Indiana State Police Pension Trust v. Chrysler
Encyclopedia
Indiana State Police Pension Trust v. Chrysler LLC was a lawsuit brought in United States federal court June 2009 by several pension fund
s against Chrysler LLC and the United States Department of the Treasury
, to block the planned sale of Chrysler LLC assets to a "New Chrysler" entity in the Chrysler bankruptcy.
The sale was ordered to proceed by the decision in the United States Bankruptcy Court
for the Southern District of New York
. The order was appealed by the funds to the United States Court of Appeals for the Second Circuit
, and from there to the United States Supreme Court, who decided not to stay
the asset sale.
both carried a substantial debt and interest-cost burden that would make restructuring for future viability difficult
, unless bondholders' claims were reduced or exchanged for equity by agreement. The original U.S. government plan was for both companies to enter a Chapter 11 bankruptcy, obtain critical agreements from most stakeholders, and minimize objections, allowing the companies to exit the bankruptcy process without a prolonged battle with stakeholders affected by the filing. Fiat
's agreement permitted Fiat to decline to consummate the proposed partnership with the new Chrysler Group company if it were not completed by June 15, 2009, which in turn could force the liquidation of all Chrysler assets.
Four major U.S. financial institutions (including JP Morgan Chase and Bank of America
) which had received Troubled Asset Relief Program (TARP) bailout funds from the U.S. federal government held 70 percent of the Chrysler bonds, and agreed to the proposed deal of 33 cents on the dollar.
The remaining holders of the debt formed a group known as the Committee of Chrysler Non-Tarp Lenders that accused the TARP bondholders of having a conflict of interest.
Under federal government pressure, most key members of the Non-TARP Lenders acceded to a bankruptcy agreement, raising the total of bondholders agreeing to 92 percent.
However, since not all stakeholders had agreed before the deadline, Chrysler filed for bankruptcy on April 30, 2009. In the bankruptcy court, the U.S. government lowered the debt exchange offer to 29 cents on the dollar. The Indiana State Police funds, plaintiffs in the lawsuit, had obtained their Chrysler bonds in July 2008 at 43 cents per dollar of face value.
s in a manner that is contrary to that called for under U.S. bankruptcy law
. Indiana State Treasurer
Richard Mourdock
originally filed a motion in the New York's federal bankruptcy court to stop the pending sale of Chrysler; it was rejected along with 300 other motions when the court order for the sale was issued.
On Friday, May 29, 2009, the Indiana group's motion was rejected, and on Sunday, May 31, 2009, bankruptcy Judge Arthur J. Gonzalez approved a proposed government restructuring plan and sale of Chrysler's assets that allowed most of the assets of Chrysler to be purchased by the new entity. The plaintiffs appealed to the United States Court of Appeals for the Second Circuit
, which affirmed the sale on June 5, 2009. The Second Circuit, however, stayed its decision, pending possible review by the Supreme Court, until 4 P.M. Monday, June 8, 2009. Fiat was to receive 20% of the new Chrysler entity, and have the future option of purchasing equity up to an additional 15% of the company.
The autoworker's union retirement health care trust (voluntary benefit association "VEBA") would get 55%, and the U.S. Government and Canadian government would be minority stakeholders.
On Sunday (June 7), the Indiana State Police
Pension Fund, the Indiana Teacher's Retirement Fund, and the state's Major Moves Construction Fund filed a petition with the U.S. Supreme Court requesting an emergency stay to delay the sale while they challenged the deal. The funds argued that the sale went against U.S. bankruptcy law because it unlawfully rewarded unsecured creditors ahead of secured creditors since, under the proposed sale, Fiat would not initially contribute cash, but would instead contribute its vehicle platforms to the New Chrysler in exchange for its equity share.
Chrysler estimated the market value of Fiat's proposed contribution to be as much as US$ 8 to 10 billion. The pension funds also challenged the constitutionality of using funds from the Troubled Asset Relief Program to pay for the Chrysler bailout, and claimed that Congress never gave approval for the funds to be used in that manner.
Fiat
had the right to withdraw from participation in the "New Chrysler" if the deal did not close by June 15. However, the head of Fiat said it "would never walk away" from the Chrysler deal, even if it did not close by June 15. If Fiat did abandon the deal, since there is no other known entity willing to participate in the purchase of Chrysler assets as a block, the liquidation of all Chrysler assets would ensue. In briefs filed at the Supreme Court, the administration of U.S. President Barack Obama
supported the completion of the asset sale .
