54. The Circuit explained that there are two paths through which government action

involving a third party may result in takings liability. First, the Circuit stated, “the

government may be liable [for a taking] if a third party is acting as the government’s 163 agent.” Id.at 1154. Here, the plaintiffs concede that Chrysler was not acting as the

government’s agent when it filed for bankruptcy in April 2009 and thus this avenue for

liability outlined by the Circuit has been foreclosed. See supra n.4. Second, the Circuit

explained that plaintiffs may be able to establish a taking if “the government’s influence

over the third party [(here, Chrysler)] was coercive rather than merely persuasive.” A&D

Auto Sales, 748 F.3d at 1154 (citations omitted). The plaintiffs maintained throughout the

course of this trial that the government’s actions rose to the level of coercion.

The Circuit acknowledged in A&D Auto Sales that the “question of coercion is . . .

complex.” Id. The Circuit went on to discuss a case where the government’s actions were

deemed coercive enough to give rise to a taking, as well as cases where the government

action at issue was not sufficiently coercive. Id. at 1154-56 (citing Turney v. United

States, 125 Ct. Cl. 202, 207-08, 214 (1953); Langenegger v. United States, 756 F.2d

1565, 1572 (Fed. Cir. 1985); B&G Enters. v. United States, 220 F.3d. 1318, 1318-25

(Fed. Cir. 2000)). All the above-cited cases dealt with the federal government

endeavoring to assert control over a foreign state or state government, situations that are

very different from this case. See Turney, 125 Ct. Cl. at 208-08, 214 (finding that the

government exercised unusual influence over the Philippines when it induced the

Philippines to forbid the exportation of certain military equipment that the United States

had sold in a surplus action to private parties after World War II); Langenegger, 756 F.2d

at 1572 (finding that the United States’ influence over an expropriation by the El

Salvadoran government was not coercion but “friendly persuasion” because, in part,

diplomatic persuasion among allies is a common occurrence and cannot be deemed

sufficiently irresistible to be coercive for takings purposes); B&G Enters., 220 F.3d at 164 1318-25 (finding that California was not coerced into passing a law banning cigarette

vending machines in order to receive a federal grant and that the federal government was

not liable for a taking to those who owned cigarette vending machines). These cases do,

however, demonstrate that to prove coercion by government action there must be

evidence that the coerced did not act voluntarily.

To assist the court in deciding whether Chrysler did not act voluntarily and was

coerced into filing for bankruptcy and rejecting plaintiffs’ franchise agreements, the

Circuit identified several issues it deemed relevant. As noted at the outset of this decision,

the Circuit stated that the trial court should examine “whether the government insisted on

the [franchise] terminations, whether the terminations would have occurred in any event

absent government action, whether the government financing was essential to the

companies, whether the government had any role in creating the economic circumstances

alleged to give rise to coercion, and whether the government targeted the dealers for

termination.” A&D Auto Sales, 748 F.3d at 1155. The Circuit’s list is consistent with the

plain meaning of coercion. See Coercion, Black’s Law Dictionary (11th ed. 2019)

(“Compulsion of a free agent by physical, moral, or economic force or threat of physical

force [or] . . . [c]onduct that constitutes the improper use of economic power to compel

another to submit to the wishes of one who wields it.”); Coerce, Merriam Webster Online

Dictionary (“[T]o compel to an act or choice[,] to achieve by force or threat[.]”).

Importantly, the plaintiffs did not focus their coercion evidence on Chrysler’s need

for government financing. Instead, the plaintiffs focused their evidence on the

government’s insistence on certain terms. Plaintiffs presented expert opinion testimony to

the effect that the government’s involvement limited the options that would have been 165 available to Chrysler in a bankruptcy without government assistance. Specifically,

plaintiffs presented expert opinion testimony which claimed that Chrysler would have

remained operational during a bankruptcy without government assistance and that none

of plaintiffs’ franchise agreements would have been rejected.

To meet their burden of proving that the government by its actions forced the

involuntary reduction of Chrysler franchises by rejection of the franchise agreements in

the Chrysler bankruptcy, the court finds that the plaintiffs needed to establish that the

government either expressly directed Chrysler to accept the government’s negotiated

prepackaged bankruptcy plan or took away other options available to Chrysler at the time

in question. In this connection, it is important to note that Chrysler came to the federal

government voluntarily for financial assistance – outside of any formal federal

government grant or lending program with specific requirements – and voluntarily agreed

to submit a Viability Plan, in which Chrysler proposed a significant reduction in the

number of its franchises. It is plaintiffs, not Chrysler, that claim they would have been

better off had the government not gotten involved by providing assistance to Chrysler.

