By Tomoeh Murakami Tse and Robert Barnes
Washington Post Staff Writers
Tuesday, June 9, 2009
The U.S. Supreme Court yesterday held up the sale of Chrysler's assets to Italian automaker Fiat, at least temporarily interrupting the Obama administration's massive and speedy restructuring of the U.S. auto industry.
Justice Ruth Bader Ginsburg's 53-word order did not hint at what she thought of an appeal led by a group of Indiana pension and construction funds, which stand to see their investments in Chrysler reduced with no say in the process. Instead, she instructed simply that the transaction is "stayed pending further notice."
The decision buys the court time to consider objections filed over the weekend, and it comes as the clock is ticking. Fiat can back out of the deal if it is not finalized by Monday, and the government has warned that the only alternative would be to force the nation's third-largest automaker into liquidation, throwing the industry in turmoil and leaving tens of thousands of people without jobs.
The stakes may be higher for the Obama administration: If the court backs some of the claims, it could disrupt plans to rescue General Motors and weaken the government's hand in stabilizing the troubled economy.
"Every day that Chrysler remains in bankruptcy without consummating the sale threatens to postpone the resumption of production even further and to prolong the period of $100-million-per-day losses" financed by taxpayers, Elena Kagan, the U.S. solicitor general, said in a 26-page filing with the high court.
A host of business and conservative groups applauded Ginsburg for standing up to what one called the Obama administration steamroller. And Congress is beginning to stir. Legislation is being drafted to reverse decisions by Chrysler and GM to close thousands of dealerships. The Senate Banking Committee, meanwhile, is preparing to hold a hearing this week on the government's role in the auto rescue.
The significance of the court's action remains to be seen. The language Ginsburg used in her order usually signals a delay of short duration.
There could be several explanations, not the least of which is that the justices may not have had time to fully consider the request. Court filings from those opposing the deal began arriving over the weekend and into Sunday. The government's response in opposition did not arrive at the court until shortly before justices convened yesterday at 10 a.m.
The petitions are directed at Ginsburg because she is the justice responsible for the circuit that includes New York, where the suit was filed. She may decide the stay issue on her own or refer the question to the full court. If it's the latter, that could explain the need for more time. The full court would have to vote on whether to hear the merits of the case.
"We understand this to be an administrative extension designed to allow sufficient time for the Court to make a determination on the merits of the request for a stay," an administration official said. A Chrysler spokesman said the company had no immediate comment.
Richard Mourdock, Indiana state treasurer, said he hoped the court would agree to a hearing. The stay, he said, "moves us one step closer to what I've argued for all along, which is a fair hearing by the highest court."
Fiat representatives did not respond to phone calls yesterday. But in arguing against a stay of the sale in lower courts, Fiat said it was concerned about Chrysler's eroding value.
Over the past month, the Indiana funds had argued -- first before federal bankruptcy judge, then to a three-member panel of the U.S. Appeals Court and finally to the Supreme Court -- that the sale of most of Chrysler's assets to a new entity owned by Fiat, the United Auto Workers, and the U.S. and Canadian governments violated numerous laws.
The Indiana funds contend that the sale trampled on their rights as senior lenders because they would recover less than junior lenders. The funds also claim that the manner of the sale did not comply with bankruptcy law, and that the Treasury illegally used billions from the federal Troubled Assets Relief Program, meant for financial institutions, to prop up Chrysler.
Consumer groups also have joined the appeal, taking issue with the sale because it would leave Chrysler free of product liability claims.
Chrysler and the U.S. government say no laws were broken and that every penny from the sale's proceeds would go to senior lenders; the new Fiat-led entity would pay Chrysler $2 billion in cash -- provided by the federal government -- which would then be distributed to the Indiana funds and other secured lenders.
"It is quite clear that Indiana's case is not in the best interest of the people of Indiana," said Rep. Gary Peters, a Democrat whose district includes Auburn Hills, Mich., where Chrysler is headquartered. "Indiana officials are fighting over $4.8 million at the risk of costing their state over $20 million in tax revenue, tens of millions more in related costs and putting 4,000 of their own people out of work."
Mourdock defended the appeal. "The Indiana retirees did not cause the bankruptcy of the Chrysler corporation. That's who I represent. That's who I'm fighting for. The issue of secured creditors' rights is bigger than Chrysler. It's an essential foundation of our capital markets. And fundamentally, this is about the law."
Staff writer Kendra Marr contributed to this report.