Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
d
IN THE
IN RE CHRYSLER LLC,
Debtor.
CHRYSLER LLC, aka Chrysler Aspen, aka Chrysler Town & Country, aka Chrysler 300,
aka Chrysler Sebring, aka Chrysler PT Cruiser, aka Dodge, aka Dodge Avenger,
aka Dodge Caliber, aka Dodge Challenger, aka Dodge Dakota, aka Dodge Durango,
aka Dodge Grand Caravan, aka Dodge Journey, aka Dodge Nitro, aka Dodge Ram,
aka Dodge Sprinter, aka Dodge Viper, aka Jeep, aka Jeep Commander, aka Jeep
Compass, aka Jeep Grand Cherokee, aka Jeep Liberty, aka Jeep Patriot, aka Jeep
Wrangler, aka Moper, aka Plymouth, aka Dodge Charger; INTERNATIONAL UNION,
UNITED AUTOMOBILE, AEROSPACE, and AGRICULTURAL IMPLEMENT WORKERS
OF A MERICA , AFL-CIO (“UAW”),
Appellees,
LLC. As set forth in more detail below, Chrysler LLC holds, either directly or
Chrysler LLC directly holds 100% of the ownership interest in the following
debtors: Chrysler Aviation Inc., TPF Asset, LLC, TPF Note, LLC, Chrysler
Service Contracts Inc., Chrysler Transport Inc., Dealer Capital Inc., DCC 929, Inc.,
Chrysler Motors LLC holds 100% of the ownership interest in the following
debtors: Chrysler Realty Company LLC, Chrysler Vans LLC, Global Electric
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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ................................................................................................... 1
JURISDICTIONAL STATEMENT .............................................................................................. 2
QUESTION PRESENTED............................................................................................................ 2
STATEMENT OF THE CASE...................................................................................................... 2
STATEMENT OF FACTS ............................................................................................................ 7
A. Chrysler – General Background............................................................................. 7
B. Chrysler’s Transformation Plan............................................................................. 7
C. The Economic Meltdown....................................................................................... 8
D. The Proposed Fiat Sale .......................................................................................... 9
E. The Purchase Agreement. .................................................................................... 10
F. The U.S. Government’s Financing Of The Fiat Sale........................................... 11
G. The Fiat Sale Is Chrysler’s Only Alternative....................................................... 14
H. Chrysler’s Lenders Under The First Lien Credit Agreement .............................. 15
ARGUMENT............................................................................................................................... 16
I. STANDARD OF REVIEW ............................................................................................. 15
II. THE BANKRUPTCY COURT CORRECTLY FOUND THAT, UNDER THE
EXIGENT CIRCUMSTANCES FACING CHRYSLER, A SALE OUTSIDE A
CHAPTER 11 PLAN WAS JUSTIFIED......................................................................... 17
III. THE FIAT SALE IS NOT A SUB ROSA PLAN ........................................................... 22
A. A Sale Necessitated By Emergent Circumstances Is Not A Sub Rosa Plan........ 22
B. Nothing In The Sale Order Will Usurp The Debtors’ Final Plan ........................ 24
C. The Fiat Sale Does Not Violate The Bankruptcy Code’s Priority Rules............. 27
1. New Chrysler’s assignment of ownership interests is not a
distribution of the Debtors’ assets in violation of the priority rules ........ 28
2. New Chrysler’s assumption and assignment of contracts under
section 365 of the Bankruptcy Code is not a distribution of the
Debtors’ assets in violation of the priority rules...................................... 29
IV. BANKRUPTCY CODE SECTION 363(f) AUTHORIZES A “FREE AND
CLEAR” Sale................................................................................................................... 31
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A. Section 363(f)(2) Authorizes The Sale Free And Clear Of The Liens Held
By The Collateral Trustee Pursuant To The First Lien Credit Agreement.......... 31
B. Section 363(f)(3) Also Authorizes The Sale Free And Clear Of The Liens
Held By The Collateral Trustee ........................................................................... 37
V. THE FUNDS’ CLAIM THAT THE GOVERNMENT SPENDING VIOLATES
TARP OR EESA PROVIDES NO BASIS FOR REVERSING THE
BANKRUPTCY COURT’S APPROVAL OF THE FIAT SALE .................................. 41
A. The Funds Lack Standing To Challenge The Expenditure Of TARP Funds
Here...................................................................................................................... 42
B. The Court Does Not Have Jurisdiction to Review and Declare Invalid the
Government’s Actions in This Action ................................................................. 45
C. TARP Expressly Precludes Equitable Relief That Interferes With The
Secretary’s Spending Decisions........................................................................... 46
D. TARP Expressly Allocates To The Funding Stability Oversight Board
Questions Regarding The Appropriateness Of Particular TARP
Expenditures ........................................................................................................ 48
E. The Funds Waived Any Challenges To The Appropriateness Of Using
TARP Money When They Consented To Chrysler Receiving Earlier
TARP Loans......................................................................................................... 49
F. The Secretary Has Authority Under TARP To Provide The Funding Here ........ 49
VI. THE BIDDING PROCESS AND SALE HEARING SATISFIED DUE
PROCESS ........................................................................................................................ 51
CONCLUSION............................................................................................................................ 54
CERTIFICATE OF COMPLIANCE.............................................................................................. i
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TABLE OF AUTHORITIES
Page
CASES
Anderson v. City of Bessemer,
470 U.S. 564 (1985)............................................................................................16
Bennett v. Spear,
520 U.S. 154 (1997)......................................................................................42, 43
Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for S.
Cal.,
508 U.S. 602 (1993)............................................................................................16
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In re Archway Cookies LLC,
No. 08-12323 (CSS), Sale Order (Bankr. D. Del. Dec. 3, 2008) .......................24
In re Bearingpoint, Inc.,
No. 09-10691 (REG), Sale Order (Bank. S.D.N.Y. Apr. 17, 2009)...................24
In re Chateaugay Corp.,
10 F.3d 944 (2d Cir. 1993) ...........................................................................29, 30
In re Chateaugay Corp.,
973 F.2d 141 (2d Cir. 1992) ...............................................................................21
In re Chrysler LLC,
___ B.R. ___, 2009 WL 1507540 (Bankr. S.D.N.Y. May 31, 2009)...................1
In re Chrysler LLC,
___ B.R. ___, 2009 WL 1507547 (Bankr. S.D.N.Y. May 31, 2009)
(Gonzalez, J.) ............................................................................................1, 28, 32
In re Collins,
180 B.R. 447 (Bankr. E.D. Va. 1995).................................................................39
In re Condere Corp.,
228 B.R. 615 (Bankr. S.D. Miss. 1998)..............................................................20
In re Enron Corp,
04 Civ. 1367, 2005 U.S. Dist. LEXIS 2134 (S.D.N.Y. Feb. 14, 2005)........29, 33
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In re Enron Corp.,
302 B.R. 463 (Bankr. S.D.N.Y. 2003), aff’d................................................32, 33
In re Fitzsimmons,
725 F.2d 1208 (9th Cir. 1984) ............................................................................16
In re G. Survivor Corp.
171 B. R. 755 (Bankr. S.D.N.Y. 1994)...............................................................27
In re Gucci,
126 F.3d 380 (2d Cir. 1997) .........................................................................15, 19
In re Heine,
141 B.R. 185 (Bankr. D. S.D. 1992)...................................................................37
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In re Lehman Brothers Holdings Inc.,
No. 08-13555 (JMP) (Bankr. S.D.N.Y. Sept. 19, 2008) ....................................48
In re Penn Trafficco,
524 F.3rd 373 (2d Cir. 2008) ...............................................................................26
In re PW, LLC,
391 B.R. 25 (9th Cir. BAP 2007) ..................................................................35, 36
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In re TCIS, Inc.,
393 B.R. 71 (Bankr. D. Del. 2008).....................................................................28
In re WBQ P’ship,
189 B.R. 97 (Bankr. E.D. Va. 1995)...................................................................35
In re Wing,
63 B.R. 83 (Bankr. M.D. Fla. 1986) ...................................................................37
In re WPRV-TV, Inc.,
143 B.R. 315 (D.P.R. 1991)................................................................................35
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Kaufman v. S & C Corp.,
171 B.R. 38 (S.D. Tex. 1994) .......................................................................45, 46
Matter of Holtkamp,
669 F.2d 505 (7th Cir. 1982) ..............................................................................46
STATUTES
11 U.S.C. § 361........................................................................................................14
11 U.S.C. § 363.................................................................................................passim
11 U.S.C. § 363(f)........................................................................................1, 2, 6, 28
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11 U.S.C. § 1129(b)(2).............................................................................................37
12 U.S.C. § 5211(c)(5).............................................................................................44
12 U.S.C. § 5214......................................................................................................43
12 U.S.C. § 5229(a)(1).............................................................................................41
OTHER AUTHORITIES
http://www.financialstability.gov/docs/AIFP/AIFP_guidelines.pdf .......................45
http://www.financialstability.gov/docs/FSOB/FINSOB-Qrtly-Rpt-
033109.pdf).........................................................................................................45
http://www.gao.gov/new.items/d09553.pdf.............................................................45
Frank A. Oswald and Andy Winchell, Missing the Forest for the Trees in §
363: How the Ninth Circuit’s Bankruptcy Appellate Panel Neglected the
Big Picture in the Clear Channel Decision, 2009 No. 4 Norton Bankr. L.