The court finds that the government’s evidence overwhelmingly established that

Chrysler’s decision to accept the government’s prepackaged bankruptcy plan was not

forced on Chrysler by the government. The evidence established that Chrysler’s decision

to accept the government’s terms for financial assistance through bankruptcy was

voluntary and not coerced. The evidence established that Chrysler’s decision to accept

the government’s prepackaged bankruptcy plan was based on Chrysler’s best business

judgment. Indeed, the evidence established that, without the government’s financial

166 assistance, Chrysler would have been liquidated under Chapter 7, which would have

resulted in a worse outcome for not only the Chrysler brand but for all plaintiffs.

B. The Government’s Prepackaged Bankruptcy Plan Was Negotiated for a Public Purpose, but the Government Did Not Force Chrysler to Accept Its Prepackaged Bankruptcy Plan, Was Not Responsible for Causing Chrysler’s Financial Difficulties, and Did Not Interfere with Chrysler Pursuing Any Other Options

To begin, the court finds that the government’s prepackaged bankruptcy plan

included terms and conditions that would not have been required by traditional lenders

and were included for various public purposes, including saving manufacturing jobs in

Michigan and supporting the UAW’s pension plan. The court finds that in negotiating

certain terms in its prepackaged bankruptcy plan, the government was acting, at least in

part, in its governmental capacity. To establish coercion, however, plaintiffs had to prove

that the government by its actions forced Chrysler into bankruptcy to achieve the

government’s goals. This the plaintiffs failed to do.

i. Fact witnesses established that Chrysler was not forced to accept the government’s terms but did so based on its “best business judgment,” and that Chrysler’s financial problems pre-dated the Great Recession and were not caused by the government.

The testimony of Chrysler’s executives Mr. Nardelli, Mr. Landry, Mr. LaSorda,

Mr. Grady, and the Auto Team leaders, Mr. Rattner and Mr. Bloom, established that the

government never threatened Chrysler’s management in order to secure acceptance of the

government’s prepackaged bankruptcy plan. While it was not disputed that Chrysler

would have preferred for the government to have given Chrysler billions of dollars

outside of bankruptcy, there was no evidence to show that Chrysler was directly forced

into accepting the government’s assistance when bankruptcy became Chrysler’s only

167 option. Each witness with personal knowledge testified that the government never forced

Chrysler to take any action. See, e.g., Tr.3383:14-17, Tr.3384:3-17. In this regard, it is

important to note that the evidence established that Chrysler’s bankruptcy was triggered

when certain first lien holders refused to sign onto the government’s negotiated deal

outside of bankruptcy. Tr.1653:14-1654:11. Mr. Rattner testified that the government

would have accepted Chrysler’s negotiated plan outside of bankruptcy had an agreement

been reached. Tr.1653:24-25 (“Nobody wanted to be in bankruptcy if we could avoid

it.”), Tr.1654:9-11 (“[T]here was some chance right up until the end of April that

bankruptcy could have been avoided.”); see also Tr.1642:4-11 (Mr. Rattner’s testimony

that the Auto Team considered a “variety of options . . . some of which didn’t include

bankruptcy”), Tr.2715:11-15 (Mr. Bloom’s testimony that “we worked hard to find a path

to viability without bankruptcy”).

The evidence of the government’s fact and expert witnesses also established that

the government did not act to keep Chrysler from making any other deal outside of the

government’s prepackaged plan in order to achieve viability. The evidence established

that Chrysler was always free to reject the government’s prepackaged bankruptcy plan

and go it alone in bankruptcy. Indeed, the government offered Chrysler $750 million to

add to Chrysler’s remaining cash in order to wind-down Chrysler in a bankruptcy outside

of the government’s prepackaged bankruptcy plan. DX1263 (“[E]ven if the Company

were to liquidate . . . [Treasury] would provide additional funds to the Company so that it

had $750 million to facilitate an orderly liquidation.”); Tr.3373:6-11, Tr.3377:6-23.

