Justice Ginsburg Stays Chrysler Sale -- For Now

Supreme Court Justice Ruth Bader Ginsburg has just temporarily stayed the sale of Chrysler LLC to a group led by Fiat. But her action appears to be only a brief hold meant to stop the clock as a 4 p.m. deadline for high court action came and went. Further word could come from the Court at any time. 

Over the weekend,  three separate parties filed significant challenges to the sale, in the wake of a decision on Friday by a panel of the U.S. Court of Appeals for the 2nd Circuit upholding the sale of the automaker's assets to the group including Fiat, a union trust and the United States and Canadian governments. The panel gave challengers until today at 4 p.m. to obtain relief from the Supreme Court.

The stay applications were addressed to Justice Ginsburg, who handles emergency appeals from the 2nd Circuit. Taken together, the challenges had hurdles including standing to overcome, and the Supreme Court may have decided it did not want to stand in the way of an arrangement devised by the political branches that its supporters say will save thousands of jobs. But the applications did point out that if the high court did not intervene now, a deal that raises major questions relating to bankruptcy law and the power of the executive branch would go unreviewed, and the questions unanswered.

"The public is watching and needs to see that, particularly, when the system is under stress, the law will be honored and an independent judiciary will properly scrutinize the actions of the massively powerful executive branch," wrote Indiana Solicitor General Thomas Fisher, who sought a stay on behalf of three state funds that will lose out if the sale goes through. He said the deal could constitute a "sub rosa Chapter 11 reorganization plan" that violates the priority status of first-lien creditors in bankruptcy, and a misuse of so-called TARP funds. Also on the Indiana brief is a team of lawyers from White & Case led by partner Thomas Lauria. The case is titled Indiana State Police Pension Trust v. Chrysler LLC.

Also challenging the deal was a coalition of consumer groups, as well as individuals injured in Chrysler accidents, who claimed that the sale agreement would release the new Chrysler company that emerges from bankruptcy from "pending and future product liability claims for injury caused by Chrysler vehicles." If that release is permitted, they asserted, similar quick sales under Section 363(f) of the Bankruptcy Code will become an escape hatch from current and future claims for any company. The application titled In Re Chrysler LLC was filed by Adina Rosenbaum of Public Citizen Litigation Group. Also on the brief are lawyers from Lieff Cabraser Heimann and Bernstein in San Francisco and Schnader Harrison Segal & Lewis in Philadelphia.

A third application was filed Sunday on behalf of Patricia Pascale, widow of a Chrysler brake worker who died after contracting mesothelioma from exposure to asbestos on the job. Her suit against Chrysler is pending in Superior Court in Los Angeles, and she claimed it will be wiped out with the company sale. "Courts are not free to ignore the law in the name of the needs of the big or powerful," wrote Sander Esserman of Stutzman, Bromberg, Esserman & Plifka in Dallas in the case titled Pascale v. Chrysler LLC. "Rights of individuals may not be simply disregarded because some believe a quick sale of a car company will strengthen the U.S. economy."

Chrysler LLC itself  responded to the stay applications in a brief by Thomas Cullen of Jones Day in D.C. In light of the company's  "fragile state and daily erosion of value," Cullen argued that a stay would mean that "the sale will not happen," and the challengers would effectively prevail -- even though lower courts have upheld the sale agreement. That result would also force the company into liquidation and "cause massive harm to Chrysler and the public interest," the brief asserts.

Solicitor General Elena Kagan also defended the sale as the only feasible alternative to liquidation. If that happens, more than 38,000 jobs would be lost, she argued.

The Official Committee of Unsecured Creditors also filed a response to the Indiana challenge to the Chrysler deal. The committee, represented by Jeffrey Trachtman of Kramer Levin Naftalis & Frankel in New York argues that the sale of Chrysler, while "not perfect," stands as "the only alternative to a far worse economic and human disaster." The brief added that "the balance of harms tilts so overwhelmingly against a stay" that the Supreme Court should deny the stay for that reason alone.

Comments

[Brian]

"They took the risk to invest, the investment is now in the tank, it's time to move on."

That's the point. When people "invest" in debt they are eschewing a lot of risk for safety and more consistent but less flashy returns.

Equity holders know going in that if and when the organization tanks, they will probably lose their entire investmrent. Debt holders have more security in knowing that they'll be among the first in line to claim the organization's assets.

If something like this goes through it will deal a blow to organizations' efforts to capitalize in the future. Investors are hesitant to buy stocks due to uncertainty. And now that our government is in the business of arbitrarily throwing out the advantages associated with owning debt, investment money won't go there either.

And these aren't wildcat investors looking to get rich, by the way. These are pension funds - government workers' retirement money, hence the desire for safety and expectations that the law will be followed.

[NS]

If they let the BK go through this will be the biggest scam in our history! Let them fail!

[reliapundit - the astute blogger]

the only things the us taxpayer got as a result of "bailing out" chrysler was a uaw controlled chrysler.

the bail out accomplished nothing else except giving ownership to the union.

it would have been better for most everyone if the obama adminstration had let the freemarket takes its course - chap 7 or 11.

i hope and trust the scotus will maintain the rule of law and decide for the pension funds and against obama.

[Calvin W]

The needs of many outweigh the needs of the few. Look, let's call this scheme by Indiana for what it is, this is nothing more than an attempt for investors to get more money from the taxpayers. "We don't like the current compensation for our investors". They took the risk to invest, the investment is now in the tank, it's time to move on. And no it's not the best possible solution, it just happens to be the best one that has been worked out...more time?....There Is No More Time.

[gigi621]

Now the wailing has begun on how much this stay is going to "cost" Chrysler and the economy---which only proves Mother's advice that it always pays to try to get things right the first time.

The White House was completely arrogant here in believing that this stealth reorganization (as opposed to a bona fide sale) would go through because "Obama said so."

It may yet survive legal challenge, but it's important to nip in the bud the pernicious mentality that "too big to fail" means "too big to follow the law."

FDR attempted to pack the Court because he thought private contractual rights should be trashed if the Prez said the economic recovery required it - interesting fireside chat excerpt here, chilling really - http://tinyurl.com/nsxaq5