U.S. Supreme Court Delays Chrysler Sale to Fiat

U.S. Supreme Court Justice Ruth Bader Ginsburg has continued to stay the sale of bankrupt automaker Chrysler's assets to Italian automaker Fiat, extending the delay past yesterday's 1600 deadline. Justice Ginsburg released a single sentence statement staying the sale, pending further review. She did not specify a date for when briefs for the appeal would need to be filed, or whether or not the Supreme Court was interested in hearing the full case, only that the purchase was to be delayed until further notice. The word came down late in the day, after the U.S. Solicitor General Elena Kagan at the Justice Department sent a comprehensive 26-page brief to Ginsburg urging her to allow the sale to continue. Kagan argued that delaying the sale beyond the 15 June deadline date would allow Fiat to walk away from the deal and likely force Chrysler into liquidation. "The bankruptcy court found that the challenged sale is the only feasible alternative to liquidation, and that applicants would receive no more under liquidation than they will receive if the sale goes forward. Absent a persuasive reason to believe that one or both of those findings is erroneous—and applicants offer none—a stay would not alleviate the injury that applicants have identified," the government wrote in its brief. "Blocking the transaction would undoubtedly have grave consequences," it continued. "But even in the largest bankruptcy proceedings, this court applies its traditional criteria to determine whether a particular legal issue is appropriate for plenary review. Here, the bankruptcy court carefully considered the trial record, entered detailed factual findings, and applied settled law to those facts."

The suit, brought by a trio of Indiana state pension and construction funds by the state's attorney general, claimed that the sale of Chrysler's assets to Fiat was illegal due to the way secured versus unsecured creditor claims have been handled. It also made the claim that the Treasury's use of Troubled Asset Recovery Program (TARP) funds, originally approved by Congress to fund bank bailouts, was also an inappropriate use of funds. Indiana Treasurer Richard Murdock told CNBC the ruling was a "good sign" that the funds will get a hearing from the Supreme Court. "I doubt very much that would have granted us the stay if they weren't going to grant us a full hearing," Murdock said. Options going forward for the case include dismissal by Justice Ginsburg, or a review of the case by the court. Five Justices must agree to hear the case in order for the full court to review it, or conversely, five Justices are required to override Justice Ginsburg's decision not to hear the case, if she in fact decides to reject the case.

Outlook and Implications

The actions of the Court have not stated that the sale is cancelled; the decision that has been made has simply been to extend the stay of sale laid down by the Appeals Court until further notice. It is not known whether Justice Ginsburg intends to stay the sale for any considerable period of time, or why she needed extra time to consider the claims. Pressure from the White House has been mounting to allow the sale to pass, but it would seem that the Court has found something worth looking at in the Indiana claims with regards to the legality of the process. However, it must be kept in mind that two lower courts have approved the sale already, with the Appeals Court's three-judge panel unanimously approving the legality of the sale. The Supreme Court also tends to rely heavily on subject matter experts in cases such as bankruptcy disputes, and in this case, the lower court rulings should carry weight. It seems unlikely that Fiat would walk away from the sale in the event of the delay lasting longer than the 15 June deadline as well, given that it has lost the bidding for Opel, and is still intent on acquiring additional volume in order to fulfil CEO Sergio Marchionne's goal of a 6-million-unit company. Fiat is also at little risk in waiting for a deal, given that it is not investing any money in the enterprise, only time, tooling, and efforts.

That said, the legality of the presidential administration's actions with regards to how the bankruptcy has been handled has already given a number of Republican politicians pause, especially the idea of the federal government taking a significant stake in the struggling industry using funds originally allocated by Congress for helping bank bailouts. There are also significant concerns over the order of how secured versus unsecured creditors have been reimbursed from the Chrysler bankruptcy; from the beginning, the White House has been overtly in favour of the United Auto Workers (UAW) and other unions above those of the financial investors such as bondholders. This has been evident in the final ownership stakes in the newly reformed bankrupt companies, which were essentially determined by the Treasury well in advance of the actual bankruptcy filing. Most of the bondholders have already capitulated to the demands of the White House and the Treasury, but this one last group of holdouts (who hold less than 1% of the total Chrysler debt) may unravel all of the work that has brought Chrysler to the verge of emergence. A liquidation of the company would be disastrous for all involved, and this has been a further reason that lower courts have been adamant in their belief that the sale should go through. There are no other suitors looking at Chrysler; anything other than a sale to Fiat means liquidation, and far worse consequences for all parties involved, including the Indiana funds who have brought suit.