The evidence further established that Chrysler accepted the government’s

prepackaged bankruptcy plan because Chrysler decided the plan was Chrysler’s best 168 business option. Mr. Manzo’s testimony established, based on Chrysler’s financial

statements and contemporaneous economic data, that Chrysler would have been forced to

liquidate without government assistance because it could not get any more money from

any other source in late 2008. Specifically, Mr. Manzo explained that when Chrysler

approached the government in 2008, it was experiencing a rapid cash burn rate of $2

billion a month, which meant that the company had only three to four months left before

Chrysler would have to close down. Tr.3931:18-3932:9. Mr. Manzo’s testimony also

established that the first lien lenders (the lien holders represented by JP Morgan) were not

willing to provide any more money to Chrysler either in or outside of bankruptcy.

Tr.3946:2-3947:18. (“[The first lien lenders] rejected the invitation to lend more

money.”). Mr. Manzo further explained that due to the Great Recession and the financial

problems potential purchasers were facing, the proceeds from Chrysler’s sale of its assets

in a liquidation would be depressed. Tr.3943:16-3944:23. Mr. Manzo estimated that in a

liquidation the $7 billion lien holders would likely recover only between $654 million to

$2.6 billion. DX1029.

The government’s fact witnesses also established and the court finds that Chrysler

had a history of financial problems that pre-dated the 2008-09 financial crisis and that

these financial problems were not created by the government. The government’s evidence

established that Chrysler began exploring the possibility of an alliance with another

automaker in 2007, well before the recession, after the merger with Daimler had proven

unsuccessful. Mr. LaSorda, Chrysler’s CEO from 2005 until 2007, testified at length

about Chrysler needing to find an alliance with another car company to remain

competitive. Tr.4342:20-23, Tr.4357:10-4358:22, Tr.4361:11-12 (“We needed the cash to 169 survive and stay out of the ultimate case of bankruptcy.”). Mr. LaSorda’s undisputed

testimony confirmed that Chrysler would not be viable without an alliance or partnership

with a small car manufacturer. Id. Mr. LaSorda explained that during 2007 he attempted

to form an alliance with Nissan Renault, Honda, Kia, Hyundai, Toyota, Volkswagen,

Tata Motors, and various Chinese manufacturers, but none of these companies expressed

any interest in forming an alliance with Chrysler, sharing vehicle platforms and

technology, or in injecting any capital into Chrysler. Tr.4359:6-9, Tr.4360:2-4361:25,

Tr.4365:11-22, Tr.4366:1-4368:3. Mr. LaSorda specifically noted that the only company

that expressed any interest in forming an alliance with Chrysler was Fiat, but that Fiat

was not interested in injecting any cash into the alliance to help sustain Chrysler.

Tr.4375:2-4377:17, Tr.4379:10-20 (“It was absolutely clear that [Fiat] would put no

capital up, zero.”). Mr. LaSorda’s testimony, together with the testimony of Professor

Fischel, discussed infra, convincingly refuted Ms. Keller’s opinion, offered on behalf of

the plaintiffs, that many companies were and would have been interested in purchasing or

forming a partnership with Chrysler in 2009, but were likely dissuaded from approaching

Chrysler because of the government’s involvement. The court finds that Ms. Keller’s

opinion was unsupported and wholly speculative on this point.

Finally, Mr. Nardelli, Chrysler’s CEO from 2007 until April 30, 2009, established

through his testimony that the government did not force its prepackaged plan on Chrysler

but that Chrysler’s decision to accept the prepackaged bankruptcy terms negotiated by the

government was voluntary on the part of Chrysler’s board and dictated by Chrysler’s

“best business judgment.” He explained that he believed that the government’s

170 prepackaged bankruptcy plan was the only way to ensure the continuation of the Chrysler

brand. Tr.3382:21-3383:17, Tr.3384:9-3385:16.

ii. The government’s expert witnesses confirmed that acceptance of the government’s plan was consistent with Chrysler’s “best business judgment” and thus was a voluntary decision and not coerced.