On Monday, June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg
, presiding over emergency motions arising from the Second Circuit, issued a temporary stay in a one-sentence order, pending a further order by her or by the Supreme Court.
.
According to the two-page decision and order, the Indiana funds “have not carried the burden” of demonstrating that the Supreme Court was required. The U.S. Department of the Treasury then issued a statement saying: “We are gratified that not a single court that reviewed this matter, including the U.S. Supreme Court, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. government.”
On Wednesday, June 10, 2009, the sale of most of Chrysler assets to "New Chrysler" (formally known as Chrysler Group LLC) was completed. As had been proposed, Fiat received equity in the New Chrysler through its contribution of automobile platforms as a base for a new line of Chrysler cars. The federal government financed the deal with the US$ 6.6 billion in financing that it had paid to the "Old Chrysler" , formally called Chrysler LLC.
The transfer did not include eight manufacturing locations, nor many parcels of real estate, nor equipment leases. Contracts with 789 U.S. auto dealerships, which are being dropped by Chrysler, were not transferred.
, Mourdock said, "This is the first time in the history of American bankruptcy law when secured creditor
s received less than unsecured creditor
s." Mourdock also stated, "The Chrysler deal is a clear violation of the Fifth Amendment
to the Constitution and more than 150 years of bankruptcy law." Mourdock also stated that under the Fifth Amendment, private property
cannot "be taken without due process
of law. That clearly has not happened in this case. There has been no process of law consistent with long-standing precedent whatsoever."
On May 26, 2009, while speaking in front of U.S. District Judge Thomas Griesa, Mourdock stated, "As fiduciaries, we can't allow our retired police officers and teachers to be ripped off by the federal government. The Indiana state funds suffered losses when the Obama administration overturned more than 100 years of established law by redefining 'secured creditors' to mean something less... The court filing is aimed not only at recouping those losses but also reasserting the rule of law
..."
During a May 21, 2009, interview with Reuters
, Mourdock stated, "They bought according to the rules, and then the rules got changed," and, "Our portfolios are no longer going to buy the secured debt of American corporations that are accepting bailout moneys. It is an unacceptable risk for us to purchase that debt."
U.S. Solicitor General Elena Kagan
, later an an Associate Justice
of the Supreme Court, defended the use of TARP funds for helping Chrysler, and argued that the pension funds' appeal to block the sale to Fiat lacked legal merit. She said that the losses that the pension funds would incur "cannot outweigh" the potential larger problems that a collapse of Chrysler would create. She wrote, "As an economic matter... blocking the transaction would undoubtedly have grave consequences." She also said, "The liquidation of Chrysler would have very severe effects on the American and Canadian economies... More than 38,000 Chrysler employees would lose their jobs; 23 manufacturing facilities and 20 parts depots will be shuttered; more than 3,000 Chrysler dealers would suffer significant and possibly fatal harm to their businesses; and billions of dollars in health and pension benefits for current and former Chrysler workers would be wiped out."
(D-Indiana), objecting to the lawsuit, declared, "This claim endangers the present offer made by Chrysler and threatens to provide the pension funds with a much lower return than has already been offered."
U.S. Representative Gary Peters
(D-Michigan), with a district that includes Auburn Hills, Michigan
, where Chrysler's headquarters is located, said, "It is quite clear that Indiana's case is not in the best interest of the people of Indiana. Indiana officials are fighting over $4.8 million at the risk of costing their state over $20 million in tax revenue, tens of millions more in related costs and putting 4,000 of their own people out of work."
U.S. Representative John Dingell
(D-Michigan), stated, "By refusing to make the relatively small sacrifices that would avert a calamity. The pension funds will instead create a great catastrophe, which is the same kind of short-sighted thinking that got us into the Great Depression
."
Shelly Lombard, a credit analyst and portfolio manager
of high yield and distressed corporate securities at Gimme Credit, defended the Treasury Department's actions by saying, "Even though the debt was secured, it was clear the auto industry was very, very troubled at this time... If it wasn't, it wouldn't have been offered at such a steep discount." Lombard also pointed out that during the current recession, even secured bank debt is not a guarantee. She explained that the market's low price could have been due to a relative lack of buyers or because the debt was faulty. She also compared the transaction to purchasing a house at a bargain price, and stated, "Either there's a divorce and the people just want to get out of there, or the foundation is cracked. In an industry in such turmoil, due diligence becomes even more critical."
