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p.s. on Chrysler--Skeel

The Supreme Court has now lifted its stay on the Chrysler sale, which makes the first part of the last post moot.  On to GM.

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Professor Skeel:

Don't the Indiana Pensioners retain the ability to file for the case to be heard?

If they WERE to win on the merits (and without a finding of lack of "good faith" under 363(m)), who would pay compensation? Would it come from NewChrysler, or would NewChrysler be protected by 363(g)?

Is it possible that the VEBA, Fiat, or the Governments could be required to pay more for the assets?

Thank you.

Lawrence, I think you're right about this. The Indiana Pensions can still argue that the sale was improper; they just can't stop it from going forward. So their case would presumably be a claim for their damages. I'm not sure who would be required to pay the claim if they were to win (which of course is unlikely at this point)-- my guess is it would be Old Chrysler, since New Chrysler would be protected by 363. I'd be interested to know the answer if you find out for sure.

What value would that claim against Old Chrysler actually have though? Unless I'm mistaken, the secured creditors are at this point entitled to all of the assets of Old Chrysler up to the value of their $6.9 billion claim. Nobody expects there to be $6.9 billion in value left in Old Chrysler though -- for the most part there is $2 billion left in Old Chrysler (from the 363 sale), plus the value of the various property and plants which New Chrysler didn't want, minus the costs the estate ends up incurring and paying as it goes.

The expected value of the secured creditors claims on the bankruptcy estate are thus approximately $2 billion, since nobody puts much value on the leftovers from the sale. This is thus what the secured creditors expect to be paid out for their claims.

Taking it as a given that the value of Old Chrysler is now less than $6.9 billion, if there were any additional funds to pay these potential damages, the secured creditors would be entitled to those funds anyway, even absent their claim for damages. So if Old Chrysler is the only party potentially on the hook for a damages claim here, then pressing the claim would seem to be a pyrrhic victory at best -- the secured creditors get an additional rationale for getting what they're already entitled to, and those pressing the claim get to run up a big legal bill in the process.

The only winner in that scenario is Tom Lauria.

Scott, I think this is exactly right-- a nice point.

I was thinking of another defendant entirely: the 90% of senior creditors who okayed the asset sale. The claim is that (a) the price was too low, and (b) those senior creditors are doing it because of external benefits (i.e., TARP money).

Would that fly, if the claims are proven?

I would think that the Fiat alliance would not be liable except perhaps on the grounds that they bribed or threatened the senior creditors.

Eric, this is a really interesting theory. In terms of the logic, the argument makes a lot of sense, since there is indeed a strong argument that the senior creditors who agreed to the sale were not acting in the economic interests of the seniors as a whole. I'm not sure whether there's a plausible legal basis for the argument, however-- presumably, the argument would be that the seniors had duties to one another (like partners in a partnership) or something of this sort. I'd be interested to hear other legal theories if there are any.