Justice Ginsburg Delays Chrysler Sale To Fiat
STEVE INSKEEP, host:
It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep.
RENEE MONTAGNE, host:
And I'm Renee Montagne. Many analysts said there was only one way for an auto company to survive filing for bankruptcy. It was for the bankruptcy to be very brief. Now Chrysler's reorganization has been delayed, and we're waiting to find out how long.
INSKEEP: Supreme Court Justice Ruth Bader Ginsburg issued an order that temporarily freezes Chrysler's bankruptcy sale. The court's order came after several pension funds challenged that reorganization. NPR's Adam Hochberg reports on what's known so far.
ADAM HOCHBERG: Justice Ginsburg brought the $2 billion deal to a halt with just one sentence. In her brief order, she temporarily blocked the sale. But she didn't say for how long, nor did she give any firm indication of what the Supreme Court might do next. It was an unusual action that left experts unsure how the case will proceed. UCLA Professor Lynn LoPucki is a leading writer on corporate bankruptcy law, but says he's never seen a development like this.
Professor LYNN LOPUCKI (Law, University Of California, Los Angeles): I don't know of any prior case in which the Supreme Court in United States has stayed a bankruptcy sale. It's clear to me that there's a substantial legal issue that's been raised.
HOCHBERG: That issue is whether the government-brokered sale is legal and constitutional. Indiana State Treasurer Richard Mourdock filed the appeal on behalf of several pension funds he controls that hold small amounts of Chrysler's secured debt. He says the Treasury Department broke the law when it used TARP money to finance the deal. He says Congress intended that money to bail out troubled banks, not troubled automakers. And Mourdock says secured debt holders get shafted because the company's new stakeholders, including the federal government, receive preferred treatment.
Mr. RICHARD MOURDOCK (Indiana State Treasurer): What I see is the United States government violating 150 years of bankruptcy law, totally having disregard for the Fifth Amendment, which says the government cannot act in such a way to take private property away from its citizens without due process of law. And in this case, there's no process of law. They've just acted unilaterally and, I think, egregiously.
HOCHBERG: The proposed sale would morph Chrysler into a new company, with Fiat initially owning 20 percent of it, and the U.S. government, the Canadian government and the United Auto Workers controlling most of the rest. Current debt holders would receive $.29 on the dollar, a settlement Mourdock considers paltry and one he says the government forced them to accept.
Mr. MOURDOCK: Never before has there been a bankruptcy of the government, by the government, for the government.
HOCHBERG: Chrysler didn't comment on yesterday's stay. But in an earlier statement, the company noted that 98 percent of its other secured creditors approved the sale. It also noted the Chrysler debt makes up less than one percent of the Indiana pension fund's assets and suggested the Republican treasurer had political motives for filing the appeal. Democratic Congressman Gary Peters represents the Michigan district that houses Chrysler's headquarters. He considers Mourdock's appeal without merit and says the Fiat deal is the best option for both the company and its debt holders.
Representative GARY PETERS (Democrat, Michigan): The secured creditors received a very fair offer, and, in fact, a vast majority of those creditors accepted the deal. It was a good business decision for them. The longer Chrysler stays in bankruptcy, the more precarious situation for the company, and every day that goes by jeopardizes tens of thousands of jobs across this country.
HOCHBERG: The terms of the Chrysler deal allowed Fiat to walk away if the sale isn't complete by this coming Monday, June 15th. But last night, Fiat's CEO told Bloomberg News that he has no plans to do that and is willing to, in his words, let the system work. Still, it's not in the company's interest for the case to drag on. Jeremy Anwyl of the automotive Web site Edmunds.com notes Chrysler had shut most its plants and doesn't plant to start producing cars again until the bankruptcy case is resolved.
Mr. JEREMY ANWYL (CEO, Edmunds.com): You know, the whole point was that the new Chrysler could emerge from bankruptcy in basically 30 or 45 days. If that doesn't happen, what does Chrysler do in the meantime? And I think in many scenarios, they just lose so much momentum that they can't really get restarted.
HOCHBERG: The Indiana Treasurer is requesting the Supreme Court hold oral arguments on the appeal, a process that likely would extend the case for months. But the justices could decide to decline that request, which could put the sale back on track in a matter of days.
Adam Hochberg, NPR News.
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