Washington The U.S. Supreme Court on Monday temporarily blocked the sale of Chrysler LLC’s assets to a new partnership with Fiat SpA, the first unexpected delay in the automaker’s bankruptcy stage-managed by the Obama administration.
The one-page order by Supreme Court Justice Ruth Bader Ginsburg stopped the sale “pending further order” by her or the full court, based on an appeal by three Indiana pension funds holding $45 million in Chrysler’s secured loans. Ginsburg gave no time frame for when those next orders might arrive.
The delay came just ahead of a deadline for the deal to move ahead set by the Second Circuit Court of Appeals, which had ruled against the pension funds but given them time to pursue their case with the Supreme Court. Chrysler has warned that it’s losing $100 million a day, and that without the Fiat sale it faces “immediate, piecemeal liquidation.”
Ginsburg could still lift the stay and let the sale proceed at any moment, or attempt to have the case heard by the full court, a step that could delay the transaction for months. Four other justices would have to agree with Ginsburg to force a hearing by the full court.
Chrysler and Fiat had said the deal could close as soon as they prevailed over the appeals. Chrysler and the Obama administration did not immediately return calls seeking comment.
The pension funds maintain that Chrysler should have sold itself off in pieces because that would have been better for secured lenders. They also contended that the government wrongly used money from the $700 billion financial industry bailout to rescue Chrysler, comparing it with President Harry Truman’s seizure of steelmakers in 1952.
“They are trying to move the case into the very broad brush argument that if what Harry Truman did was illegal, then what the Bush and Obama administrations did in using TARP money for a non-financial was also illegal,” said Jennifer Shaw, a retired bankruptcy attorney who has closely followed this case.
As part of the bankruptcy, the majority of Chrysler’s lenders holding $6.9 billion in loans agreed to take $2 billion in cash for their claims. Chrysler said the pension funds bought their $42 million in loans for $17 million, and would stand to get $12.2 million from the bankruptcy case, leaving them with a loss of $4.8 million.
The automaker contended in its response to the Supreme Court that the Indiana pension funds had at one point agreed to a $2.5 billion offer to cancel the loans that was later dropped, limiting their losses to the difference between the payouts the funds would get under the two deals — about $1.5 million.
Rep. Gary Peters, D-Mich., said the state of Indiana was risking losses of more than $20 million in taxes and some 4,000 jobs should Chrysler be forced to liquidate.
“Other stakeholders, including other secured lenders and Chrysler’s autoworkers, accepted shared sacrifice because they recognized their interest was better served keeping Chrysler alive rather than forcing liquidation,” Peters said in a statement. “Why the officials who decided to take their objections all the way to the Supreme Court can’t recognize this is beyond me.”
The U.S. government filed its brief with Ginsburg on Monday, arguing that Chrysler held little value absent the Fiat deal, and that the Indiana pension plans did not have standing to object to the deal nor to the government’s $8 billion injection into the new Chrysler-Fiat.