Hedge fund
managers from Pacific Investment Management
, Barclays Capital
, Fridson Investment, and Schultze Asset Management Advisors have predicted that the Treasury Department's actions will discourage them from lending money to unionized companies with underfunded pension and medical obligations, such as airlines and auto suppliers. The Financial Times
wrote that the Obama administration's treatment of Chrysler's secured creditors "disturbed the security of expectation that has made lenders willing to provide capital as secured credit, thus handicapping all US industry and undermining what has been, for all its flaws, one of the best financial reorganisation processes in the world, now emulated elsewhere."
An editorial in The Economist
argued that the Treasury Department's actions could "establish a terrible precedent. Bankruptcy exists to sort legal claims on assets. If it becomes a tool of social policy, who will then lend to struggling firms in which the government has a political interest?"
A Wall St. Journal editorial by James Taranto
stated, "Congress established bankruptcy courts to provide for the orderly restructuring and liquidation of financially distressed companies, and the decisions of these tribunals are subject to review by the ordinary judicial courts. The Obama administration's plan for Chrysler – which involved giving a politically favored constituency (the United Auto Workers) priority at the expense of both taxpayers and legally privileged secured creditors – was an effort to circumvent the rule of law."
Former U.S. Speaker of the House
Newt Gingrich
wrote, "In a rigged proceeding in which the federal government disregarded bankruptcy law in favor of the political outcome it desired, the Chrysler bankruptcy laid the predicate for the much larger General Motors bankruptcy to come. Against law and precedent, the unions were moved to the front of the line when it came to who would benefit from the bankruptcy. The Obama Treasury Department strong-armed Chrysler’s creditors into a deal in which the UAW was given 55 percent ownership of the company while Chrysler’s secured creditors – investors who would have received priority in a non-political bankruptcy proceeding – were left with just 29 cents on the dollar."
Francis Cianfrocca, the CEO of Bayshore Networks, wrote, "The administration’s management of the Chrysler bankruptcy has led to an astonishingly reckless abrogation of contract law that will introduce a new level of uncertainty into business transactions at all levels, and make wealth generation more difficult going forward... An extraordinary uncertainty has been created when the most powerful man in the world can rewrite contracts and choose winners and losers in private negotiations as he sees fit. Since this is an unquantifiable uncertainty, and not a quantifiable risk, its effect on business and investor confidence will be large and unpredictable. As in the 1930s, a time when government also cavalierly rewrote private contracts, the prudent approach for business will be to invest minimally and wait for another administration."
Pension fund
A pension fund is any plan, fund, or scheme which provides retirement income.Pension funds are important shareholders of listed and private companies. They are especially important to the stock market where large institutional investors dominate. The largest 300 pension funds collectively hold...
s against Chrysler LLC and the United States Department of the Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
, to block the planned sale of Chrysler LLC assets to a "New Chrysler" entity in the Chrysler bankruptcy.
The sale was ordered to proceed by the decision in the United States Bankruptcy Court
United States bankruptcy court
United States bankruptcy courts are courts created under Article I of the United States Constitution. They function as units of the district courts and have subject-matter jurisdiction over bankruptcy cases. The federal district courts have original and exclusive jurisdiction over all cases arising...
for the Southern District of New York
United States District Court for the Southern District of New York
The United States District Court for the Southern District of New York is a federal district court. Appeals from the Southern District of New York are taken to the United States Court of Appeals for the Second Circuit The United States District Court for the Southern District of New York (in case...
. The order was appealed by the funds to the United States Court of Appeals for the Second Circuit
United States Court of Appeals for the Second Circuit
The United States Court of Appeals for the Second Circuit is one of the thirteen United States Courts of Appeals...
, and from there to the United States Supreme Court, who decided not to stay
Stay of execution
A stay of execution is a court order to temporarily suspend the execution of a court judgment or other court order. The word "execution" does not necessarily mean the death penalty; it refers to the imposition of whatever judgment is being stayed....
the asset sale.
Background
Chrysler LLC and General MotorsGeneral Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
both carried a substantial debt and interest-cost burden that would make restructuring for future viability difficult
Effects of the 2008-2009 automotive industry crisis on the United States
Beginning in the latter half of 2008, a global-scale recession adversely affected the economy of the United States. A combination of several years of declining automobile sales and scarce availability of credit led to a more widespread crisis in the United States auto industry in 2008 and...