Advisor 2 (2009) .................................................................................................36
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John Collen, What Do the Subsections of Section 363(f) Really Mean?
6 J. Bankr. L. & Prac. 563 (1997).......................................................................34
Justin Hyde, GM, Chrysler now say they need billions more: Automakers to
cut 50,000 more jobs, speed plant closings, DETROIT FREE PRESS, Feb.
18, 2009...............................................................................................................47
Richard J. Corbi, Section 363(f) “Free and Clear” Sales May Not Survive
Appeal,
18 J. Bankr. L. & Prac. 1 Art. 8 (2009) ..............................................................33
Thomas Moers Mayer, Section 363 Sales: Is the System Working? [no],
submitted to Southeast Bankrutpcy Law Institute (April 24, 2009)...................36
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PRELIMINARY STATEMENT
The Indiana Pension Funds (the “Funds”), Maria Pasquale (“Pasquale”), and
Pasquale, the “Tort Claimants”) (the Funds and the Tort Claimants are referred to
June 1, 2009 (the “Sale Order”). (The decision supporting the Sale Order (the
addressing certain TARP issues that the Appellants raised below (the “TARP
(Bankr. S.D.N.Y. May 31, 2009). The Sale Order authorizes a sale of substantially
all of the operating assets of Chrysler LLC (“Chrysler”) and certain of its affiliates
(collectively, either “Chrysler” or the “Debtors”), free and clear of all liens, claims,
sections 363(b) and (f) of title 11 of the United States Code (the “Bankruptcy
On May 31, 2009, the Bankruptcy Court issued the Sale Opinion and the TARP
Opinion. On June 1, 2009, the Bankruptcy Court entered the Sale Order and the
Funds filed notices of appeal from the Sale Opinion and the TARP Opinion. The
next day, the Bankruptcy Court granted the Debtors’ motion to certify the Sale
Opinion, the TARP Opinion, and the Sale Order for a direct appeal to this Court
parties 60 days to request certification). On June 3, 2009, this Court granted the
QUESTION PRESENTED
Whether the Bankruptcy Court erred in finding that Chrysler had articulated
sound business reasons and had established exigent circumstances to justify sale of
substantially all of its operating assets, free and clear of liens, claim,
encumbrances, and interests, in conformity with section 363(b) and (f) of the
Bankruptcy Code.
their operating assets that will preserve Chrysler’s business as a going concern
2
under new ownership and maximize the Debtors’ recovery for the benefit of their
creditors. To that end, Chrysler, Fiat and New Chrysler have entered into a
Purchase Agreement under which (a) the Debtors will sell most of their operating
assets to New Chrysler in exchange for $2 billion in cash and (b) Fiat will
contribute state-of-the-art small car and other technology and expertise, as well as
its global distribution and purchasing network to New Chrysler (the “Fiat Sale”).
executory contracts, including its supply chain contracts, its dealer agreements and
its collective bargaining agreement with the UAW, deciding which to assume
based upon the future benefit they will confer on New Chrysler (thereby relieving
backed by the United States Department of the Treasury (the “U.S. Treasury”) and
“DIP Loan”) (JA2375.) The DIP Loan has a series of milestones which tie its
(JA2375-2511.)
3
On May 3, 2009, the Debtors filed a motion seeking approval to
consummate the Fiat Sale or a similar transaction with some other interested bidder
(the “Sale Motion”). In connection with the Sale Motion, the Debtors, after two
however, the only bid received was the offer of New Chrysler to enter into the Fiat
Sale. (SPA62.)
2009. At that hearing (and the Bidding Procedures hearing that preceded it), the
and introduced 48 exhibits into evidence. The Debtors’ evidence established that:
(i) the Fiat Sale is the product of sound business judgment (SPA60), (ii) the
Debtors have received the consent to the sale from the Collateral Trustee (SPA70),
who holds the first lien on the assets that secure Chrysler’s repayment obligations
to the lenders, including the Funds, that are parties to the Amended and Restated
First Lien Credit Agreement, dated as of November 29, 2007 (the agreement is the
“First Lien Credit Agreement,” the lenders are the “Lenders”), see (JA2512-2681)
provided that the cash proceeds of the Fiat Sale are distributed to the Lenders, (iii)
despite exhaustive efforts the Fiat Sale is the only alternative to immediate
liquidation that the Debtors have, (SPA17-19, SPA33-34) and (iv) the $2 billion
4
purchase price is fair, provides more than market value and far exceeds the value
the Debtors (and the Lenders) will realize if the Fiat Sale is not consummated.
(SPA 17-19, 21.) The evidence also proved that, in light of the ongoing
deterioration of the Debtors’ assets, any material delay in closing the Fiat Sale will
likely kill it – depriving the Debtors, their stakeholders and the country of its
In contrast, the Funds did not call a single witness. They submitted no fact
or expert testimony regarding the value of the Debtors’ assets or the fairness of the
Fiat Sale. They adduced no evidence that there was any other transaction available,
let alone one that might yield more than $2 billion for the Debtors.
From this evidentiary record, the Bankruptcy Court made the detailed factual
! “Currently, the Debtors are losing over $100 million dollars per day.”
“Unless the Fiat Sale is approved without delay, the Debtors’ assets
will continue to erode, and they will be forced to liquidate in the near
term.” (SPA60.)
5
! “[T]ime is of the essence in (a) consummating the Fiat Sale,
(b) preserving the viability of the Debtors’ businesses as going
concerns and (c) minimizing the widespread and adverse economic
consequences for the Debtors’ estates, their creditors, employees,
retirees, the automotive industry and the broader economy that would
be threatened by protracted proceedings in these chapter 11 cases.”
(SPA60-61.)
! “[T]he [Fiat] Sale will provide a greater recovery for the Debtors’
creditors than would be provided by any other practical available
alternative, including, without limitation, liquidation whether under
chapter 11 or chapter 7 of the Bankruptcy Code.” (Id.)
! “In light of the need to grant the relief requested in the Sale Motion on
an expedited basis to avoid any erosion in the going concern value of
the Purchased Assets, a reasonable opportunity to object or be heard
with respect to the Sale Motion and the relief requested therein has
been afforded to all interested persons and entities . . . .” (SPA66.)
! “The Debtors may sell the Purchased Assets free and clear of all
Claims because, in each case where a Claim is not an Assumed
Liability, one or more of the standards set forth in section 363(f)(1)-(5)
of the Bankruptcy Code have been satisfied.” (SPA70.)
6
In light of these findings, Appellants cannot prevail. As the Bankruptcy
Court found, the Fiat Sale meets the requirements of section 363(b) of the
STATEMENT OF FACTS
the Petition Date, it had approximately 55,000 employees, 70% of whom work in
the United States, and it paid health care and other benefits to nearly 106,000
facilities, 23 of which are located in the United States, and 24 parts depots
challenges borne of its product mix, geographic reach, and scale. In particular,
Chrysler’s product offerings have become too heavily weighted towards large
JA1801.)
7
Transformation Plan was Chrysler’s aggressive pursuit of a strategic alliance that
would allow it to reduce its costs and expand into new products and markets.
(JA1746-49.) Chrysler initially pursued an alliance with Nissan in 2007, but talks
stalled. Discussions with other potential partners were ongoing throughout 2008.