The government’s expert witnesses confirmed for the court that accepting the

government’s prepackaged bankruptcy plan was in Chrysler’s best business interest and

thus was a voluntary decision and not coerced. The government’s experts also confirmed

that the government never interfered with Chrysler pursuing, on its own, any other option

in 2009. The court finds that the testimony of Mr. MacKenzie, former Bankruptcy Judge

Gerber, and Professor Fischel established that Chrysler would have been forced into

immediate liquidation without government assistance and that, under that scenario, the

plaintiffs would have suffered a worse fate than they experienced under the government’s

negotiated bankruptcy plan. As explained below, the evidence established that if Chrysler

had immediately closed all its factories and parts depots, plaintiffs would not have had

any ability to, among other things, do warranty and other service work requiring Chrysler

parts while they closed their franchises.

Mr. MacKenzie, a certified turnaround professional with extensive auto industry

experience, persuasively testified that Chrysler faced immediate liquidation in a

bankruptcy without government assistance and that all of Chrysler’s franchisees, in that

circumstance, would have faced immediate rejection of their franchise agreements.

Tr.4027:18-24. Mr. MacKenzie explained that in April 2009, at the time of the alleged

taking, Chrysler had only $407 million left in useable cash and was burning through tens

171 of millions a day. Tr.4046:12-18. He persuasively explained why he rejected Mr.

Berliner’s contention that Chrysler had adequate resources for an orderly wind-down

based on Chrysler’s access to an additional $1 billion. Specifically, Mr. MacKenzie

persuasively explained that Chrysler would not have been able to easily access the

amounts of money it had outside the United States and that the $400 million was simply

not enough to allow for an orderly wind-down in Chapter 11. Tr.4078:25-4079:18,

Tr.4075:7-17.

Mr. MacKenzie also convincingly opined that there was no entity willing to offer

debtor-in-possession or DIP financing to Chrysler in 2009. Tr.4079:19-4081:10. For this

reason, Chrysler would have faced immediate liquidation under Chapter 7. He explained

that in that circumstance all of Chrysler’s factories would have had to have been closed

and that Chrysler parts also would not have been available. Tr.4075:7-4076:3. He also

claimed that suggestions that Chrysler would have been an attractive purchase to other

auto manufacturers or private equity firms was without support because each of

Chrysler’s major brands was worth a negative amount. Tr.4064:11-4065:2.

He further testified that, contrary to the testimony of plaintiffs’ witnesses, Chrysler

franchisees would have put a significant potential drain on Chrysler’s resources and thus

would have had their franchise agreements rejected in bankruptcy. He testified that

Chrysler owed $3.75 billion in warranty obligations to its franchisees. Tr.4060:22-23.

This was money Chrysler did not have. Mr. MacKenzie explained that in a Chapter 7

liquidation, because Chrysler would have stopped making cars and trucks, the franchisees

would no longer be needed to buy cars and trucks from Chrysler. Tr.4075:7-4076:16.

Rather, the franchisees would have become Chrysler creditors. Chrysler would have 172 continued to incur warranty debts from its franchisees as well as other expenses.

Tr.4076:17-23 (“[I]f any warranty work was completed by the dealers, this would have

generated new post-petition liabilities for Chrysler.”). For these reasons, Mr. MacKenzie

persuasively established that a bankruptcy trustee would have rejected the franchise

agreements as soon as possible after the bankruptcy filing to avoid any additional

franchisee drain on the bankruptcy estate. Tr.4076:24-4077:2 (“Considering all of this,

the CRO would have had a fiduciary duty to reject each of the over 3100 dealer franchise

agreements, including the Plaintiffs’, as soon after the bankruptcy filing as possible.”). In

this connection, Mr. MacKenzie also persuasively explained that he saw no basis for

plaintiffs’ assumption that the government would have elected to continue to cover

Chrysler warranties, once Chrysler began to liquidate. Tr.4084:23-4085:1. The court

agrees with Mr. MacKenzie and finds that Mr. Berliner and Judge Fitzgerald’s

assumption regarding the government paying for warranties was not supported.

Mr. MacKenzie’s opinions were confirmed by former Bankruptcy Judge Gerber.

The court is mindful that Judge Gerber was the bankruptcy judge in the GM bankruptcy

and thus came to this case with some inside knowledge of certain issues and a stake in

supporting the approach taken by the bankruptcy judge in the Chrysler bankruptcy case.

Nonetheless, the court found Judge Gerber to be a highly credible witness and was

persuaded by his opinions, which were confirmed by facts.

