Indiana Pensions File Chrysler Appeal in Supreme Court
[Guest post by DRJ]
The Indiana pension funds have appealed to the Supreme Court the Second Circuit’s denial of their objection to Fiat’s purchase of Chrysler. The sale will go forward unless four of the nine Supreme Court justices vote to hear the appeal by Monday at 4 PM.
More information and briefs are available at lawjobs.com. The pensions object to the treatment of their claims compared to junior creditors and the use of TARP funds:
“The funds hold roughly $42 million of Chrysler’s $6.9 billion in secured debt. They complain that the plan would strip them of the priority to which they are entitled under the bankruptcy law over junior creditors.
Under the plan first approved by the bankruptcy court and now by the circuit, the funds stand to receive 29 cents on the dollar for investments they purchased in July 2008 for 43 cents.
The funds also argued that the use of $2 billion in loans from the Troubled Asset Relief Program was illegal because the statute creating the program was intended to aid financial institutions, not automakers.”
Meanwhile, bankruptcy hearings on the dealer terminations are also scheduled to resume, so the next two weeks should bring more clarity to the fate of Chrysler and its dealers.
— DRJ
We will see if SCOTUS has any intention to maintain the Rule of Law,
AD - RtR/OS! (b149bd) — 6/6/2009 @ 11:18 pmor will they just step aside (as did the Court in 1937) and allow the country to continue down the slide into Fascism.
That’s exactly right Mr. OS! person. This will be a measure of courage, really. Are you hopeful? Me I am not hopeful.
happyfeet (2d133f) — 6/6/2009 @ 11:54 pmI know they won’t have the stones to do it, but it seems to me Alito, Thomas, Scalia, and Roberts, if they were being honest, wouldn’t hesitate to grant cert.
Ed from SFV (a53c07) — 6/7/2009 @ 12:00 amWith any luck Chrysler can finally die. As long as this misapplication of resource continues to rot, it will consume more and more money that could have gone to new and better ideas. As long as we continue to prop up and feed the dead, the recession will linger on.
Kevin Murphy (0b2493) — 6/7/2009 @ 12:05 amAccording to scotusblog this action requires 5 justices not 4. At least to get a stay, and I don’t see this case having any meaning if the bankrupcy action is not stayed.
Soronel Haetir (a3f11b) — 6/7/2009 @ 7:22 amSince this is about money, what’s the argument for a stay? Where’s the irreversible damage?
James B. Shearer (78f8be) — 6/7/2009 @ 8:21 amFunny how the GM deal bascially dwarfs this one, yet we’ll be stuck with that onerous and worthless entity for years from now.
Dmac (f7884d) — 6/7/2009 @ 8:23 amComment by James B. Shearer — 6/7/2009 @ 8:21 am
If the bankrupcy is allowed to go through without a stay then there would be no entity for a suit to attach to even if the pension funds and consumer groups are successful. New Crystler would exist free of old obligations that weren’t part of the restructuring.
Soronel Haetir (a3f11b) — 6/7/2009 @ 11:03 amSoronel Haetir,
Thank you for your comment. Scotusblog has several good posts on this topic, including this summary of the key points of the Chrysler challenge. I trust Scotusblog more than me regarding how many justices need to grant cert, but typically it’s 4 as set forth in the Rule of Four.
DRJ (180b67) — 6/7/2009 @ 12:12 pmDRJ – I find Friday’s disclosure of internal Treasury and Chrysler emails about Fiat’s lack of disclosure highly troubling when added to the already public appearance of a shotgun wedding the Obama Administration has given this reorganization. It does appear that the quick sale provisions for asset sales under the code are being abused to mask a complete reorganization, that adequate due diligence on the surviving entity has not been performed, that conflicts abound among the parties involved, and that the normal priorities of creditors in bankruptcy have been ignored or steamrollered in the interest of time or the Obama Administration.
Other companies have survived longer stays in bankruptcy. I don’t understand the fierce urgency to slam this one through without examining the issues.
daleyrocks (5d22c0) — 6/7/2009 @ 12:39 pmHey DRJ. I’ve traded emails with Patterico and, to quote Henry K,’Peace is at hand.’ Accordingly, I apologize, DRJ, for any ‘misunderstanding’ and ‘miscommunications’ we traded in the heat of fiery debate a while back. No insult intended at all.
[It was never necessary, DCSCA, because I wasn’t the one that banned you. Welcome back and I hope you enjoy commenting here, although I don’t plan to talk to you in the future. As my father says, I’ve enjoyed all of your company I plan to enjoy. — DRJ]
The Banned In Boston and Pattericoville DCSCA (9d1bb3) — 6/7/2009 @ 12:53 pmI believe it’s called a sham sale in bankruptcy parlance, and it troubles me, too. I’m even more troubled by the way the government has taken over the industry and the bankruptcy process as revealed in articles like this and especially this.
DRJ (180b67) — 6/7/2009 @ 12:54 pm#11- Apparently P felt it was. After discussion, I acquiesced. And as my late father said, “Silence is golden,” so if you choose to cash in, so be it.
The Banned In Boston and Pattericoville DCSCA (9d1bb3) — 6/7/2009 @ 1:59 pmDRJ,
Cert could be granted by 4 justices, but a stay would require 5, according to http://www.scotusblog.com/wp/lenders-urge-court-to-bar-chrysler-sale/ and I don’t see this case having any meaning if there is no stay.
Soronel Haetir (a3f11b) — 6/7/2009 @ 2:58 pmExcellent point, Soronel Haetir. It might be moot without a stay but I could see an argument that both the sale and litigation could proceed, with the Indiana pension funds getting money damages if their position is upheld on appeal. If so, that would satisfy me. The point for me isn’t to stop the sale but to protect the property rights of the senior creditors.