(JA1747, 1751-53.)
culminated in the fall of 2008. The crisis had a devastating impact on Chrysler:
fell dramatically, generating losses that had to be funded with cash reserves. This
cash drain swamped the benefits realized from Chrysler’s ongoing restructuring
Kia and Kia, Mitsubishi Motors and Honda Motor Company. (JA1747-48.) In
8
International Group, Hawtai Automobiles, and Chery Automobile. (JA2966-70;
SPA6.)
automotive companies around the world. None of those discussions, other than the
discussions with Fiat that culminated in the Sale Order, led to anything. (SPA32.)
additional analyses, Chrysler and Fiat concluded that the two companies were
networks have little overlap. (JA1748) (Testimony of Alfred Altavilla) (“We are
where they aren't, we have what they don't, they are where we aren't, they have
marking the starting point of a four-month period of negotiations with all interested
9
E. The Purchase Agreement.
On May 3, 2009, Chrysler, Fiat and New Chrysler entered into the Purchase
Agreement, under which Chrysler will transfer core assets and certain contracts, as
When the transactions contemplated by the Purchase Agreement are closed and
certain initial performance targets are met, Fiat will own 35% of New Chrysler,
with the right to acquire an additional 16% only when the U.S. government loans
are repaid.
Retiree VEBA (55%), the U.S. Treasury (8%), and the Canadian Government (2%).
(JA1923; JA1802.) When the Fiat Sale closes, the lien securing the First Lien
Credit Agreement will attach to the sales proceeds, which will then be immediately
transferred to the Administrative Agent under the First Lien Credit Agreement for
The Fiat Sale will create the sixth largest automaker in the world by volume,
enhance the geographic footprint of Chrysler’s business, increase sales and reduce
costs. (JA1748-49, 2961-63.) The alliance with Fiat will save the Chrysler, Jeep
and Dodge brands. New Chrysler’s prospects are particularly high in partnership
with Fiat, which engineered its own turnaround during the past decade. (JA1802.)
10
Incident to the Fiat Sale, the UAW entered into a new collective bargaining
agreement. This agreement was intensely negotiated with Chrysler and Fiat and
and work rules. The UAW also negotiated with Fiat a new retiree settlement
agreement to provide the Debtors’ current and future retirees with retiree health
benefits funded through a 55% stake in New Chrysler Equity and a note of $4.587.
(JA3460.) The new collective bargaining agreement, which the UAW has offered
only as part of the Fiat Sale and only after Fiat agreed to the new retiree settlement,
(JA1916-20; JA1916-20.)
Also as part of the Fiat Sale, the Debtors will assume and then assign to New
customer warranty agreements, its supply chain contracts, and various leases. In
possessory liens, rights of recoupement and setoff that have occurred or exist in the
Asset Relief Program (“TARP”), loaned Chrysler $4 billion (the “Initial TARP
11
March 31, 2009. The TARP loan was conditioned upon obtaining the Lenders’
consent under the First Lien Credit Agreement. The First Lien Credit Agreement
was amended by the Lenders to reflect that consent. (JA2682.) The Funds offered
no objection. Indeed, part of the loan proceeds were used to make interest
The Initial TARP Loan required Chrysler to submit a plan demonstrating its
ability to sustain long-term viability, obtain labor modifications and attain energy
February 17, 2009, in the midst of ongoing negotiations with all stakeholders and
Fiat, Chrysler submitted its Viability Plan, and requested an additional $5 billion in
loans. The Viability Plan discussed three possible scenarios, a “stand alone” plan,
a Fiat alliance plan and an orderly liquidation plan, and also incorporated proposed
sacrifices from all key stakeholder groups: equity holders, union and non-union
employees and retirees, Lenders and second lien lenders, suppliers and dealers.
(JA1931-33.)
On March 31, 2009, the President of the United States announced that his
designee, the Auto Task Force, had determined that Chrysler was not viable on a
stand-alone basis and that its Fiat alliance plan was not sufficient, but that Chrysler
would be given the 30-day grace period to see if it could improve its alliance plan.
12
If Chrysler subsequently demonstrated a viable plan, the President further
additional capital to fund it. (JA2915.) The President also announced two
obligations (Id.) During the 30-day grace period, Chrysler also received a
capital loan of $500 million to allow it to operate until April 30, 2009; Chrysler
also received TARP monies to support the Supplier Program and the Customer
Lien Credit Agreement was a condition to each such extension of TARP funds to
Chrysler. (JA2688.) Again, the Funds accepted interest payments from the
The U.S. Government, along with the Canadian Government, has now
for up to seven years, and a reduced amount for one year thereafter. (JA2349.) The
13
G. The Fiat Sale Is Chrysler’s Only Alternative.
Chrysler’s need for a strategic alliance has been well known for some time.
significant. Few stories have been more prominent than Chrysler’s ongoing
emerged that affords the Debtors any opportunity to preserve their assets as a going
concern and to realize the value associated with doing so. (SPA1-48; 1936.)
When Chrysler was unable to submit a fully consensual Fiat alliance plan to
the U.S. Government by April 30, the Initial Tarp Loan terminated, accelerating
the loans under the First Lien Credit Agreement. Initial Tarp Loan, § 2.05(a);
(JA2584.) At that point, Chrysler had no access to funding outside of chapter 11.
Furthermore, no party, other than the United States (and Canadian) Government
was willing to provide any DIP financing. (JA1936.) Even then there was a
is dire and the company continues to function only because of Government support.
In addition to obtaining funding from the DIP Loan, Chrysler also obtained
approval to use cash collateral securing the obligations under the First Lien Credit
Agreement: first on an interim basis on May 4, 2009, (see JA590; JA966.) These
orders not only authorize Chrysler to use cash collateral, but also directed Chrysler
14
to distribute to the Lenders the cash proceeds from the Fiat Sale as a form of
adequate protection. 11 U.S.C. 361, 363; Interim Cash Collateral Order, para. 6(c);
Final Cash Collateral Order, para 6(c). These orders were uncontested.
owed the Lenders approximately $6.9 billion. The Funds hold $42 million – or
about 0.61% – of that debt. Chrysler’s obligations under the First Lien Credit
Under the governing documents (the “Loan Documents”), that lien is held solely
by the Collateral Trustee, who has exclusive authority once an event of default has
occurred to exercise all rights with respect to the collateral, including any right
under “Bankruptcy Law.” The Collateral Trustee works at the direction of the
Administrative Agent, whose actions are binding on all Lenders when taken at the
more than 90% of Chrysler’s outstanding debt support the Fiat Sale and have
ARGUMENT
I. STANDARD OF REVIEW
A bankruptcy court’s findings of fact are reviewed for clear error; its
conclusions of law are reviewed de novo. See Cody, Inc. v. Cty. of Orange, 338
15
F.3d 89, 94 (2d Cir. 2003); In re Gucci, 126 F.3d 380, 390 (2d Cir. 1997).
Bankruptcy Rule 8013 provides that “[f]indings of fact, whether based on oral or
documentary evidence, shall not be set aside unless clearly erroneous, and due
regard shall be given to the opportunity of the bankruptcy court to judge the
credibility of the witnesses.” See also In re Harford Sands, Inc., 372 F.3d 637, 642
(4th Cir. 2004 ) (“We do not weigh the credibility of witnesses on appeal.”).
Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for S. Cal., 508 U.S. 602, 623
(1993). Under it, as this Court has held, “[w]e will reverse the bankruptcy court
only if we are ‘left with the definite and firm conviction that a mistake has been
committed.’” Gulf States Exploration Co. v. Manville Forest Prods. Corp., 896
F.2d 1384, 1388 (2d Cir. 1990) (quoting United States v. United States Gypsum
Co., 333 U.S. 364, 395 (1948)). “Where there are two permissible views of the
Anderson v. City of Bessemer, 470 U.S. 564, 574 (1985). On clear-error review, it
Braverman, P.C. v. Charter Tech., Inc., 57 F.3d 1215, 1223 (3d Cir. 1995).
16
II. THE BANKRUPTCY COURT CORRECTLY FOUND THAT,
UNDER THE EXIGENT CIRCUMSTANCES FACING CHRYSLER,
A SALE OUTSIDE A CHAPTER 11 PLAN WAS JUSTIFIED
The overriding objective of a business reorganization in bankruptcy is – and
always has been – to preserve the value of the debtors’ assets as a going concern.