First, Judge Gerber opined that Chrysler had no source of DIP financing if the

government were not available and thus Chrysler would not have been able to continue as

an ongoing business during a Chrysler bankruptcy without government funding, as

plaintiffs’ experts assumed. Tr.4211:12-4212:20. He persuasively opined that the many 173 billions of dollars needed to keep Chrysler operational during a wind-down pending a

potential Section 363 sale was not available from private parties during the Great

Recession. Tr.4212:21-4213:4 (“Thus, we see the refusal to provide the necessary

funding by the secured lenders and Chrysler’s inability to get the funding from anyone

else.”). In this regard, he persuasively testified that the other bankruptcies Judge

Fitzgerald relied on to support her opinion that DIP financing would have been available

from the private sector were not comparable and thus not relevant to understanding the

challenges Chrysler would have faced in bankruptcy without government assistance.

Tr.4233:8-20 (“I can’t see how Suzuki and Hostess . . . are in any meaningful way

analogous to Chrysler.”). Judge Gerber opined that for these reasons Chrysler would have

been quickly forced into a Chapter 7 bankruptcy which would have been a disaster for

Chrysler and for all the plaintiffs.44 Tr.4213:24-25 (noting the only other alternative is

immediate liquidation).

Professor Fischel, with his extensive expertise, provided persuasive testimony

which confirmed to the court that Ms. Keller’s opinions were based on pure speculation.

Professor Fischel, who is an expert on a broad range of economic issues, explained that

Chrysler’s debt was selling for twelve cents on the dollar in April 2009, a clear indication

of the market’s lack of confidence. Tr.4656:18-4657:24. He explained that Chrysler

would have needed $12 to $15 billion for a short one-year unplanned bankruptcy and the

44 The court understands that Mr. Rattner testified that the government decided it could not let Chrysler fail because it would adversely affect the auto suppliers. How this would have played out had Chrysler not accepted the government’s prepackaged bankruptcy was not, however, discussed at trial by either party. There was no evidence introduced to suggest that in finding some way to save suppliers, the plaintiffs would have fared any better than they did in the actual world. 174 lack of private DIP financing was evident from the fact that the total amount of private

DIP financing provided to all companies together was $12.5 billion in 2008 and $21.6

billion in 2009. Tr.4669:13-20; DX956; Tr.4670:4-9; DX1056.

In his testimony regarding each of the 12 potential buyers identified by Ms. Keller,

Professor Fischel systematically and convincingly explained why none of the potential

buyers identified by Ms. Keller either had the interest or the wherewithal to buy all of

Chrysler’s assets in a 363 sale. Tr.4696:2-4701:15. His testimony regarding potential

Chrysler purchasers was well-supported and, based on his testimony and Mr. LaSorda’s,

the court finds that there was no purchaser for Chrysler among the 12 entities Ms. Keller

identified. This evidence again confirmed for the court why Chrysler’s decision to accept

the government’s prepackaged bankruptcy plan, which allowed the Chrysler brand to

survive, was voluntary.

iii. Plaintiffs’ experts’ opinions regarding Chrysler and franchisees in a bankruptcy without government action were unsupported.

As noted at the outset of this opinion, plaintiffs concede that Chrysler would have

had to enter bankruptcy if the government had not provided financial assistance in 2009.

They contend, however, that Chrysler did not need government assistance and that

Chrysler’s fate in a bankruptcy without the government’s aid would have allowed

plaintiffs to have experienced a better outcome. Plaintiffs supported their position with

expert testimony, which, as discussed above, was not supported by facts. None of the

plaintiffs’ experts presented facts to show that Chrysler had a viable option of going it

alone in bankruptcy and surviving in a reorganization or with a purchaser as an ongoing

business with all brands continuing to be manufactured. There was no evidence to

175 support Mr. Berliner’s or Judge Fitzgerald’s opinions that Chrysler would have been able

to obtain the more than the $10 billion in DIP financing Chrysler would have needed for

a twelve- to twenty-four month period while waiting for a new purchaser to take over the

manufacture of Chrysler’s lines. See Tr.138:10-14, Tr.694:3-7. Mr. Berliner and Judge

Fitzgerald failed to provide any economic data or facts from late 2008 and early 2009 to

support their opinions that, despite economic conditions at that time, Chrysler would have

been able to obtain billions in private DIP financing to continue manufacturing cars and

trucks without disruption and thus Chrysler would have had a reason to keep all of its

franchise agreements.45

As discussed above, Professor Fischel’s testimony established that plaintiffs’

claims of a successful Chapter 11 bankruptcy in which Chrysler would have been able to

continue operations while interested purchasers bid for Chrysler was not supported.

