Supreme Court Clears the Way for Chrysler Sale

By Tomoeh Murakami Tse and Robert Barnes
Washington Post Staff Writer
Wednesday, June 10, 2009

NEW YORK, June 9 -- The U.S. Supreme Court last night declined to hear an appeal from opponents of the sale of Chrysler's assets to Italian automaker Fiat, clearing the way for the government-backed transaction to take place immediately.

The order capped a hectic week in which creditors, dealers and others raced to block a deal that now appears destined to become a template for a similar bankruptcy involving General Motors.

Another important piece of Chrysler's plan fell in place yesterday when a federal bankruptcy judge granted the automaker's request to sever ties with 789 dealerships.

Together, the rulings allowed the Obama administration to get back on track with its plan to engineer a speedy restructuring of America's struggling automotive industry, and turn Chrysler and GM into leaner global rivals.

"We are gratified that not a single court that reviewed this matter, including the U.S. Supreme, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. government," the Treasury Department said in a statement. "We are delighted that the Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker."

The deal will give Chrysler, known for its minivans and pickups, access to fuel-efficient technology from Fiat, which is not putting up any cash for its minority stake in the new company.

The sale, if completed today as expected, means the new Chrysler will have sped through bankruptcy court in just 41 days, only to face its true test: Selling cars in the toughest market in decades.

Chrysler said in a statement last night that the sale would enable the new company to "continue work already underway on new environmentally friendly, fuel-efficient, high-quality vehicles that will become Chrysler's hallmark going forward."

Chrysler plans to sell most of the assets it deems valuable to a new entity run by Fiat and owned in part by the United Auto Workers and the U.S. and Canadian governments. Chrysler's creditors would split the $2 billion government-provided proceeds from the sale.

A group of Indiana pension and construction funds had opposed that transaction, arguing that the Chrysler sale favored lenders much more junior to them. They were joined by consumer groups who complained that the sale would exempt the new Chrysler from past product liability claims.

But the government and Chrysler argued, along with Fiat, that the only alternative to the sale was a liquidation of the automaker, which would result in tens of thousands of job losses.

After four days of competing petitions and responses, the Supreme Court in effect decided to stay out of the case. The unsigned opinion said the "denial of a stay is not a decision on the merits of the underlying legal issues."

The court said the challengers needed to demonstrate that at least four members of the court were willing to accept the case because it was "sufficiently meritorious" that there was a "fair prospect" a majority of the court would disagree with the lower court's decision. They also needed to show the harm that would result if a stay were not granted.

"The applicants have not carried that burden," the two-page opinion concluded.

The court made it clear that its decision affected only the Chrysler dispute: "Our assessment of the stay factors here is based on the record and proceedings in this case alone."

Indiana treasurer Richard Mourdock said in a statement last night that he was disappointed with the court's decision.

"The future ramifications . . . on the capital markets remain to be seen," he said. "From the onset of the case, I have fought for Indiana's retired teachers, retired state policemen and Hoosier taxpayers."

According to copies of an agreement obtained by The Washington Post, the Indiana funds were among the lenders that had accepted an offer from the Treasury on the eve of Chrysler's bankruptcy filing that would have allowed them to recover slightly more than what they will now be getting. That offer however was rescinded by the government because it was conditioned on all lenders agreeing to it, and another group of creditors opposed the deal. The Indiana funds had no immediate comment on the document yesterday.

The deal comes as U.S. Bankruptcy Judge Arthur J. Gonzalez on Tuesday granted Chrysler's request to shrink its sales network by a quarter. Rejected dealers must now take down promotional materials and billboards with the Chrysler logo. They are no longer allowed to offer repairs or services of Chrysler products as an authorized dealer.

The dealers are moving their fight to Congress. On Tuesday, the Senate Commerce Committee sent letters to GM chief executive Fritz Henderson and Chrysler President Jim Press, demanding answers for the "unwarranted" treatment of dealers. The House Oversight and Investigations Subcommittee is scheduled to hold a hearing into the matter Friday. Congressional leaders introduced legislation this week to try to stop hundreds of General Motors and Chrysler dealerships from closing.

In the letters, lawmakers singled out GM, which is seeking to close about 1,100 of 6,000 dealerships when their contracts expire late next year. The lawmakers said they were "concerned that GM is using its bankruptcy protections as a sword against its dealers." And they asked Chrysler to buy back inventories of shuttered dealers and create an appeals process like GM.

During the bankruptcy hearing Tuesday, Chrysler said it would give rejected dealers extra time -- until Monday -- to sell their inventory to other dealers under a program implemented by the automaker, which Gonzalez cited in his decision.

The lawmakers also asked that the automakers give profitable dealers first right of refusal for new dealerships when they return to their market and continue service in rural areas. It asked that GM and Chrysler provide employment assistance to technicians and mechanics who lose their jobs.

"Hopefully Congress will remedy it," Stephen Lerner, who represents hundreds of rejected dealers, said in an interview after the hearing. "Whether they can do anything in time to remedy the Chrysler dealers is unclear."

Barnes reported from Washington. Staff writers Thomas Heath and Kendra Marr in Washington contributed to this report.

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