NLRB v. Bildisco & Bildisco, 465 U.S. 513, 528 (1984) (“fundamental purpose of
attendant loss of jobs and possible misuse of economic resources”). Preserving the
debtor’s business as a going concern permits the economy to benefit from the
employees to keep their jobs; and it preserves for the debtor’s creditors the
incremental value of the going concern over the liquidation value. See 7 Collier on
Bankruptcy ¶ 1100.01 (Resnick & Sommer eds., 15th ed. rev. 2008).1
these objectives may justify a sale of substantially all of a debtor’s assets outside
the normal chapter 11 plan process. In In re Trans World Airlines, Inc., No. 01-
1
See Fields Station LLC v. Capitol Food Corp. of Fields Corner (In re Capitol
Food Corp. of Fields Corner), 490 F.3d 21, 25 (1st Cir. 2007) (primary
purposes of chapter 11 are preservation of businesses as going concerns and
maximizing recoverable assets); NMSBPCSLDHB, L.P. v. Integrated
Telecom Express, Inc. (In re Integrated Telecom Express, Inc.), 384 F.3d
108, 119 (3d Cir. 2004) (same); Johnson v. Alvarez (In re Alvarez), 224
F.3d 1273, 1278 n.9 (11th Cir. 2000) (purpose of chapter 11 is to provide
creditors with going-concern value rather than more meager satisfaction
through liquidation).
17
00056, 2001 WL 1820326 (Bankr. D. Del. Apr. 2, 2001) (“TWA”), application of
these principles preserved thousands of jobs and saved TWA’s business as a going
concern. In TWA, the court approved the sale of substantially all of TWA’s assets
to American Airlines at the outset of the chapter 11 case because “TWA had no
other strategic transaction available to it and had no other offer for value to which
implement that plan. Its only alternative was a free fall chapter 11 filing with the
1820326, at *4.
Denying a request for a stay pending appeal of its sale order, the TWA court
18
adverse harm to a very broad spectrum of creditor
constituencies.
the debtor sought to sell substantially all of its assets outside a plan. After
immediate sale.” Id. at 986. The court noted that “the wasting asset in this
instance may be characterized as the ‘going concern’ value of the fully stopped
business,” and found particularly relevant “[t]he absence of any means on the part
of the debtor to return the business to operation, the need to sell the business as an
ongoing entity, [and] the lack of interest by any [other] prospective purchaser.” Id.
at 986.
provided the background for an opinion recently issued by the United States
Supreme Court. See Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc., 128
S.Ct. 2326, 2330 n.2 (2008). In Piccadilly, Justice Breyer, though dissenting from
the majority on the proper tax treatment of the sale, confirmed the rationale that
supports such sales: “[O]ne major reason why a transfer may take place before
rather than after a plan is confirmed is that the preconfirmation bankruptcy process
takes time. . . . And a firm (or its assets) may have more value (say, as a going
19
concern) where sale takes place quickly. . . . Thus, an immediate sale can often
assets.” 128 S. Ct. at 2342 (7-2 decision) (Breyer, J., dissenting) (citations
omitted).
courts approving asset sales outside the normal plan process to preserve the going
concern value of the debtor’s business.2 When Congress enacted section 363 of the
must be permitted to sell its assets during the course of a reorganization case when
section 363 sales is Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel
2
See, e.g., In re Decora Indus., Inc., No. 00-4459, 2002 WL 32332749, at *3
(D. Del. May 20, 2002) (approving 363(f) sale of substantially all assets of
chapter 11 debtor that had no source of future financing: “Debtors have two
alternatives: (1) proceed with the Proposed Transaction, or (2) terminate
business operations, employees and commence a liquidation of assets. . . .
All parties agree that an asset sale, as opposed to liquidation, will provide
more money to the estate to satisfy the creditors’ claims, as well as
maintaining the going concern value of Debtors. . . .”); In re Med. Software
Solutions, 286 B.R. 431, 441 (Bankr. D. Utah 2002) (court approved sale of
essentially all of debtor’s assets at outset of chapter 11 case); In re Naron &
Wagner, Chartered, 88 B.R. 85, 90 (Bankr. D. Md. 1988) (approving sale of
operating subsidiary where purchase price exceeded its estimated liquidation
value and “failure to close the sale quickly will likely result in a halt of
[subsidiary]’s continuous operations. If [subsidiary] cannot be sold as a
going concern, there will be a substantial decrease in its value to the
Debtor’s estate.”).
20
Corp.) (“Lionel”), 722 F.2d 1063, 1070 (2d Cir. 1983). Under section 363, the
Lionel court held, the relevant test is whether there is a “good business reason” for
the sale. Id. at 1071. See also In re Gucci, 126 F.3d at 387; In re Chateaugay
Corp., 973 F.2d 141, 143 (2d Cir. 1992); In re Global Crossing Ltd., 295 B.R. 726,
The “good business reason” on which reorganization courts have most often
relied in allowing the sale of a debtor’s property prior to plan confirmation is that
delay will erode significantly the value of that property. Lionel, 722 F.2d at 1066-
69. As the Lionel court stated, “[i]n such cases . . . the bankruptcy machinery
should not straightjacket the bankruptcy judge so as to prevent him from doing
what is best for the estate.” Id. at 1069. Courts applying section 363(b) have
routinely authorized asset sales outside of plans where the debtor, like Chrysler
Logistics, Inc., No. 08-11566, 2008 Bankr. LEXIS 896, at *30 (D.N.J. Mar. 26,
2008) (approving section 363 sale of business because “the failure to consummate
a sale at this juncture will result in a complete shut down of the debtor’s
operations” and “a going concern sale proves much more lucrative than a sale of a
non-operational entity”).3
3
See also Stephens Indus. v. McClung, 789 F.2d 386, 390 (6th Cir. 1986; In
re Lady H Coal Co., Inc., 193 B.R. 233, 244 (Bankr. S.D. W.Va. 1996); In re
Weatherly Frozen Food Group, Inc., 149 B.R. 480, 483 (Bankr. N.D. Ohio
21
The Bankruptcy Court made an express finding that Chrysler is in just that
position based upon several facts. First, any material delay will require hundreds
of millions of dollars to restart Chrysler’s plants; Chrysler’s workers will move on;
and Chrysler’s suppliers and dealers will likely fail. (JA219-221; JA1653; JA997-
In light of these realities, Fiat conditioned the Fiat Sale on a closing by June
15, 2009, and the United States and Canadian Governments imposed a number of
tight timing milestones. (See JA1809-10.) Thus, if the Fiat Sale does not occur
Bankruptcy Court recognized, “the Debtors are losing over $100 million dollars
per day. . . . Unless the Fiat Sale is approved without delay, the Debtors’ assets will
continue to erode, and they will be forced to liquidate in the near term.” (SPA60.)
otherwise, the Funds marry a misunderstanding of the Fiat Sale with a flawed
interpretation of the applicable legal principles. Properly viewed, the Fiat Sale is a
value-preserving transaction that in no way usurps the chapter 11 plan that will
1992); In re Titusville Country Club, 128 B.R. 396, 400 (Bankr. W.D. Pa.
1991); In re Channel One Commc’ns, Inc., 117 B.R. 493, 496 (Bankr. E.D.
Mo. 1990).