, unless bondholders' claims were reduced or exchanged for equity by agreement. The original U.S. government plan was for both companies to enter a Chapter 11 bankruptcy, obtain critical agreements from most stakeholders, and minimize objections, allowing the companies to exit the bankruptcy process without a prolonged battle with stakeholders affected by the filing. Fiat
Fiat
FIAT, an acronym for Fabbrica Italiana Automobili Torino , is an Italian automobile manufacturer, engine manufacturer, financial, and industrial group based in Turin in the Italian region of Piedmont. Fiat was founded in 1899 by a group of investors including Giovanni Agnelli...
's agreement permitted Fiat to decline to consummate the proposed partnership with the new Chrysler Group company if it were not completed by June 15, 2009, which in turn could force the liquidation of all Chrysler assets.
Four major U.S. financial institutions (including JP Morgan Chase and Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
) which had received Troubled Asset Relief Program (TARP) bailout funds from the U.S. federal government held 70 percent of the Chrysler bonds, and agreed to the proposed deal of 33 cents on the dollar.
The remaining holders of the debt formed a group known as the Committee of Chrysler Non-Tarp Lenders that accused the TARP bondholders of having a conflict of interest.
Under federal government pressure, most key members of the Non-TARP Lenders acceded to a bankruptcy agreement, raising the total of bondholders agreeing to 92 percent.
However, since not all stakeholders had agreed before the deadline, Chrysler filed for bankruptcy on April 30, 2009. In the bankruptcy court, the U.S. government lowered the debt exchange offer to 29 cents on the dollar. The Indiana State Police funds, plaintiffs in the lawsuit, had obtained their Chrysler bonds in July 2008 at 43 cents per dollar of face value.
Case overview
The plaintiffs claim that the Department of the Treasury treated Chrysler's secured creditorSecured creditor
A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of the debtor.In the event of the bankruptcy of the debtor, the secured creditor can enforce security against the assets of the debtor and avoid competing for a distribution on liquidation with...
s in a manner that is contrary to that called for under U.S. bankruptcy law
Bankruptcy in the United States
Bankruptcy in the United States is governed under the United States Constitution which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress has exercised this authority several times since 1801, most recently by adopting the Bankruptcy...
. Indiana State Treasurer
Indiana State Treasurer
The Indiana Treasurer of State is a constitutional and elected office in the executive branch of the government of Indiana. The treasurer is responsible for managing the finances of the U.S. state of Indiana. The position was filled by appointment from 1816 until the adoption of the new...
Richard Mourdock
Richard Mourdock
-External links:********...
originally filed a motion in the New York's federal bankruptcy court to stop the pending sale of Chrysler; it was rejected along with 300 other motions when the court order for the sale was issued.
On Friday, May 29, 2009, the Indiana group's motion was rejected, and on Sunday, May 31, 2009, bankruptcy Judge Arthur J. Gonzalez approved a proposed government restructuring plan and sale of Chrysler's assets that allowed most of the assets of Chrysler to be purchased by the new entity. The plaintiffs appealed to the United States Court of Appeals for the Second Circuit
United States Court of Appeals for the Second Circuit
The United States Court of Appeals for the Second Circuit is one of the thirteen United States Courts of Appeals...
, which affirmed the sale on June 5, 2009. The Second Circuit, however, stayed its decision, pending possible review by the Supreme Court, until 4 P.M. Monday, June 8, 2009. Fiat was to receive 20% of the new Chrysler entity, and have the future option of purchasing equity up to an additional 15% of the company.
The autoworker's union retirement health care trust (voluntary benefit association "VEBA") would get 55%, and the U.S. Government and Canadian government would be minority stakeholders.
On Sunday (June 7), the Indiana State Police
Indiana State Police
The Indiana State Police is the statewide law enforcement agency for the state of Indiana. Indiana was the 12th state to offer protection to its citizens with a state police force.-History:...
Pension Fund, the Indiana Teacher's Retirement Fund, and the state's Major Moves Construction Fund filed a petition with the U.S. Supreme Court requesting an emergency stay to delay the sale while they challenged the deal. The funds argued that the sale went against U.S. bankruptcy law because it unlawfully rewarded unsecured creditors ahead of secured creditors since, under the proposed sale, Fiat would not initially contribute cash, but would instead contribute its vehicle platforms to the New Chrysler in exchange for its equity share.