Indeed, Ms. Keller could not identify which of any of the 12 potential buyers she

discussed had an actual interest in buying Chrysler in a 2009 bankruptcy. Nor could she

estimate how much any Section 363 buyer would have been willing to pay for Chrysler in

a Chrysler bankruptcy without government assistance. Tr.1123:11-23, Tr.1124:2-14.

Ms. Keller also opined, without reference to any corroborating evidence, that the

Auto Team’s involvement in preparing Chrysler’s Viability Plan discouraged interested

buyers from coming forward to buy Chrysler in 2009. Tr.1086:22-1087:9, Tr.1155:21-24,

Tr.1159:22-25, Tr.1160:15-16. She testified that in bankruptcy she believed Chrysler

45 Importantly, Mr. Berliner testified that it was possible that some franchise agreements would have eventually been rejected in a Chrysler bankruptcy without government assistance. Tr.203:19-204:25. Ms. Keller also was confronted on cross examination with an article in which she stated that Chrysler had too many dealers. Tr.1148:1-1149:11. 176 would have been attractive to many buyers. Tr.1121:11-17. This is not true. As discussed

above, Mr. LaSorda testified that he had spoken to many of the potential buyers she

identified, and none were interested, save for Fiat. Professor Fischel went through each of

her proposed prospects and credibly explained based on facts why none would have been

interested or able to acquire Chrysler in April 2009. Ms. Keller’s entire testimony was

credibly refuted by Mr. LaSorda and Professor Fischel.

Without any source of DIP financing, and with only $400 million of cash in hand,

the court finds that Chrysler would have been forced to liquidate under Chapter 7 without

government assistance, which would have resulted in Chrysler stopping all car and truck

production and would have resulted in all franchisees losing their franchise agreements in

a Chapter 7 bankruptcy.

C. Plaintiffs Failed to Establish that the Government Coerced Chrysler to Reject Any of the Plaintiffs’ Franchise Agreements in Bankruptcy

The court finds that plaintiffs also failed to establish that the government coerced

Chrysler into using the bankruptcy as a means of ending plaintiffs’ franchise agreements

through the involuntary method of bankruptcy rejections. The evidence established that

Chrysler had been working on reducing its franchise network for years. The fact that

rejecting franchise agreements in bankruptcy would make the reduction of its franchise

network easier was obvious to Chrysler while it was considering options during the

viability planning process in 2009. Tr.3611:23-3612:4 (Mr. Landry’s testimony that a

reduction in the dealership network was necessary “for Chrysler’s survival”); see also

Tr.3463:25-3480:4 (Mr. Landry’s testimony describing history of Chrysler’s dealership

network).

177 The evidence also established – and plaintiffs do not dispute – that the government

did not have any hand in deciding the number of franchise agreements to reject or in

identifying any individual franchise agreements to reject. See, e.g., Tr.2724:15-18 (Mr.

Bloom testified that the government “did not get into the details of management decisions

behind Chrysler’s selection of individual dealers to reject.”). Rather, the decisions

regarding which franchise agreements to reject were made by Chrysler based on a series

of objective criteria developed by Chrysler. See Tr.3463:25-3480:4 (Mr. Landry’s

testimony describing history of Chrysler’s dealership network), Tr.3598:8-3602:11 (Mr.

Grady’s testimony describing the criteria). At no time did any Chrysler witness testify

that franchise reduction did not make good business sense and was only advanced to meet

a government goal of “shared sacrifice,” as plaintiffs contended. The Chrysler bankruptcy

afforded Chrysler an opportunity to reduce its franchise network more expeditiously and

Chrysler took advantage of that opportunity. See Tr.3564:11-13 (Mr. Landry’s testimony

that “after we were in bankruptcy . . . we were able to be more aggressive with Project

Genesis, which created Project Tiger.”).