DRJ (180b67) — 6/7/2009 @ 3:19 pmGod bless those Hoosiers !
JD (b63e69) — 6/7/2009 @ 3:33 pm“The point for me isn’t to stop the sale but to protect the property rights of the senior creditors.”
DRJ – In a lot of merger deals you would have a strike suit law firm like Milberg, Weiss, now out of business, file a nuisance lawsuit on behalf of some straw shareholder just for a quick payoff to avoid holding up the deal. You would also have appraisal rights for stockholders in certain jurisdictions. I’m not familiar with the provisions of the bankruptcy code in this area, but I don’t recall reading about similar protections for small groups of dissenting lenders. I think they get crammed down whether they like it or not.
I’m more concerned about the precedent, since I doubt banking and auto are the last industries Obama will be nationalizing. Healthcare is staring everybody in the face.
daleyrocks (5d22c0) — 6/7/2009 @ 3:59 pmI’m no expert but, absent a settlement, I think payments to creditors must conform to the Bankruptcy Code. I don’t know of any provision that gives unsecured creditors more than secured/priority creditors.
DRJ (180b67) — 6/7/2009 @ 5:59 pmDRJ – All of the provisions you reference can be found in the writings of Alinsky, and on Obama’s website 😉
JD (121e64) — 6/7/2009 @ 6:11 pmThis case and Ricci will set the judicial tone for the next four years.*
*Let’s hope it’s only four.
Patricia (2183bb) — 6/7/2009 @ 6:46 pm18.I’m no expert but, absent a settlement, I think payments to creditors must conform to the Bankruptcy Code. I don’t know of any provision that gives unsecured creditors more than secured/priority creditors
The bankruptcy code guarantees secured creditors as much as they would get in liquidation. There is nothing in the code (as far as I know) that prohibits the government giving money to the unsecured creditors but not to the secured creditors.
James B. Shearer (a4123c) — 6/7/2009 @ 8:48 pmDo you recognize the very fundamental mistakes and assumptions in that comment, Mr. Shearer?
JD (2a16e6) — 6/7/2009 @ 9:08 pmJames B. Shearer,
As discussed by Prof. Epstein, secured creditors are paid before unsecured creditors:
It doesn’t matter if the business is liquidated or reorganized, the priority stays the same. However, creditors can agree to compromise or settle their claims for less. Many of the Chrysler creditors settled for less in response to Obama Administration pressure, but the Indiana pension funds did not.
As for unsecured creditors, I think they are paid according to Section 507 of the Bankruptcy Code.
DRJ (180b67) — 6/7/2009 @ 9:55 pm“The bankruptcy code guarantees secured creditors as much as they would get in liquidation.”
Given the shotgun marriage to Fiat, how does anyone know what Chrysler was worth in liquidation? Were formal opinions obtained? I have not searched the documentation at this point.
daleyrocks (5d22c0) — 6/7/2009 @ 10:27 pm23
See here .
A new entity (financed by the government) is buying Chrysler’s assets for $2 billion. As long as $2 billion is a fair price, Chrysler’s debtors would seem to have no legitimate complaint.
James B. Shearer (a4123c) — 6/7/2009 @ 10:31 pm24
Here (4meg pdf file) is an analysis of the liquidation value by Chrsyler’s expert submitted as part of the bankruptcy petition. A liquidation recovery value of 9% to 38% is estimated for first lein holders (p. 26). I believe they are getting 29% with the current plan.
James B. Shearer (a4123c) — 6/7/2009 @ 10:43 pmI think you are correct that valuation is at issue:
As you can see in the linked article, the legal issues are complicated but I think Chrysler and the government want to have their cake and eat it, too. In essence, they valued Chrysler at its liquidation value for purposes of paying the old creditors, but they want to sell the assets as a going concern and give more value to the preferred new creditors.
DRJ (180b67) — 6/7/2009 @ 10:47 pmJames – Appreciate the link to Lubben’s piece, but I’m not sure I buy into his analysis.
“In both GM and Chrysler the Union is getting better treatment than other unsecured creditors. BUT that better treatment is not coming from the debtor. It is coming from the U.S. government, passing through the purchaser of the “good” assets in each case.”
Each creditor of the bankrupt estate is being offered consideration to surrender all or a portion of their claims against it. That consideration consists of cash, equity ownership in the new owner and various promises of the new owner.
Of Lubben’s argument is that since it’s a sale transaction, bankruptcy priority rules do not have to be followed since each class of creditor has to separately agree to the tranaction, that may be one school of thought. That makes it very much like a sub rosa reorganization.
Otherwise, the normal course of events would be to aggregate all the consideration received by the debtor estate and parcel it out amongst the different creditor classes. Lubben’s argument seems very much form over substance.
daleyrocks (5d22c0) — 6/7/2009 @ 10:49 pm27
More from the author you linked. Bottom line the government is putting up the money and this gives them great power to determine who gets what.
James B. Shearer (a4123c) — 6/7/2009 @ 11:08 pmThe government may have the power but that doesn’t necessarily mean it has the right. I think that’s what this case is all about.
DRJ (180b67) — 6/7/2009 @ 11:23 pmGinsburg granted the stay! I don’t believe it.
Per the Indiana Treasurer (Plaintiff) only FOUR total Justices need to vote for a full hearing. If Ginsburg is one, how can Scalia, Thomas, and Alito, not sign on?
A glimmer of hope in the gloomy dark of our fascistic BHO Overlord constructs.
Ed from SFV (a53c07) — 6/8/2009 @ 1:59 pmIt could be good news, Ed, but it’s only a temporary order. There are a lot of documents in the Chrysler case. It could be the justices need another day or two to review them and consider the applicable law.
DRJ (180b67) — 6/8/2009 @ 2:16 pm