22
follow. It is much like the dozens of similar transactions that courts have routinely
its assumption of contracts constitute a distribution of the Debtors’ assets, they are
sale under section 363(b), it has had to decide whether, under the circumstances
presented, the benefits to the estate and its creditors justified a sale outside of a
plan. If they did, the transaction could not be an impermissible sub rosa plan
973 F.2d 141 (2d Cir. 1992), for example, this Court reviewed an order approving
the sale of the debtors’ aircraft and missile divisions. Affirming, the Court stated
that “[w]hat is presently feasible and necessary is a sale of Aerospace’s assets. The
courts below found that further delay risks that the assets will be sold later and for
less.” Id. at 144. The Court added: “It is true that delay might strengthen the
Aerospace Committee's negotiating hand . . . but only at the risk of diminishing the
value ultimately to be obtained from Aerospace's assets. A sale now protects all
creditors.” Id. See also In re Decora Indus., Inc., No. 00-4459, 2002 WL
32332749, at *8-9 (D. Del. May 20, 2002); Bartel v. Bar Harbor Airways, Inc., 196
23
B.R. 268, 273 (S.D.N.Y. 1996); In re Ionosphere Clubs, Inc., 184 B.R. 648, 653
(S.D.N.Y. 1995); In re Summit Global Logistics, Inc., 2008 Bankr. LEXIS 896
Because this case, like many that have preceded it, involves selling a
deteriorating asset at a price that exceeds any other available alternative, it does not
B. Nothing In The Sale Order Will Usurp The Debtors’ Final Plan
Nor will the Fiat Sale in any way usurp the normal plan process. The Fiat
Sale will involve the transfer of most, but not all, of the Debtors’ assets. Once the
Fiat Sale is completed (and even if it is not), the Debtors will proceed with an
orderly wind down of their estates. They were able to obtain DIP Financing to
bridge the Fiat Sale, and as part of that financing, the U.S. Government committed
4
Accord In re Bearingpoint, Inc., No. 09-10691 (REG), Sale Order at ¶ T
(Bankr. S.D.N.Y. Apr. 17, 2009) (Docket No. 468) (“The sale and assignment of
the Acquired Assets outside of a plan of reorganization pursuant to the Agreement
neither impermissibly restructures the rights of the Debtors’ creditors nor
impermissibly dictates the terms of a liquidating plan of reorganization for the
Debtors. The Transactions do not constitute a sub rosa chapter 11 plan.”); In re
Archway Cookies LLC, No. 08-12323 (CSS), Sale Order at ¶ T (Bankr. D. Del.
Dec. 3, 2008) (Docket No. 258) (same); In re Pecus ARG Holding, Inc., No. 09-
10170 (KJC), Sale Order at ¶ Z (Bankr. D. Del. Mar. 13, 2009) (Docket No. 262)
(same); Proxymed Transaction Services, Inc., No. 08-11551 (BLS), Sale Order at
¶ AA (Bankr. D. Del. Sept. 9, 2008) (Docket No. 191) (same); In re U.S. Energy
Systems, Inc., No. 08-10054 (RDD), Sale Order at ¶ X. (Bankr. S.D.N.Y. Mar. 13,
2009) (Docket No. 419) (“The Sale does not constitute a sub rosa Chapter 11 plan
for which approval has been sought without the protections that a disclosure
statement would afford.”).
24
to provide up to $260 million for the winding down. In addition, also as part of the
Fiat Sale, the Debtors obtained a Transition Services Agreement to provide the
responsibilities under chapter 11. The Debtors will market their remaining assets
and engage in the normal routines of a large bankruptcy case. They will monetize
assets and, when finished, seek confirmation of a plan that will provide for
unrelated to the sale – provisions of the sort typically found only in a final plan.
Courts have on occasion found such transactions to fall outside the bounds of
(S.D.N.Y. 2005), a debtor with first and second lien lenders sought approval to sell
substantially all of its assets to a purchaser who held some of the debtor’s first lien
debt and nearly all of its second lien debt. In exchange, the debtor received stock
in the purchaser’s parent, with the first lien and second lien creditors getting
But the Westpoint sale order did not stop there. It further provided that,
upon closing, the first lien lenders would receive a specified portion of the
securities in full satisfaction of their claim, and the second lien lenders would
25
directed that all liens would terminate upon distribution of the securities. Id. at 34.
In essence, the order provided not only for the sale of assets, but also (1)
determined the value of the first and second lien lenders’ claims, (2) allocated the
sale proceeds between the claims, (3) directed that the lienholders’ claims would
be completely satisfied upon payment, and (4) then released the underlying
security interest.
On appeal, the District Court observed that “[t]he first aspect of the
transaction” – i.e., the sale of assets in exchange for stock and grant of a
replacement lien – “is clearly within the scope of authority granted to the
added). As to the additional elements of the order, however, the court held that
363 . . . provides the Bankruptcy Court with authority to impair the claim
at 51. “Where it is clear that the terms of a section 363(b) sale would preempt or
dictate the terms of a Chapter 11 plan,” the Westpoint court explained, “the
proposed sale is beyond the scope of section 363(b) and should not be approved
The Fiat Sale bears no resemblance to the rejected aspects of the Westpoint
scheme. The Debtors will receive cash, not equity (thereby avoiding any valuation
26
issues). There will be no allocation or prioritization of the sale proceeds among
creditors, as the $2 billion will go entirely to the Lenders (who are owed
$6.9 billion). The Sale Order will neither provide for satisfaction of any creditor’s
claim, nor terminate the Lenders’ security interest, which will attach to the
proceeds of the sale. Nothing undertaken in connection with the Fiat Sale will
either “impair the claim satisfaction rights of objecting creditors” or “eliminate the
replacement liens.” See 333 B.R. at 51. And neither the express terms of the
Purchase Agreement nor the transactions it contemplates will dictate any of the
terms of the Debtors’ final plan or impair any creditor’s rights in connection
therewith. See In re Torch Offshore, Inc., 327 B.R. 254, 260 n. 7 (E.D. La. 2005)
face of sub rosa plan argument, finding that sales “do not contain any provisions
dictating the terms of any future reorganization plan, preordaining the way
creditors will vote on such a plan, or attempting to vary the priorities of [the
debtors’] creditors”).
C. The Fiat Sale Does Not Violate The Bankruptcy Code’s Priority
Rules
The Funds have asserted that the Fiat Sale is a sub rosa plan because it will
violation of the Bankruptcy Code’s priority rules. But the only distributions that
will occur in connection with the Fiat Sale will go entirely to the Lenders. In
27
particular, under the First Lien Credit Agreement, the lien securing the Debtors’
indebtedness will attach to the $2 billion in sale proceeds. Those proceeds will be
paid to the Lenders under the First Lien Credit Agreement. Pursuant to the Interim
Cash Collateral Order, dated May 4, 2009, Chrysler obtained consent to use cash
collateral securing the obligations under the First Lien Credit Agreement. The
Cash Collateral Orders authorized and directed the Debtors to distribute the cash
proceeds of the Fiat Sale to the Lenders. That direction was reaffirmed in the Final
Cash Collateral Order approved on May 29, 2009. Neither the Interim nor the
Confronted with the fact that the Lenders will receive all proceeds of the Fiat
Sale, the Debtors argue that arrangements New Chrysler has entered into with
constituencies who are critical to its creation and ultimate success (i.e., the
Governments that are financing the undertaking, employees who comprise the
skilled workforce that New Chrysler needs, and suppliers without whom cars
agreements and provided ownership interests in the new entity, which was neither
28
a diversion of value from the Debtors’ assets nor an allocation of the proceeds of
the sale of the Debtors’ assets.” Sale Opinion at 22. Rather, those arrangements
reflect some assignment of New Chrysler’s value. The value the Debtors will
realize from the Fiat Sale is the $2 billion they will be paid for their assets. That
$2 billion is substantially more than the Debtors could have gotten anywhere else
for those assets, and all of that amount is going to the Lenders, in complete
compliance with the Code’s treatment of liens. Accordingly, the Bankruptcy Court
distribution from the Debtors’ estates, nor a diversion of value from the Debtors’
contracts, including their dealer agreements, supply chain contracts, equipment and
realty leases, as well as their collective bargaining agreement, work any improper
distribution of the Debtors’ assets. Section 365 of the Bankruptcy Code gives
debtors broad power to pick which contracts they want to perform. See, e.g., In re
Maxwell Newspapers, Inc., 981 F.2d 85, 89 (2d Cir. 1992). The business
judgment rule “presupposes that the estate will assume a contract only where doing
so will be to its economic advantage.” COR Route 5 Co., LLC v. Penn Traffic Co.
29
( In re Penn Trafficco), 524 F.3rd 373, 382 (2d Cir. 2008); see also In re
Chatueaugay Corp. 10 F.3d 944, 954-55 (2d Cir. 1993) (“[section 365] provid[es]
it . . . .”).
Moreover, section 365 permits Fiat, on behalf of the buyer, New Chrysler, to
review the “inventory of executory contracts of the debtor and decide which ones it
would be beneficial to adhere to.” Orion Pictures Corp v. Showtime Networks, Inc.
(In re Orion Pictures Corp), 4 F.3d. 1095, 1098 (2d Cir. 1993). See also In re G.