The government accepted Chrysler’s judgment that its franchise network needed

to be reduced and Chrysler decided how many franchise agreements to keep and which

ones to reject. See Tr.2686:22-25 (Mr. Bloom testified that “[a]lthough [the government]

engaged in dialogue and discussion with company management about the companies’

approaches, we were not to substitute our judgment about specific decisions for theirs.”),

Tr.1664:20-1665:12 (Mr. Rattner testified that the government “never got into the

question of which dealers, how, or anything of that sort” but rather was looking at it from

a macro level of how many.). The plaintiffs thus failed to prove that the decision to 178 reduce the Chrysler franchise network by rejecting franchise agreements in bankruptcy,

rather than terminating franchisees under various state laws, was imposed on Chrysler by

the government through coercion.

D. Plaintiffs Failed to Establish by a Preponderance of the Evidence that Their Franchise Agreements Would Have Had Value in a “But For World” Without Government Assistance

The court also finds for the reasons set forth below that plaintiffs failed to

establish by a preponderance of the evidence that their franchise agreements would have

had value in a “but for world” without government assistance.

As discussed above, the Alley’s and Colonial plaintiffs used different experts to

establish that their franchise agreements would have had value in a “but for world”

without government assistance. The Alley’s plaintiffs offered in addition to Mr. Berliner,

Judge Fitzgerald, and Ms. Keller the opinion testimony of Ms. Murphy, and the Colonial

plaintiffs relied on the testimony of Mr. Stockton. Ms. Murphy and Mr. Stockton’s

opinions were based on different assumptions but neither of these expert opinions

credibly established that plaintiffs’ franchises had value in a “but for world” without

government assistance.

i. The Alley’s plaintiffs failed to establish that their franchise agreements had value in a “but for world.”

Although Ms. Murphy has extensive experience valuing auto dealerships, because

the assumptions she was given by counsel were not supported, the valuations she

prepared for each of the Alley’s plaintiffs were likewise unsupported. Specifically, Ms.

Murphy’s valuation opinions rested on her contention that in a “but for world” in which

Chrysler went into bankruptcy without government assistance, Chrysler would have

179 continued production of either all of its car and truck lines or all of its truck lines with

little or no interruption and that plaintiffs would have continued to sell and service

Chrysler cars without interruption indefinitely. Tr.1404:16-1410:3, Tr.1747:9-14,

Tr.1748:24-1749:3. She also opined based on the assumptions she was given that

Chrysler would have been sold in Chapter 11 and that any Section 363 purchaser would

have assumed all of Chrysler’s franchise agreements, including plaintiffs’ agreements.

See Tr.1408:15-1409:19. Relying on these assumptions, Ms. Murphy projected the sales

volume growth of plaintiffs’ franchises for a period of five years and with that number

she applied a discount rate to find a fair market value for each franchise. Tr.1425:22-

1426:5, Tr.1427:23-1428:8, Tr.1428:11-18, Tr.1431:18-21. Ms. Murphy admitted that her

valuation included not only an estimated discounted cash flow but also included the value

of all tangible assets of the dealership including the equipment, parts, land and other cash

assets that would be part of any normal sale of a dealership with a franchise agreement.

Tr.1542:2-22. She did not separately analyze how these tangible assets contributed to the

plaintiffs’ income stream profits, separate from the franchise agreement allegedly taken.

Because the court has found that Ms. Murphy’s assumptions regarding Chrysler’s

fate in bankruptcy without government assistance were not supported and indeed were

contrary to the facts known at the time in 2009, the court finds that Ms. Murphy’s opinion

of economic value in a “but for world” without government assistance for each of the 7

representative plaintiffs she analyzed must be rejected. As discussed above, the plaintiffs

failed to prove that without government assistance Chrysler could have continued to

manufacture cars or trucks. Rather, the outcome for Chrysler in a world without

180 government assistance was liquidation under Chapter 7. Ms. Murphy did not consider the

value of plaintiffs’ franchise agreements in a Chrysler Chapter 7 bankruptcy.

The court therefore finds that, in a Chapter 7 bankruptcy, the plaintiffs’ franchise

agreements would have had zero fair market value.46

ii. The Colonial plaintiffs failed to establish that their franchise agreements had value in a “but for world.”

