The NYT Wheels blog reports that Judge Arthur Gonzalez has overruled pleas by consumer advocates and law professors by granting Chrysler’s request to exempt “New Chrysler” from any liability arising from “Old Chrysler.” Public Citizen, the Center for Auto Safety and Consumers for Auto Reliability and Safety have formally objected to the move on the grounds that current owners of Chrysler vehicles will have no legal recourse if they are injured because of a product defect. A lawyer representing these groups has said they will seek an appeal, the second objection to date to the Chrysler asset sale. According to testimony by Robert Nardelli, the idea of not allowing current owners to sue came up during the discussions between the Treasury and Fiat. Unlike the State of Indiana’s appeal of the Chrysler asset sale, this appeal has the potential to completely change the incentives for Fiat to take over Chrysler. If an appeals judge hears and approves this objection, Fiat could simply walk away.
I say let them walk away.
I am mad enough about all the so called laws of business and capitalisn, let alone individual protections, being broken to make these bailouts pass.
These deals are only making purchases financially possible by making others suffer with loss.
What the hell good is any contract or investment worth if at any time it all can be dismissed and voided?????
This is why modern bankruptcy law was created in order to prevent these sorts of shell games and sham sales. Unfortunately, the Obama Administration has taken us back to the pre-Progressive Era state with this clunker. “Bad” Chrysler has all the liability, but no money to pay it with. Those assets were sold to good Chrysler, and then to Fiat. So sorry.
When I thought that there was no way to make Chrysler live longer, I really didn’t think that the Administration would choose to screw people out of warranty and liability claims in order to get some obligations off the books.
I would laugh my ass off, if “Bad Chrysler” were given the (dead) brands of Plymouth and DeSoto, the rejected dealers, given the Avenger design and Sterling Heights plant, and a few other assorted plants excess to requirements and not needed by the “good” Chrysler, then were given a little pin-money to shove-off and die. Then in five years having succeeded in improving their cars, turning a profit, doing an IPA, with “good” Chrysler long dead and buried after burning through billions of US taxpayer monies.
That would be abso-fricking-larious.
But of course, it won’t happen. The powers that be (President Goodwrench) wouldn’t want any competition for GM and FIAT dontchaknow.
I am surprised that with the unions getting protected, and with the possibility that the dealers will be protected that the trial lawyers dont get protected too. This is another big Democratic fundraising group. Maybe the difference here is that making the trial lawyers happy will cause Fiat to walk, putting the union in jeopardy. If I had to guess, the unions are farther up the totem pole of Democratic politics than the trial lawyers.
The whole point of an asset sale is to eliminate the lingering liabilities from the previous failed business. It is hard to imagine any judge ruling for the objectors on this issue.
The whole point of an asset sale is to eliminate the lingering liabilities from the previous failed business.
Yes, but under standard bankruptcy law successor liability can be invoked if any of several conditions arise, conditions that are all designed to prevent sham sales. The cited article is from 2007, predating Chrysler of course.
Look at the four standard reasons under California law, for example, when successor liability may arise:
1) Express or Implied Assumption of the Seller’s Liabilities Exception
2) De Facto Merger or Consolidation Exception
3) Mere Continuation of the Seller’s Business
4) Fraudulent Evasion, aka the “Sham Sale”
All of them potentially apply here.
Bankruptcy law is designed to get rid of excess liabilities, to be sure, but also there must be an effort to attempt to pay off creditholders, not just shield all the assets from creditholders by dividing the company into two shell companies, one with all the assets, one with all the liabilities, and then sell the “good” one in an restriction auction to a favored group of investors linked with the original company.
The whole point of an asset sale is to eliminate the lingering liabilities from the previous failed business. It is hard to imagine any judge ruling for the objectors on this issue.
Exactly.
If I get hurt in my Studebaker, do I have a product liability claim? Old Chrysler will soon be out of business.
John Horner :
June 3rd, 2009 at 3:07 pm
The whole point of an asset sale is to eliminate the lingering liabilities from the previous failed business. It is hard to imagine any judge ruling for the objectors on this issue.
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On which planet are you living? Or, which dictionary are you using?
The whole point of an asset sale is to pay back the asset owner as much as possible.
OK, so let’s say the objections succeed, new Chrysler is still fair game for the ambulance chasers, so Fiat pulls out, and what remains of Chrysler staggers into Chapter 7 and is picked to nothing.
This changes the final situation for the consumer advocates and ambulance chasers exactly how?
From my angle, either way they end up with no one to collect from. The current situation leaves someone employed. The latter leaves everyone unemployed.
If I get hurt in my Studebaker, do I have a product liability claim? Old Chrysler will soon be out of business.
Actually, if you have a product liability or environmental claim against Studebaker, yes you do have a claim. Against McGraw-Edison Co. precisely, the insurance company that is viewed as the legal successor to Studebaker Co. Cases have been pending in Indiana over the last few years.