Chrysler estimated the market value of Fiat's proposed contribution to be as much as US$ 8 to 10 billion. The pension funds also challenged the constitutionality of using funds from the Troubled Asset Relief Program to pay for the Chrysler bailout, and claimed that Congress never gave approval for the funds to be used in that manner.
Fiat
Fiat
FIAT, an acronym for Fabbrica Italiana Automobili Torino , is an Italian automobile manufacturer, engine manufacturer, financial, and industrial group based in Turin in the Italian region of Piedmont. Fiat was founded in 1899 by a group of investors including Giovanni Agnelli...
had the right to withdraw from participation in the "New Chrysler" if the deal did not close by June 15. However, the head of Fiat said it "would never walk away" from the Chrysler deal, even if it did not close by June 15. If Fiat did abandon the deal, since there is no other known entity willing to participate in the purchase of Chrysler assets as a block, the liquidation of all Chrysler assets would ensue. In briefs filed at the Supreme Court, the administration of U.S. President Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
supported the completion of the asset sale .
On Monday, June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg
Ruth Bader Ginsburg
Ruth Joan Bader Ginsburg is an Associate Justice of the Supreme Court of the United States. Ginsburg was appointed by President Bill Clinton and took the oath of office on August 10, 1993. She is the second female justice and the first Jewish female justice.She is generally viewed as belonging to...
, presiding over emergency motions arising from the Second Circuit, issued a temporary stay in a one-sentence order, pending a further order by her or by the Supreme Court.
Supreme Court decision and completion of asset sale
On Tuesday, June 9, 2009, the Supreme Court handed down a per curiam denial of the applications for a stay of the sale from the three Indiana funds, allowing the sale of assets to "New Chrysler" to proceed. It did not discuss the underlying issues raised, and its opinion cautioned that its denial of the stay was not a judgment on the underlying meritsMerit (legal)
Merits is a legal concept referring to the inherent rights and wrongs of a legal case, absent of any emotional or technical biases. The evidence is solely applied to cases decided on the merits, and any procedural matters are discounted.-External links:*...
.
According to the two-page decision and order, the Indiana funds “have not carried the burden” of demonstrating that the Supreme Court was required. The U.S. Department of the Treasury then issued a statement saying: “We are gratified that not a single court that reviewed this matter, including the U.S. Supreme Court, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. government.”
On Wednesday, June 10, 2009, the sale of most of Chrysler assets to "New Chrysler" (formally known as Chrysler Group LLC) was completed. As had been proposed, Fiat received equity in the New Chrysler through its contribution of automobile platforms as a base for a new line of Chrysler cars. The federal government financed the deal with the US$ 6.6 billion in financing that it had paid to the "Old Chrysler" , formally called Chrysler LLC.
The transfer did not include eight manufacturing locations, nor many parcels of real estate, nor equipment leases. Contracts with 789 U.S. auto dealerships, which are being dropped by Chrysler, were not transferred.
Plaintiff (Indiana pension group) argument
During a May 29, 2009 interview with Human EventsHuman Events
Human Events is a weekly American conservative magazine. It takes its name from the first sentence of the United States Declaration of Independence...
, Mourdock said, "This is the first time in the history of American bankruptcy law when secured creditor
Secured creditor
A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of the debtor.In the event of the bankruptcy of the debtor, the secured creditor can enforce security against the assets of the debtor and avoid competing for a distribution on liquidation with...
s received less than unsecured creditor
Unsecured creditor
An unsecured creditor is a creditor other than a preferential creditor that does not have the benefit of any security interests in the assets of the debtor....
s." Mourdock also stated, "The Chrysler deal is a clear violation of the Fifth Amendment
Fifth Amendment to the United States Constitution
The Fifth Amendment to the United States Constitution, which is part of the Bill of Rights, protects against abuse of government authority in a legal procedure. Its guarantees stem from English common law which traces back to the Magna Carta in 1215...
to the Constitution and more than 150 years of bankruptcy law." Mourdock also stated that under the Fifth Amendment, private property
Private property
Private property is the right of persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other forms of property. Private property is distinguishable from public property, which refers to assets owned by a state, community or government rather than by...
cannot "be taken without due process
Due process
Due process is the legal code that the state must venerate all of the legal rights that are owed to a person under the principle. Due process balances the power of the state law of the land and thus protects individual persons from it...
of law. That clearly has not happened in this case. There has been no process of law consistent with long-standing precedent whatsoever."