The court finds that the Colonial plaintiffs failed to prove that the Guetterman and

Finnin franchises would have had value in a “but for world” without government

assistance. Mr. Stockton’s valuation opinions were not based – as Ms. Murphy’s was –

on Chrysler’s survival as an ongoing business during a bankruptcy without government

assistance. Rather, he valued the Finnin and Guetterman franchises using the assumption

that Chrysler would have stopped manufacturing cars and trucks during a bankruptcy

wind-down. See Tr.2366:5-20. Mr. Stockton nonetheless opined that Chrysler would not

have had any reason to reject Finnin and Guetterman’s franchise agreements during a

Chapter 11 bankruptcy wind-down because Chrysler would have wanted the franchisees

to sell Chrysler’s existing inventory and because he believed the government would have

funded Chrysler’s warranty work, which would have provided plaintiffs with another

46 There were numerous other problems with Ms. Murphy’s opinion. She assumed a growth rate of 5% that was wholly unsupported and a discount rate that was not supported by the economic circumstances of the time at issue. Tr.1469:19-24. It is not necessary to review all the other unsupported assumptions and problems raised by her opinions, because her fundamental assumption regarding Chrysler’s fate in a bankruptcy without government assistance was not supported.

181 income stream, along with used cars and other service, depending upon how many years

it took to wind-down Chrysler.47 Tr. 2446:5-10.

As discussed above, the court finds, based on Mr. MacKenzie’s testimony, that

there is no support for the assumption that the government would have funded warranty

work in a “but for world” without government assistance. There was no evidence

presented to show that the government paid for warranties during any other auto

bankruptcy. While it is true that the government offered to pay for warranties on new

Chrysler cars in March through April 2009, there was never a discussion of the

government offering to continue that program. Mr. Stockton’s assumption regarding

government payment of warranty work was based on pure speculation.

In addition, the court finds based on Mr. MacKenzie and Judge Gerber’s testimony

that in a “but for world” without government assistance, Chrysler would have been forced

into Chapter 7 and that a trustee in bankruptcy would have rejected all franchise

agreements to protect the assets of the bankruptcy estate. In a Chapter 7 liquidation

scenario, not only would Chrysler face continued liability for the warranty work it had

not paid to franchisees, but Chrysler would have also faced liability under its franchise

agreements for the cost of repurchasing inventory and parts. Thus, as Mr. MacKenzie and

Judge Gerber explained, there would have been every reason for the bankruptcy trustee to

immediately reject all franchise agreements.

47 Mr. Stockton also posited a valuation scenario where Chrysler went out of business but others licensed the Chrysler name, and that under that scenario franchisees could have continued on forever as “licensed Chrysler” dealers. That scenario, of course, does not involve a franchise agreement with Chrysler and is thus irrelevant.

182 Finally, Mr. Stockton’s valuation opinions must be rejected on the grounds that the

opinions are based on a lost profits model and not on fair market value. The government

is not liable in a taking of lost profits unique to the owner but only for what the property

is worth in a fair market. See A&D Auto Sales, 748 F.3d at 1157; see also Yancy v. United

States, 915F.2d 1534, 1542 (Fed. Cir. 1990) (citing United States v. General Motors, 323

U.S. 373, 380 (1945)). Here, Mr. Stockton conceded there was no fair market for the

franchise agreements. Tr. 2359:4-9, Tr.2454:20-23, Tr.2590:12-16.

Based on the foregoing, the court finds all the representative plaintiffs failed to

meet their burden of proving that their franchise agreements would have had economic

value in a “but for world” without government assistance by a preponderance of the

evidence. For this reason, as well, the plaintiffs’ taking claims fail.

CONCLUSION

The taking claims of representative plaintiffs Taylor & Sons, Inc., Cedric Theel,

Inc., Whitey’s Inc., RFJS Company, Jim Marsh American Corp., Livonia Chrysler Jeep,

Inc., Barry Dodge, Inc., Guetterman Motors, Inc., and Mike Finnin Motors, Inc. are

hereby DENIED. There being no just reason for delay, the court directs the Clerk of the

Court to enter judgment for the Defendant regarding these claims pursuant to Rule 54(b).

The parties shall have until November 1, 2019 to file a status report proposing a schedule

for next steps to resolve the litigation of the remaining rejected Chrysler and GM

franchisees.

IT IS SO ORDERED. s/Nancy B. Firestone NANCY B. FIRESTONE Senior Judge