Federal Judiciary

Challenge to Chrysler deal ending

By Akin Gump Supreme Court Practice Group

The Supreme Court has dismissed some of the consumer groups’ challenge to the deal that led to the bankruptcy sale in June of Chrysler Corp.  to the Italian automaker, Fiat, with heavy financial backing from the U.S. and Canadian governments.  All of the other challengers involved in the case also have asked that they be dismissed, and the Court is expected to do so shortly for those, too.  The petition in Center for Auto Safety, et al., v. Chrysler LLC (08-1513) was the only challenge to Chrysler remaining before the Court.  (The petition can be downloaded here.)

At least one of the reasons that the case is coming to an end is that the Second Circuit Court, in issuing an opinion on Aug. 5 to explain its June 5 order approving the Chrysler sale, left open the possibility that some future lawsuits based on accidents with Chrysler-made vehicles might be allowed in court.  Such lawsuits would be based on state product liability or consumer-protection laws, and could involve such claims as defective design, failure to warn, or wrongful death. (The Second Circuit’s 53-page opinion is here; the brief discussion of the future claims issue is found on pages 51 and 52 of that document.)

The Chrysler deal actually wiped out all existing, as well as future, lawsuits involving claims involving vehicles made by ”Old Chrysler.” when aimed at “New Chrysler.” The Second Circuit’s unexplained June 5 order upholding a bankruptcy court order permitting the sale appeared to have upheld all of those provisions.  The explanation that came in the Aug. 5 opinion made clear, however, that the order did not go that far.

The Supreme Court, in a two-page order on June 9, refused to delay the sale of the troubled Chrysler company.  The Justices did not rule on the merits of the deal, or of the various challenges to it, but simply indicated that challengers had not justified a stay.  The transaction was completed the next day.  (The Justices’ action was discussed in this post.)

On the same day that the Justices acted, the petition was filed in 08-1513.  The appeal raised two issues: did the bankruptcy court have power, under federal law, to eliminate all lawsuits — existing and future — against “New Chrysler” involving product liability claims, and whether elimination of future lawsuits would be unconstitutional under the Due Process Clause.

It was the cutoff of future claims that was the main complaint, according to lawyers involved, of these five consumer groups: the Center for Auto Safety, Consumer Action, Consumers for Auto Reliability and Safety, National Association of Consumer Advocates, and Public Citizen. 

Those were the groups that the Court agreed,to dismiss from the case, at their request.  Still pending are similar motions to dismiss from the Ad Hoc Committee of Consumer-Victims of Chrysler LLC, a group of 170 with lawsuits already pending against “old Chrysler,” and three individuals who already had lawsuits pending against the former company for prior auto accidents.  There is no apparent reason why the Justices would refuse those requests; the U.S. Solicitor General, the defender of the Chrysler deal, told the Justices that the government “has no objection to the dismissal of the petition” as to all parties.

None of the motions to dismiss spelled out reasons.  Each suggested only that the move was being made “in light of” the Second Circuit’s opinion laying out its reasoning for allowing the Chrysler arrangement.  It is unclear, as of now, why the challengers other than the five consumer groups decided to abandon the case, since their claims involved already existing lawsuits based on incidents that pre-dated the deal.  The Second Circuit apparently did not rescue their right to amend their lawsuits to target New Chrysler, since its discussion of future lawsuits only involved claims for injury arising “after the sale.”.

In that opinion, the Circuit Court panel unanimously ruled that lawsuits of the kind already filed against Chrysler, or the ones that could be filed in the future, could be legally eliminated under federal bankruptcy law.  That part of the ruling — a statutory interpretation – appeared to be what was at stake in the first question raised in the petition in 08-1513.

On future lawsuits, at stake in the second question, the opinion said that the panel had upheld the elimination of such lawsuits as “a valid exercise of authority” by the bankruptcy judge.  It then added: “However, we 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.”  There was no further discussion.

(The issue of a cutoff of future lawsuits did not arise in the later government-arranged bankruptcy deal for General Motors, because that arrangement did not include that kind of provision.)

As the Chrysler deal was under study by the Supreme Court, one of the most significant issues — one that the Justices did not decide in any way — was whether the federal government had the authority constitutionally to use emergency “bailout” money — so-called “TARP funds” — to rescue an auto manufacturing company, as opposed to a more traditional financial institution like a bank or an underwriting firm.   That part of the deal had been hallenged by Indiana pension funds.

In the Second Circuit’s Aug. 5 opnion, it explained (on pages 33-40 of the opinion linked above) why it had not ruled on the bailout issue.  It called the constitutional challenge “interesting and unresolved,” and commented that “the scope of TARP is a consequential and vexed issue that may inevitably require resolution in some later case.”  But, it said, it had no power to rule on that question at this stage because the Indiana funds lacked “standing” to raise the issue, because they had not shown that they would actually be injured by the Chrysler deal.

Full post as published by SCOTUSBLOG on August 27, 2009 (boomark / email).