Survivor Corp. 171 B. R. 755, 759 (Bankr. S.D.N.Y. 1994) (recognizing that
contracts are assumed (and thus benefit from the Bankruptcy Code’s cure
provisions) often fare better than other classes of creditors. See In re Chateaugay
Corp., 10 F.3d 944, 955 (2d Cir. 1993) (“estate’s election to assume a contract or
lease under Section 365 entitles the other contracting party to assert its claims on a
30
priority basis”). But such assumptions do not violate the Bankruptcy Code’s
priority rules.
That conclusion is even more apt here, where the buyer is designating the
contracts to be assumed and the buyer is paying the cure amounts. (See SPA118,
124.) There is simply no distribution of the Debtors’ property here. The funds
expended to provide for contract cures, and later payments made to secure
continued performance, are provided by the buyer. See In re TCIS, Inc., 393 B.R.
With little else to argue, the Funds suggest that the Fiat Sale is a sub rosa
plan because, after the sale, as before, “Chrysler will sell Chrysler, Jeep and Dodge
Motion for Expedited Appeal, at 3. As a factual matter, that is wrong. After the
Fiat Sale, a new entity, controlled largely by Fiat, will sell Chrysler vehicles
purchased the Debtors’ assets, as a going concern. As a legal matter, if the Funds’
cockeyed way of looking at the Fiat Sale were correct, then every going-concern
31
In the end, the Fiat Sale is precisely that – a sale of assets for a price that far
productive enterprise. It thus looks very much like the myriad transactions that
have been permitted in circumstances much less dire than those now before the
Court.
debt under the First Lien Credit Agreement. (JA2910-2914.) They argue that
section 363(f)(2) of the Bankruptcy Code does not authorize the sale of assets to
New Chrysler free and clear of liens on the property because they have not
consented to the transfer. As the Bankruptcy Court held, however, their argument
fails because the entity that actually holds the liens, the Collateral Trustee, has
its assets, as well as the proceeds thereof (the “Collateral”), to the Collateral
Trustee. (See JA2855) (“Each Grantor hereby grants to the Collateral Trustee . . .
32
assertion that they have not consented to the sale is thus irrelevant because they do
not hold the liens on the Collateral that Chrysler pledged under the First Lien
Credit Agreement. See In re Enron Corp, 04 Civ. 1367, 2005 U.S. Dist. LEXIS
2134, at *26-*29 (S.D.N.Y. Feb. 14, 2005) (where collateral was pledged “to” a
collateral trustee “for the benefit of” a bank group, bank group did not have
Moreover, under the Loan Documents, each Lender, including the Funds,
“irrevocably designated” the Administrative Agent to act as its agent “on its
behalf” and expressly agreed to be bound by any act taken (or decision not to act)
debt under the First Lien Credit Agreement (the “Required Lenders”). (JA2584-
2586.)
under the First Lien Credit Agreement. Upon a default, the Collateral Trustee
(acting at the direction of the Administrative Agent) is granted the power “to do, at
its option . . . , all acts and things which the Collateral Trustee deems necessary
Actions” permitted under the security documents. Id. §§ 2.2 and 2.3. A
“Collateral Enforcement Action” is defined to mean any effort “to exercise . . . any
33
rights or remedies with respect to any Collateral,” including any other right or
remedy “under any Bankruptcy Law ….” Id. § 1.1 (emphasis added).
and instruction of Lenders holding $6.376 billion (92.5%) of the debt under the
First Lien Credit Agreement, caused the holder of the first lien on the Debtors’
assets – the Collateral Trustee – to consent to the Fiat Sale in exchange for an
to authorize the transfer of the Debtors’ assets to New Chrysler free and clear of
the first lien on those assets imposed by the Loan Documents, pursuant to section
363(f)(2). Moreover, because this action was taken at the request of the Required
Lenders, all Lenders, including the Funds, have contractually agreed to be bound
by that action, and thus are deemed to have consented to the sale.
The Funds argue otherwise, citing section 9.1(a) of the First Lien Credit
Agreement, which they construe as requiring unanimous consent from the Lenders
to allow the Administrative Agent to consent to the sale of substantially all of the
Collateral free and clear of liens. But section 9.1(a) merely describes the
34
parties, including those that would “release all or substantially all of the
Funds’ suggestion that this provision requires unanimous lender consent to the sale
of assets constituting the Collateral after an event of default is wrong for three
reasons.
First, the Debtors’ proposed sale is not a release of the Collateral. A sale of
assets that constitute Collateral under the Loan Documents does not “release” that
Collateral because the “proceeds” from the sale of those assets remain as Collateral
§§ 2.(a)(xv), 3.4 and 3.5; CTA § 2.11(b); Debtors Ex. 55 at § 3(a). Nor is the lien
on the transferred assets discharged or released. Rather, the lien attaches to the
proceeds of the sale. See N.Y. U.C.C. Law § 9-315(a)(2) (Consol. 2009) (a
Second, a transfer of assets through a section 363 sale does not require any
of Default occurs, the CTA expressly grants the Collateral Trustee the right to
“realize upon the Collateral” and “to sell all ... of the Collateral.” CTA §§ 2.2 and
2.3 (emphasis added). See also Security Agreement § 3.6 (granting right to
“realize upon ... and/or ... sell ... the Collateral or any part thereof (or contract to do
[so])”). The Collateral Trustee’s power to sell all the Collateral upon an Event of
35
Default necessarily includes the power to consent to such a sale under section
Documents. See (JA2786-2790; 2798) (Collateral Trustee has right to take any
Third, even were section 9.1(a)(iii) contorted to otherwise apply to the sale
consent of all Lenders still would not be required because such an “amendment”
would be “otherwise provided [for] in the Loan Documents ....” First Lien
Agreement § 9.1(a)(iii); see CTA §§ 2.2, 2.3, 2.5(c), 2.11(b); Security Agreement
§ 3.6.
Two recent cases are directly on point: In re GWLS Holdings, Inc., No. 08-
12430, 2009 Bankr. LEXIS 378 (Bankr. D. Del. Feb. 23, 2009), and Beal Sav.
Bank v. Sommer, 8 N.Y.3d 318 (2007). In both, the courts analyzed contractual
provisions that were identical in all material respects to section 9.1(a)(iii) of the
First Lien Credit Agreement, and held that they did not require an administrative
agent to obtain unanimous consent from the lenders to dispose of the collateral
after a default because such action was not a “waiver, amendment, supplement, or
modification” of the credit agreement. See In re GWLS, 2009 Bankr. LEXIS 378
36
Indeed, in this case, there is a clear and unmistakable expression of the
parties’ intent to preclude an individual dissenting lender, such as the Funds, from
interfering with the enforcement actions of the Collateral Trustee See Beal Sav.
Bank, 8 N.Y.3d at 332 and n.3 (urging parties to make their intent clear on this
issue in the loan documents). Less than five months after the Beal decision was
rendered, Chrysler and the Collateral Trustee expressly provided, in section 2.5(c)
of the CTA, that “no Holder Representative or any other Secured Party” shall,
without the consent of the Administrative Agent, “take any Collateral Enforcement
Action” or “object to, contest or take any other action that is reasonably likely
to . . . hinder” the manner in which the Collateral Trustee exercises its rights with
In short, the Collateral Trustee held the lien and validly consented to the sale
of the Collateral pursuant to section 363(f)(2) of the Bankruptcy Code. The Funds
are contractually bound by that decision and have no standing to now object to that
sale.
B. Section 363(f)(3) Also Authorizes The Sale Free And Clear Of The
Liens Held By The Collateral Trustee
Even if the Funds had not consented to the Fiat Sale for purposes of section
allowing the Fiat Sale free and clear of any liens the Funds claim in the subject
property.
37
A sale can be made free and clear of liens pursuant to section 363(f)(3) of
the Bankruptcy Code so long as the purchase price exceeds “the aggregate value of
all liens on such property.” Lower courts throughout this circuit have confirmed
that “value of the liens” for purposes of section 363(f)(3) means the actual
economic value placed on the liens – not the face amount of the liens. Perhaps the
seminal case in the area is In re Beker Indus., Inc., 63 B.R. 474, 476 (Bankr.
