CHAPTER 11 RECENT DEVELOPMENTS (PART I)

 

(3) The Indiana Pensioners lack standing to bring up the TARP issue. Therefore, the court lacks jurisdiction to decide it. Ultimately, the court found that the Pensioners were not injured in fact because the $2 billion cash payment was a better deal than liquidation of Chrysler. In fact, although the Pensioners alleged that Chrysler was worth $25 billion, they offered no such evidence at the Sale hearing. "The release of collateral for fair (but less-than-hoped-for) value is not injury in fact sufficient to support standing." In any event, even if there was injury in fact, the Pensioners might still not have standing to challenge the use of the TARP funds because they consented to the Sale.

(4) Tort claimants' appeal. The court divided the tort claimants into three groups of plaintiffs: (a) those with existing product liability claims against Chrysler; (b) those with existing asbestos-related claims against Chrysler; and (c) future unknown tort claimants.

a. Existing products liability claimants: "'To allow the claimants to assert successor liability claims against [the purchaser] while limiting other creditors' recourse to the proceeds of the asset sale would be inconsistent with the Bankruptcy Code's priority scheme.' Appellants ignore this overarching principle and assume that tort claimants faced a choice between the Sale and an alternative arrangement that would have assured funding for their claims. But had appellants successfully blocked the Sale, they would have been unsecured creditors fighting for a share of extremely limited liquidation proceeds. Given the billions of dollars of outstanding secured claims against Old Chrysler, appellants would have fared no better had they prevailed." Moreover, selling the assets free and clear of these claims was a critical part of the Sale. In other words, "''a sale of the assets of [Old Chrysler] at the expense of preserving successor liability claims was necessary in order to preserve some [55],000 jobs, . . . and to provide funding for employee-related liabilities, including retirement benefits [for more than 106,000 retirees].'" Thus, these objections are overruled.

b. Asbestos Claimants: Section 524(g) allows for a debtor to channel asbestos related claims into a personal injury trust so that the debtor can be relieved of any future asbestos liabilities. By its terms, however, a § 524(g) applies only "to 'a court that enters an order confirming a plan of reorganization under chapter 11.'" Thus, there is no merit to the claim that the Sale violated § 524(g).

c. Future claimants: the court affirmed the bankruptcy court's order "insofar as it constituted a valid exercise of authority under the Bankruptcy Code. However, we [the court] decline to delineate the scope of the bankruptcy court's authority to extinguish future claims, until such time as we are presented with an actual claim for an injury that is caused by Old Chrysler, that occurs after the Sale, and that is cognizable under state successor liability law." Thus, the objection was overruled on this point as well.

In re Chrysler LLC, et. al., 405 B.R. 79 (Bankr. S.D.N.Y. 2009)

Facts: In April and May 2009, Chrysler LLC and 25 of its affiliates (the "Debtors") filed for chapter 11 bankruptcy. The Indiana State Teachers Retirement Fund, Indiana State Police Pension Trust, and the Indiana Major Move Construction (the "Indiana Funds") objected to the use of Troubled Asset Relief Program ("TARP") funds, established by the Emergency Economic Stabilization Act of 2008 ("EESA"), to finance New CarCo Acquisition LLC ("New Chrysler"). The Indiana Funds argued that the use of the TARP funds here is unconstitutional.

Issue: Whether the Indiana Funds have standing to raise the constitutionality of the use of the TARP funds in this case.

Rule: The Indiana Funds are parties in interest in this case under § 1109(b). "The issue of standing 'involves both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise.' The Supreme Court's standing jurisprudence has established three prerequisite elements to constitutional standing: (1) the plaintiff must have suffered an 'injury in fact,' which is actual or imminent, and that is a concrete and particularized invasion of a legally protected right; (2) there must be a causal connection between the injury and

 

 

 

©2010 Leif M. Clark