On May 26, 2009, while speaking in front of U.S. District Judge Thomas Griesa, Mourdock stated, "As fiduciaries, we can't allow our retired police officers and teachers to be ripped off by the federal government. The Indiana state funds suffered losses when the Obama administration overturned more than 100 years of established law by redefining 'secured creditors' to mean something less... The court filing is aimed not only at recouping those losses but also reasserting the rule of law
Rule of law
The rule of law, sometimes called supremacy of law, is a legal maxim that says that governmental decisions should be made by applying known principles or laws with minimal discretion in their application...
..."
During a May 21, 2009, interview with Reuters
Reuters
Reuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...
, Mourdock stated, "They bought according to the rules, and then the rules got changed," and, "Our portfolios are no longer going to buy the secured debt of American corporations that are accepting bailout moneys. It is an unacceptable risk for us to purchase that debt."
Defendant (U.S. government) argument
Chrysler said in a statement that Mr. Mourdock, a Republican, was politically motivated and was willing to put Chrysler in liquidation over less than 1 percent of the three funds’ assets.U.S. Solicitor General Elena Kagan
Elena Kagan
Elena Kagan is an Associate Justice of the Supreme Court of the United States, serving since August 7, 2010. Kagan is the Court's 112th justice and fourth female justice....
, later an an Associate Justice
Associate Justice of the Supreme Court of the United States
Associate Justices of the Supreme Court of the United States are the members of the Supreme Court of the United States other than the Chief Justice of the United States...
of the Supreme Court, defended the use of TARP funds for helping Chrysler, and argued that the pension funds' appeal to block the sale to Fiat lacked legal merit. She said that the losses that the pension funds would incur "cannot outweigh" the potential larger problems that a collapse of Chrysler would create. She wrote, "As an economic matter... blocking the transaction would undoubtedly have grave consequences." She also said, "The liquidation of Chrysler would have very severe effects on the American and Canadian economies... More than 38,000 Chrysler employees would lose their jobs; 23 manufacturing facilities and 20 parts depots will be shuttered; more than 3,000 Chrysler dealers would suffer significant and possibly fatal harm to their businesses; and billions of dollars in health and pension benefits for current and former Chrysler workers would be wiped out."
Other responses
U.S. Representative Joseph DonnellyJoe Donnelly
Joseph Simon "Joe" Donnelly, Sr. is the U.S. Representative for , serving since 2007. He is a member of the Democratic Party. Donnelly announced Monday May 9 that he would run for the United States Senate seat that is held by Republican Richard Lugar.-Early life, education and career:Joe Donnelly...
(D-Indiana), objecting to the lawsuit, declared, "This claim endangers the present offer made by Chrysler and threatens to provide the pension funds with a much lower return than has already been offered."
U.S. Representative Gary Peters
Gary Peters (Michigan politician)
Gary Peters is the U.S. Representative for , serving since 2009. He is a member of the Democratic Party. The district includes most of Oakland County, a suburban county northwest of Detroit. He previously represented the 14th District in the Michigan Senate, and was a political science professor at...
(D-Michigan), with a district that includes Auburn Hills, Michigan
Auburn Hills, Michigan
Auburn Hills is a city in Metro Detroit, Oakland County, in the U.S. state of Michigan. The population was 21,412 at the 2010 census. The city was formed in 1983 when Pontiac Township became the City of Auburn Hills.-Economy:...
, where Chrysler's headquarters is located, said, "It is quite clear that Indiana's case is not in the best interest of the people of Indiana. Indiana officials are fighting over $4.8 million at the risk of costing their state over $20 million in tax revenue, tens of millions more in related costs and putting 4,000 of their own people out of work."
U.S. Representative John Dingell
John Dingell
John David Dingell, Jr. is the U.S. Representative for , serving since 1955 . He is a member of the Democratic Party...
(D-Michigan), stated, "By refusing to make the relatively small sacrifices that would avert a calamity. The pension funds will instead create a great catastrophe, which is the same kind of short-sighted thinking that got us into the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
."