S.D.N.Y. 1986). There, a chapter 11 debtor sought to sell real property free and
clear of all liens, even though the sale price was less than the face amount of the
liens. To fix the meaning of the term “value” as used in (f)(3), the Court first noted
that when used in § 506(a) with respect to the interest of a creditor, “value” means
actual value as determined by the court, not the amount of the lien. Beker, 63 B.R.
at 476. The court reasoned that interpreting “value” to mean the economic value of
a secured claim (rather than its face amount) was consistent with other parts of the
Bankruptcy Code, including the adequate protection provisions in section 361 and
provisions allowing a sale of encumbered property for less than the face amount of
a lien pursuant to sections 1129(b)(2)(A)(ii) and 363(k). Id. at 476-77. Finally, the
court noted (and commentators have agreed) that if objecting lienholders believe
that a higher sale price could be obtained for property, they can acquire the
property and sell it themselves. See id. at 478; John Collen, What Do the
38
Subsections of Section 363(f) Really Mean?, 6 J. Bankr. L. & Prac. 563, 572
(1997).
Myriad other courts have reached the same conclusion. See In re Terrace
Gardens Park P’ship, 96 B.R. 707, 713 (Bankr. W.D. Tex. 1989) (applying Beker
to authorize sale under section 363, noting that “[i]t makes no sense to read into
which pervades both Section 363 and the rest of the Code, just because the sale is
free of liens”); In re Levitz Home Furnishings, Inc., No. 05-45189 (BRL) (Bankr.
The Funds urged the court below to reject Beker and construe section
363(f)(3) to require that the purchase price for the assets sold be greater than the
nominal amount of the liens, relying on Clear Channel Outdoor, Inc., Appellant, v.
Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. BAP 2007). In Clear Channel, the
issue was whether a senior secured lender who had credit bid to purchase
substantially all of the debtors’ property at a price that was less than the nominal
5
Accord In re Collins, 180 B.R. 447, 450 (Bankr. E.D. Va. 1995)
(characterizing as “a better reasoned solution” the interpretation that section
363(f)(3) authorizes sale free and clear where price is lower than face
amount of liens, but greater than secured value of claims); In re WBQ P’ship,
189 B.R. 97, 105-06 (Bankr. E.D. Va. 1995) (sale permitted under
section 363(f)(3) if purchase price equals or exceeds value of liened
property); In re WPRV-TV, Inc., 143 B.R. 315, 320 n.14 (D.P.R. 1991)
(citing Beker as “better reasoned view”); Oneida, 114 B.R. at 356-57 (Bankr.
N.D.N.Y. 1990); In re Microwave Prods. of Am., Inc., 102 B.R. 659, 660-61
(Bankr. W.D. Tenn. 1989).
39
amount of the total secured debt, could take the property free and clear of a junior
secured lender’s lien. The Panel, concluding that section 363(f)(3)’s reference to
“aggregate value of the liens” meant the face amount of the liens, stated that the
could sell estate property free and clear of any lien, regardless of whether the
Clear Channel has been widely criticized. See, e.g., Joel H. Levitin, et al.,
Ninth Circuit BAP Dresses Down Lienstripping - Could This Be the Last Dance
for 363 Sales?, 27-Oct. Am. Bankr. Inst. J. 1, 52-53 (2008); Corbi, Richard J.,
Section 363(f) “Free and Clear” Sales May Not Survive Appeal, 18 J. Bankr. L. &
Prac. 1 Art. 8 (2009); Frank A. Oswald and Andy Winchell, Missing the Forest for
the Trees in § 363: How the Ninth Circuit’s Bankruptcy Appellate Panel Neglected
the Big Picture in the Clear Channel Decision, 2009 No. 4 Norton Bankr. L.
Adviser 2 (2009). The Clear Channel approach would make section 363 sales
virtually impossible in the situations where they are needed most – that is, when an
asset is rapidly deteriorating and value will be lost if it is not sold immediately. In
nearly all such situations, some or even all of the secured lenders will be “under
water.” If that condition alone precludes a free and clear section 363 sale, then the
40
While the language of section 363(f)(3) may be imprecise, its import is clear:
a debtor may not sell liened assets at less than their market value because doing so
could impair the interests of the lienholders. But there is no such risk when the
purchase price is at or above market value and the secured party is afforded the
“adequate protection” (usually, as here, through a lien on the sales proceeds) that is
Here, the Debtors’ estates will clearly receive value that exceeds the
because of the overriding concern of the U.S. and Canadian governments to protect
the public interest…the Fiat Transaction presents an opportunity that the market
place alone could not offer.”) The purchase price here is an immediate cash
payment from New Chrysler in the amount of $2 billion (in addition to the value of
the contract liabilities assumed by New Chrysler). In contrast, the total proceeds
available for recovery by the first lien holders should their collateral be liquidated
would fall within the lower end of a range between zero and $800 million. May 27,
Under these circumstances, section 363(f)(3) applies and, for this additional
reason, the Debtors’ property can be sold free and clear of all liens on that property.
41
V. THE FUNDS’ CLAIM THAT THE GOVERNMENT SPENDING
VIOLATES TARP OR EESA PROVIDES NO BASIS FOR
REVERSING THE BANKRUPTCY COURT’S APPROVAL OF THE
FIAT SALE
The Funds are expected to again press their flawed argument that the Fiat
unlawfully funding the transaction with TARP money. The Bankruptcy Court
properly rejected that argument, finding that the Funds do not have standing to
even raise the TARP and EESA issues, as they have suffered no injury as a result
of the alleged violation. The Funds’ lack of standing (for the reasons the court
Even if the Court Funds had standing to raise the TARP issue, their claim
still fails for at least five reasons. First, sovereign immunity prevents the Court
from entertaining the action. Second, the TARP statute expressly bars courts from
providing the relief the Funds seek here – an Order enjoining the Treasury
Secretary’s TARP spending decisions. Third, the statute allocates to the Financial
TARP expenditures. Fourth, the Funds have waived their right to assert that the
funding violates TARP by acquiescing in the use of TARP funds to provide loans
to Chrysler on multiple occasions. Finally, even if the Funds could press their
TARP claims, they lose on the merits as the Government funding here is
42
At bottom, the Funds are the wrong party, seeking the wrong relief, in the
wrong forum.
limitations on its exercise.” Bennett v. Spear, 520 U.S. 154, 162 (1997). There are
three elements to constitutional standing: (1) the plaintiff must have suffered an
“injury in fact,” which is actual or imminent; (2) there must be a casual connection
between the injury and the conduct complained of; and (3) it must be likely, not
merely speculative, that the injury will be redressed by a favorable decision. See
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal citations
omitted). In addition, the “plaintiff’s grievance must arguably fall within the zone
guarantee invoked in the suit.” Bennett, 520 U.S. at 162 (internal citations
omitted). Here, the Funds meet neither Article III nor prudential limitations on
standing.
As to the Funds’ secured claims, they cannot show Article III standing as
they have no injury in fact for at least two reasons. First, they are bound by their
Administrative Agent’s consent to the Fiat Sale, so they are not injured when that
43
consensual sale goes forward. Second, as the Bankruptcy Court expressly found,
the collateral being sold is worth considerably less than the $2 billion the Lenders
Even if they could show an injury in fact, the injury the Funds allege is not
Court noted, “If a non-governmental entity were providing the funding, in this
case, the [Funds] would be alleging the same injury, i.e., interference with their
collateral.” (SPA52.) Thus, “it is not the actions of the lender that the [Funds] are
challenging, but rather the transaction itself.” Id. Indeed, “the [Funds] would
suffer the same injury regardless of the identity of the lender.” Id.
To the extent the undersecured Funds are pressing their TARP arguments as
unsecured creditors, they fare no better. As the Bankruptcy Court noted, “[i]n
view of the fact that the face value of the liens on the collateral exceeds the value
of the collateral itself, all holders of unsecured claims are receiving no less than
they would receive under a liquidation.” Id. To the extent the Funds are unsecured
The Funds also cannot show redressability. A decision in their favor on the
TARP issue would provide them no relief, as the Government’s obligation to fund
this deal is not tied to TARP funds. Pursuant to an agreement dated May 5, 2009,
44
the governments of the United States and Canada collectively committed to
See 5/5/09 DIP Agmt. at ¶ 2. Nowhere does the agreement specify that the source
of the funds will be TARP, nor does the agreement make the Government’s
Given that the Government’s obligation is not tied to TARP, the appellants
beyond the Court’s Article III powers. See Bronx Household of Faith v. Board of
Educ. of City of New York, 492 F.3d 89, 117 (2d Cir. 2007) (declining to answer a
hypothetical question”).
