Lenders Ask Supreme Court to Hear Their Appeal Over Chrysler Sale
Monday, June 8, 2009
A small but persistent group of lenders has turned to the U.S. Supreme Court in its last attempt to challenge the government-backed sale of Chrysler's assets to a company run by Italian automaker Fiat.
Three Indiana state pension and construction funds late Saturday filed documents requesting that the sale be delayed so that the Supreme Court can hear their appeal. Two lower courts have already rejected the lenders' objections. On Friday, the U.S. Court of Appeals for the 2nd Circuit ruled the sale could go forward after 4 p.m. today or earlier if the Supreme Court declines to take up the case.
The Indiana funds' emergency application was made, under Supreme Court procedures, to Justice Ruth Bader Ginsburg, who oversees the 2nd circuit appeals court. Ginsburg could rule on her own or refer the matter to the high court.
The Indiana funds contend that the sale of most of Chrysler's assets to a new company -- to be jointly owned by Fiat, the United Auto Workers union and the U.S. and Canadian governments -- breaches numerous laws. For one, they argue, the process tramples on the funds' rights as senior lenders to Chrysler because they would recover less than junior lenders. The Indiana funds hold about $42 million of the $6.9 billion in secured loans. Under the agreement hammered out by the Obama administration with most of the first-lien lenders, the group would recover about $2 billion, or 29 cents on the dollar.
The funds also contend that the quick bankruptcy proceedings pursued by Chrysler and the Obama administration -- a federal bankruptcy judge approved the sale 32 days after the automaker filed for one of the largest bankruptcies in U.S. history -- did not comply with bankruptcy law. The Indiana funds are also arguing that the Treasury illegally used money from the federal Troubled Assets Relief Program, meant for financial institutions, to prop up Chrysler.
"Absent a stay, the Court will be deprived of the opportunity to decide critical, nationally significant legal issues relating to management of the economy by the United States Government," the Indiana funds wrote in their Supreme Court application.
Joining the Indiana funds in requesting a stay is a coalition of consumer protection groups and tort claimants who are objecting to the sale of Chrysler's assets "free and clear" of product liability claims.
If the Supreme Court takes the rare step of granting the stay, it could threaten the Obama administration's rescue plan for the auto industry, which has cost taxpayers nearly $40 billion. General Motors is pursuing a type of bankruptcy similar to that of Chrysler, and both companies say a quick sale of their assets is critical. Indeed, Fiat can walk away from the Chrysler deal if a sale is not completed by June 15.
Chrysler and the U.S. government were preparing responses to the high court last night; they have argued in lower courts that the Fiat sale was lawful and the only alternative to liquidation and the loss of tens of thousands of jobs.
In documents filed with the Supreme Court last night, a collection of unsecured creditors supporting the sale wrote that "the balance of harms tilts so overwhelmingly against a stay that the Application should be denied on this ground alone."