Dynamic88, you’ve made my point by pulling a perfect analogy out of the air. Just an analogy that says the opposite of what you think it would.
Let’s put things in perspective here. Ten billion dollars to secured lenders amounts to almost a billion a year in annual interest expense. You’d have to have 1,000 million dollar verdicts or settlements just to equal the interest on the secured debt. I suspect Chrysler’s product liability costs are at least an order of magnitude lower than that.
They asked Henderson during the hearings today if GM would pursue the same protection. Of course Henderson said “Yes.”
I liked the silence and dejection of those in the room upon hearing the reply. Not that anyone can do anything about it.
On which planet are you living? Or, which dictionary are you using?
The whole point of an asset sale is to pay back the asset owner as much as possible.
It’s actually both, because ideas are often more complex than than can be expressed in one sentence.
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This is why modern bankruptcy law was created in order to prevent these sorts of shell games and sham sales. Unfortunately, the Obama Administration has taken us back to the pre-Progressive Era state with this clunker. “Bad” Chrysler has all the liability, but no money to pay it with. Those assets were sold to good Chrysler, and then to Fiat. So sorry.
When I thought that there was no way to make Chrysler live longer, I really didn’t think that the Administration would choose to screw people out of warranty and liability claims in order to get some obligations off the books.
You do have a point in that some people would be screwed over. However, the alternative is liquidation, where unsecured claims get nothing anyway. Perhaps you can ask those nice Non-TARP chaps to chip in with their share.
What you’re really asking is for the feds to be nice and pay these people off (similar to warranties), which is reasonable, but aware that’s what it comes down to.
johnthacker
Thanks for helping out with a splash of sanity.
Dynamic88
Of course bankruptcy laws are supposed to help do a reset…but they are not to be rewritten as the proceedings go.
This is exactly what is going on here.
Suddenly its all about the end justifying the means, with the end being a promise.
And in this case, the original investors are being given the shaft while powerful and connected are getting the deal.
Dynamic88
There is a legal pecking order for bankruptcy.
Here, the whole shell game has chosen losers and hand picked winners.
Without this pecking order being honored, the future is bleek for investment.
And investment has always been the foundation of capitolism.
What is it about faith in the future and your investment that you don’t understand?
If nobody feels a contract is worth its paper, why sign?
but they are not to be rewritten as the proceedings go.
This is exactly what is going on here.
No it’s not.
Do you want to be a smartass? Go ask the source of your info which law exactly got changed and how. You can then process to laugh in their face as they are dumbfounded.
However, the alternative is liquidation, where unsecured claims get nothing anyway. Perhaps you can ask those nice Non-TARP chaps to chip in with their share.
Bullshit generalization. Even in liquidation, unsecured claims can get something. They just have to stand in line after the secured claims. There is then a standard priority list for unsecured claims based on the bankruptcy code.
And even in liquidation, successor liability exists, at least in California.
Quoting:
“A de facto merger may occur when: (1) the consideration paid for the seller’s assets consists solely of stock in the buyer; (2) the buyer continues the same business after the sale; (3) the seller’s shareholders became shareholders of the buyer; (4) the seller has been liquidated; and (5) the buyer assumed those liabilities necessary to carry on the business. In such case, the buyer could be held liable for all of the seller’s debts by operation of law, just like in an ordinary merger arrangement.”
What you’re really asking is for the feds to be nice and pay these people off (similar to warranties), which is reasonable, but aware that’s what it comes down to.
I’m aware that’s what’s going to happen, because of political reality, but it sets a really bad precedent. Unless we assume that this is just a really bad idea that’s never going to happen again.
Do you want to be a smartass? Go ask the source of your info which law exactly got changed and how. You can then process to laugh in their face as they are dumbfounded.
Look, I posted it above, but here is a discussion of successor liability as it applies in California. The article is from 2007. Cases where successor liability applies include not only the de facto merger mentioned above, but also when the buyer engages in “Mere Continuation of the Seller’s Business” or when there is a sham sale.
Sham sales are when:
“The fourth exception to the general rule of no successor liability occurs when little or no cash is paid for the seller’s assets and the assets are transferred with the actual intent to hinder, delay, or defraud a creditor.” Another factor that makes a sham sale likely is when only one party is allowed to bid on the assets, like in the politically structured deal we had. Fiat is getting government assistance to get Chrysler for free. Without an open auction, Fiat could simply be getting a sweetheart deal– assets worth more than zero
The government made a end-run around normal bankruptcy law. While it’s true that in general liabilities are not assumed, there are several exceptions, and the details of the Chrysler sale to Fiat– one politically chosen buyer, Chrysler operations to largely continue, a de facto merger– all tend to point to exactly the sort of loopholes that bankruptcy law and the Bankruptcy Code was created to prevent.
You have absolutely no idea what you’re talking about agenthex, as are a bunch of other people on this thread. I gave you a source on bankruptcy law and successor liability. The person in this thread who made a Studebaker reference backfired as well, as there exists a successor for Studebaker liabilities.