The Funds similarly fail to clear the prudential standing hurdle. They cannot
show that they fall within the “zone of interests” protected by TARP’s spending
45
funding here, there is no plausible argument that the TARP spending limitations
alleged to have improperly received TARP funds. As the Funds are not within
Government’s decisions under TARP. But, to the extent that TARP provides for
judicial review at all, it is only through an APA claim. See 12 U.S.C. 5229(a)(1).
Whitney Nat’l Bank v. Bank of New Orleans & Trust Co., 379 U.S. 411, 419
(1965) (holding that Congress’s “carefully planned and comprehensive method for
procedure is to be exclusive”); Gen. Fin. Corp. v. FTC, 700 F.2d 366, 368 (7th
exclusive.”) By attempting to assert their TARP claims here, the Funds improperly
46
C. TARP Expressly Precludes Equitable Relief That Interferes With
The Secretary’s Spending Decisions.
Not only does the Court lack jurisdiction, but the Funds are seeking a
forbidden form of relief. They request an Order preventing the Government from
providing funds in connection with the Fiat Sale. The TARP statute, however,
expressly precludes courts from interfering with the Treasury Secretary’s use of
§ 5229(a)(2)(A) provides:
The only constitutional provision that the Funds mentioned below is the
the Supreme Court has held that to establish a property right that gives rise to a
included in the bankruptcy estate. See United States v. Security Industrial Bank,
459 U.S. 70 (1982). In particular, the Court drew a sharp distinction between “the
modification of which would not give rise to a Takings claim, and the “property
47
right of the same creditor in the collateral” (i.e., the lien), modification of which
Here, the Funds have no property rights in the collateral. Rather, their
interest is purely contractual. As noted above, the Loan Documents grant liens
directly to the Collateral Trustee. The Collateral Trustee acts at the direction of
the Administrative Agent, who in turn, acts on instructions from the majority of the
Lenders. The Funds have thus contractually agreed to be bound by the collective
choice of the group, and not to take any action inconsistent with that collective
choice.
No one disputes that a majority of the Lenders have approved the sale.
Thus, the Funds have no cognizable property interest, and accordingly no Takings
claim. As the Funds have not identified any other putative constitutional violation
(and none exists), they cannot obtain the equitable relief that they seek. See 12
U.S.C. § 5229(a)(2)(A).
48
Governors of the Federal Reserve System, the Treasury Secretary, the Director of
the Federal Housing Finance Agency, the Chairman of the SEC, and the Secretary
of HUD. Id. at § 5214(b). The statute assigns that Board responsibility for
[with TARP], including policies implemented by the Secretary and the Office of
purchased, and plans for the structure of vehicles used to purchase troubled
authority to ensure that “the policies implemented by the Secretary are (1) in
accordance with the purposes of this chapter; (2) in the economic interests of the
United States; and (3) consistent with protecting taxpayers ….” Id. at § 5214(e)
(emphasis added). Clearly, if the Funds have legitimate complaints about the
funding decisions, they should raise them (at least in the first instance) with the
Oversight Board.
February, the Government made an additional $500 million loan available, again
49
citing TARP. The Funds objected to neither. Indeed, Chrysler used the
government money, inter alia, to pay interest to the Funds (and the other Lenders).
Having directly benefited from Chrysler’s receipt of TARP funds, the Funds are in
falls within the Secretary’s authority under TARP. In EESA (the statute that
created TARP), Congress gave the Secretary broad powers to implement the
purposes of the Act, including “[i]ssuing such regulations and other guidance as
U.S.C. § 5211(d).
50
The Secretary has established such guidelines, including through its Auto
http://www.financialstability.gov/docs/AIFP/AIFP_guidelines.pdf. These
administrations have explicitly determined that loans like those here are
appropriate under TARP. Nor have these guidelines, or the specific determinations
that the Secretary made under them here, ever been attacked through an
(available at http://www.financialstability.gov/docs/FSOB/FINSOB-Qrtly-Rpt-
033109.pdf).
51
In short, the Treasury Secretary appropriately exercised his statutory
authority in devising program guidelines, and the expenditures here fall well within
those limits.
pending and can choose for himself whether to appear or default, acquiesce or
contest.” Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950).
Moreover, it is well settled that the amount of process that is due must be evaluated
in the context of the exigencies associated with any particular situation. Kaufman
v. S & C Corp., 171 B.R. 38, 40 (S.D. Tex. 1994) (noting that “[w]ith his usual
utilitarian focus, Justice Holmes simply said that ‘what is due process depends on
In other words, the Due Process Clause does not impose a bright-line rule,
but rather “depends upon the facts and circumstances of each particular case.”
Matter of Robintech, Inc., 863 F.2d 393, 396 (5th Cir. 1989) (holding that 13 day
demand, even shortening a response period from thirty days to one day has been
held to be consistent with due process requirements. See Matter of Holtkamp, 669
52
Given the exigencies here, due process requirements have easily been
satisfied. The Bidding Procedures Order required the Debtors to provide notice to
various creditors and stakeholders (including Appellants) within two business days
after the Order was entered, over two weeks in advance of the hearing on the Sale
Motion. No one disputes that the Debtors in fact mailed the Sale Notice to each
required party only one business day after entry of the Order. Nor is there any
dispute that the parties availed themselves of the opportunity to be heard – some
347 objections to the Fiat Sale were filed, including lengthy objections from
Appellants. Given the need for speed, a need that this Court itself recognized in
setting the expedited briefing schedule, the notice below certainly conformed with
due process.
Moreover, courts have also noted that “street or common knowledge” can
Drug Co., Inc., 110 B.R. at 150. Here, no one can dispute that strong speculation
of a possible Chrysler filing was swirling long before that filing ever occurred. As
early as mid-February, the media was reporting that “[t]he administration asked
GM and Chrysler to address bankruptcy as part of their plans.” Justin Hyde, GM,
Chrysler now say they need billions more: Automakers to cut 50,000 more jobs,
speed plant closings, DETROIT FREE PRESS, Feb. 18, 2009. In a similar vein,
“Standard & Poor’s said . . . there was high probability GM and Chrysler could file
53
for bankruptcy this year or next. Another rating agency, Moody’s, put the
While Chrysler was working its hardest to avoid a filing, bankruptcy was a
real possibility, and suppliers and other creditors were almost certainly considering
the ramifications that a Chrysler filing would have for them. Any claim of
Nor can the parties advance a due process claim predicated on allegations of
civil case. See Batagiannis v. W. Lafayette Cmty. Sch. Corp., 454 F.3d 738, 742
prosecutions.”) (citing Wardius v. Oregon, 412 U.S. 470 (1973)). Second, the
available for deposition, including all the people they called to testify in connection
To be sure, the exigencies of this case, including the need to close the
transaction by June 15, 2009, placed everyone under time pressure. But such time
pressure is not unusual in the bankruptcy context. Indeed, many cases have upheld
very similar timeframes. See, e.g., In re Fortunoff Holdings, LLC, No. 09-10497
(RDD) (Bankr. S.D.N.Y. Feb. 25, 2009) (substantially all of debtor’s assets sold
54
within 20 days of petition date); In re Lehman Brothers Holdings Inc., No. 08-
13555 (JMP) (Bankr. S.D.N.Y. Sept. 19, 2008) (four days); In re Sababa Group,
Inc., No. 08-13174 (Bankr. S.D.N.Y. Sept. 29, 2008) (16 days). The willingness of
thereby preserving value for debtors and creditors alike, is a cause for
CONCLUSION
For the above reasons, the Court should deny the appeal and affirm the Sale
Order. Allowing the sale to proceed expeditiously serves the interests of the
55
Dated: June 4, 2009 Respectfully submitted,
New York, New York
/s/ Corinne Ball
Corinne Ball
Steven Bennett
Todd R. Geremia
Veerle Roovers
JONES DAY
222 East 41st Street
New York, New York 10017
Telephone: (212) 326-3939
Facsimile: (212) 755-7306
Thomas F. Cullen
JONES DAY
51 Louisiana Avenue NW
Washington, DC 20001
Telephone: (202) 879-3939
Facsimile: (202) 626-1700
56
CERTIFICATE OF COMPLIANCE
This brief complies with the type-volume limitation in Federal Rule of
word-processing system used to prepare the brief, exclusive of the parts of the brief
32(a)(7)(B)(iii).
-i-