Shelly Lombard, a credit analyst and portfolio manager
Portfolio manager
A portfolio manager is either a person who makes investment decisions using money other people have placed under his or her control or a person who manages a financial institution's asset and liability portfolios....
of high yield and distressed corporate securities at Gimme Credit, defended the Treasury Department's actions by saying, "Even though the debt was secured, it was clear the auto industry was very, very troubled at this time... If it wasn't, it wouldn't have been offered at such a steep discount." Lombard also pointed out that during the current recession, even secured bank debt is not a guarantee. She explained that the market's low price could have been due to a relative lack of buyers or because the debt was faulty. She also compared the transaction to purchasing a house at a bargain price, and stated, "Either there's a divorce and the people just want to get out of there, or the foundation is cracked. In an industry in such turmoil, due diligence becomes even more critical."
Hedge fund
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
managers from Pacific Investment Management
Pacific Investment Management
Pacific Investment Management Company, LLC , is a global investment management and solutions firm headquartered in Newport Beach, California. PIMCO is led by co-founder William H. Gross, who serves as Co-Chief Investment Officer, and Mohamed A. El-Erian, the other Co-CIO as well as the firm's CEO...
, Barclays Capital
Barclays Capital
Barclays Capital is a global British investment bank. It is the investment banking division of Barclays plc which has a balance sheet of over £1.2 trillion . Barclays Capital provides financing and risk management services to large companies, institutions and government clients. It is a primary...
, Fridson Investment, and Schultze Asset Management Advisors have predicted that the Treasury Department's actions will discourage them from lending money to unionized companies with underfunded pension and medical obligations, such as airlines and auto suppliers. The Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
wrote that the Obama administration's treatment of Chrysler's secured creditors "disturbed the security of expectation that has made lenders willing to provide capital as secured credit, thus handicapping all US industry and undermining what has been, for all its flaws, one of the best financial reorganisation processes in the world, now emulated elsewhere."
An editorial in The Economist
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...
argued that the Treasury Department's actions could "establish a terrible precedent. Bankruptcy exists to sort legal claims on assets. If it becomes a tool of social policy, who will then lend to struggling firms in which the government has a political interest?"
A Wall St. Journal editorial by James Taranto
James Taranto
James Taranto is an American columnist for The Wall Street Journal, editor of its online editorial page OpinionJournal.com and a member of the newspaper's editorial board. He is best known for his daily online column Best of the Web Today...
stated, "Congress established bankruptcy courts to provide for the orderly restructuring and liquidation of financially distressed companies, and the decisions of these tribunals are subject to review by the ordinary judicial courts. The Obama administration's plan for Chrysler – which involved giving a politically favored constituency (the United Auto Workers) priority at the expense of both taxpayers and legally privileged secured creditors – was an effort to circumvent the rule of law."
Former U.S. Speaker of the House
Speaker of the United States House of Representatives
The Speaker of the United States House of Representatives, or Speaker of the House, is the presiding officer of the United States House of Representatives...
Newt Gingrich
Newt Gingrich
Newton Leroy "Newt" Gingrich is a U.S. Republican Party politician who served as the House Minority Whip from 1989 to 1995 and as the 58th Speaker of the U.S. House of Representatives from 1995 to 1999....
wrote, "In a rigged proceeding in which the federal government disregarded bankruptcy law in favor of the political outcome it desired, the Chrysler bankruptcy laid the predicate for the much larger General Motors bankruptcy to come. Against law and precedent, the unions were moved to the front of the line when it came to who would benefit from the bankruptcy. The Obama Treasury Department strong-armed Chrysler’s creditors into a deal in which the UAW was given 55 percent ownership of the company while Chrysler’s secured creditors – investors who would have received priority in a non-political bankruptcy proceeding – were left with just 29 cents on the dollar."
Francis Cianfrocca, the CEO of Bayshore Networks, wrote, "The administration’s management of the Chrysler bankruptcy has led to an astonishingly reckless abrogation of contract law that will introduce a new level of uncertainty into business transactions at all levels, and make wealth generation more difficult going forward... An extraordinary uncertainty has been created when the most powerful man in the world can rewrite contracts and choose winners and losers in private negotiations as he sees fit. Since this is an unquantifiable uncertainty, and not a quantifiable risk, its effect on business and investor confidence will be large and unpredictable. As in the 1930s, a time when government also cavalierly rewrote private contracts, the prudent approach for business will be to invest minimally and wait for another administration."
See also
External links
- Petition of Indiana Pensioners to stay Chrysler sale order Filed with Ruth Bader Ginsberg, Associate Justice, United States Supreme Court. June 7, 2009.
- Slip opinion of denial of stay, from the U.S. Supreme Court