If this kind of bankruptcy were in general allowed, it would be very easy to dupe creditors and evade debts. There was a wave of this about a hundred years ago, including with several railroad companies. Reforms were made to prevent this.
Incorrect generalization. Even in liquidation, unsecured claims can get something. They just have to stand in line after the secured claims. There is then a standard priority list for unsecured claims based on the bankruptcy code. In this case, of course, there likely would not have existed money for many of the unsecured creditors, but that’s not a good reason to destroy the standard process, which is there for a reason.
For someone so patronizing, you are quite ignorant that this is exactly what’s going on. 2 bil was raise through the asset sale, thus the cripples can fight the Non-TARP saviors of capitalism for it. Since the latter, no doubt your buddies, are such swell guys, they should show the world how much better than the mean old government they are by ceding their place in line.
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when little or no cash is paid for the seller’s assets and the assets are transferred with the actual intent to hinder, delay, or defraud a creditor.
I guess these days 2 billion qualifies as little or no cash. Hell, not even the Saviors Of Capitalism tried to argue that this is an inadequate price. But apparently you know better than than their idiot counsel. They clearly should’ve hired you instead with your all expertise in Californian bk law.
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Without an open auction, Fiat could simply be getting a sweetheart deal– assets worth more than zero
This quite clearly shows what an idiot you are because the assets were auctioned. Where were you with your conservative buddies to outbid the 2bil that was offered in the auction that ended May 27? I mean, that was such a great deal, I’m so sorry you missed out. Maybe you were busy reviewing the relevant S363 of bk code and preceding cases. No, that’s not it. Must be so many ambulances to chase in California.
I stand by my prior statement: “It is hard to imagine any judge ruling for the objectors on this issue.” That doesn’t mean some people aren’t going to be spitting mad about it, and it doesn’t mean that some lawyers aren’t going to make every argument possible for the alternative view. That is, after all, what lawyers do. Most civil lawyers are quite happy to take either side of a case, because they pride themselves on being ready, willing and able to make either side’s best arguments. Kind of a weird view of life if you think about it hard enough.
that some lawyers aren’t going to make every argument possible for the alternative view.
Including using law from unrelated jurisdictions if they’re desperate enough. Hell the judge might forgive that if the arguments didn’t contradict the facts in the case.
What’s really happening is that the desperate idiot side is trying to conflate the bankruptcy sale with whatever the hell the DIP lender chooses to do with the assets/equity after it buys them. Legally speaking they can use the factories to throw stripper parties for every UAW worker’s birthday if they so fancy, or hold a cage fight where the last granny standing gets all the newco stock.
On second thought, that may not be legal.
What John The Hacker should’ve been looking if he had a clue was something more along these lines:
http://www.bingham.com/Media.aspx?MediaID=5085
Unfortunately, that’s not exactly what he’s looking for, and thus he will likely fail in his venture without another big helping hand.
I was hoping to do a sally struthers parody here for a foundation that aids those deprived of basic legal knowledge, but couldn’t find a suitable save the children transcript, so screw it.
Everybody…
I must confess I am not a lawyer.
This is in my opinion, not a bad thing. At least I have a slightly better chance of getting into heaven than the camel stuck with his ass in a needle eye.
But it always helps to listen to a good one speak.
Please take the time to read through this interview with the link below.
If initially a window pops up, x out to the interview.
It makes me a little more clear on the government moves with these bankruptcies.
But even IF the deals are all legal, although odd, it all comes down to what RF tried to explain in his TV discussion:
Nothing matters IF you are NOT building cars that the public wants.
There is NOTHING in the big plan that gives me confidance the NEW GM or the NEW C will present to a buying public anything worth purchasing.
Everything invested will be lost without a good desireable car to sell.
PLEASE read through…
http://www.salon.com/tech/htww/feature/2009/05/23/fun_with_bankruptcy_law/
Another factor that makes a sham sale likely is when only one party is allowed to bid on the assets, like in the politically structured deal we had.
That’s factually inaccurate. The judge ordered an auction.
The lack of bidders at that auction is indicative of the absence of a sham sale. A sham sale suggests an effort to underpay for the assets in order to harm the creditors. But without anyone else expressing interest in the purchase, it’s rather tough to argue that the value was too low. Apparently, nobody else was interested in paying $2 billion for Chrysler’s assets.
That’s not surprising. Net net, Cerberus didn’t pay much for the company, and that was at a point when Chrysler was selling more units. Daimler happily dumped it at a loss, given the weakness of the operations. This deal makes sense for Fiat, but it doesn’t make much sense for many other parties, and apparently doesn’t make sense for anyone at that price point.
The bondholders had a rotten case, and they knew it. Accept it for what it is; they made loans to a bad business, and got paid less than par because they made those choices. That’s how the real world works.