Now that the Chrsyler asset sale has been consummated, there apparently will be ample numbers of angry yterminated car dealers thinking about legal remedies. Especially for those who recently purchased or invested ample money in a dealership, a very recent Illinois Surpeme Court decision may become popular for some of those seeking remedies as it explictly allows a promissory estoppel remedy even when a contract-based recovery would not succeed. The damages awarded may be limited but could prove better than nothing IF a source of funds could be found. The April 2, 2009 decision is Newton Tractor Sales, Inc. v. Kubota Tractor Corp. , — N.E.2d —-, 233 Ill.2d 46, 2009 WL 886866 (Ill.). The Court’s free version of the opinion is here. There may also be exploration of claims that seek to reach pockets of insurance, such as D & O coverage.

A decision is expected tomorrow after the briefs and argument flowied all last week in Chrysler. In a nutshell, the battle seems to boil down to how much the sale order will or will not do to give the buyer entity the future comfort and protection provided by a federal bankrupcty court order/injunction limiting future claims. For example, will the buyer entitiy obtain the injunctive protection it wants to protect itself from the expenses of product laibility claims arising from products sold by ” old Chrsyler”? If so, that order will completely contradict state tort law rules that allow successor liability to be imposed on successor entities that assume control of and the financial benfeits of a prior manufacturing operation that it is out of existences and/or insolvent. Likewise, will “old” and “new” Chrysler ” obtain the order they want to enjoin future fraudulent conveyance claims asseting that too little money has been left behind for creditors?

Various objectors have weighed in on the issues, and oppose an order granting the buyer protection against future product liability claims. The objectors include all product liability claimants. Another one is the State of Connecticut. It’s opening statement, docket # 2567, builds from its objection. The following is the text of the obecjtionn, but with footnotes omitted and emphasis added:

OPENING STATEMENT OF THE STATE OF CONNECTICUT

The State of Connecticut (the “State”) by Richard Blumenthal, Attorney General (the “Attorney General”), and through its undersigned counsel, respectfully submits this opening statement with respect to its Joinder, Limited Objection, and Reservation of Rights filed May 23, 2009 [Docket No 1976] (the “Objection”).

This court should not enter any order depriving purchasers of Chrysler vehicles of legal rights to be compensated for death or serious injuries caused by defects in Chrysler products. Any such order would be unfair, in violation of due process, and inconsistent with the public assertions by the President of the United States and the Debtor that consumers who buy Chrysler products have no cause for concern.

The State has objected to the Debtors’ motion for an Order authorizing the sale of substantially all of the Debtors’ assets free and clear of liens, claims, interests and encumbrances
(the “Sale”). This objection raises two concerns: (1) the proposed rejection of product liability claims for vehicles sold pre-closing; and (2) the proposed rejection of all future claims based on theories of transferee or successor liability for vehicles sold pre-closing.

On the first point, the State joins in the Objection of The Ad Hoc Committee of Consumer-Victims of Chrysler LLC (the “Ad Hoc Committee”) in its Limited Objection to Motion for an Order Authorizing the Sale of Substantially all of the Debtors’ Assets Free and Clear of Liens, Claims, Interests and Encumbrances and Reservation of Rights of the Ad Hoc Committee of Consumer-Victims of Chrysler LLC [doc. id 1192] (the “Consumer Objection”). As the Ad Hoc Committee argues in the Consumer Objection, and the State argues by reference in its Objection, Section 363(f) simply does not permit the sale free and clear of “claims,” even though it does permit the sale free and clear of “liens.”

With respect to the State’s second issue, due process principles do not allow the sale to New Chrysler “free and clear” of future, presently unknown claims. Fiat’s argument that the “the number and variety of objections that have been filed demonstrates that notice of the proposed sale has been disseminated widely,” (Docket No. 2111 at 11) is unfounded. Consumers who are unaware that they may have product liability claims in the future could not possibly recognize the need to review or respond to a notice about those not-yet-existing claims now.

This situation cannot be what the Department of the Treasury and the United States government intended when they provided substantial financial assistance to the Debtors. It also appears to be directly at odds with President Obama’s statement on March 30, 2009:
But just in case there’s still nagging doubts, let me say it as plainly as I can: If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warranty will be safe. In fact, it will be safer than it’s ever been, because starting today, the United States government will stand behind your warranty.

Remarks by the President on the American Automotive Industry, March 30, 2009.

Presumably, consumers presently purchasing new Chrysler vehicles are not being informed that they may have no claim under product liability law for any harm they may suffer as the result of a defective Chrysler vehicle. Thus, Fiat’s argument that the publicity of the proposed sale satisfies due process is unavailing. Unknowing consumers are still buying Chrysler vehicles with no indication that future injuries caused by a defect in those vehicles will not be a liability of New Chrysler. Injuries caused by automobile defects can be devastating. The medical bills, loss of income, severe disability, or most tragically, loss of life are difficult enough to bear. This court should block the Debtors from erecting another unconscionable burden — litigating whether this Court has the authority to approve the Sale free and clear of product liability claims. New Chrysler should be clearly liable under a theory of successor liability, among others.

Consumers purchasing Chrysler products today do not know that they may not have the legal rights enjoyed by purchasers of other cars concerning life threatening defects. Congress cannot have intended to eviscerate such rights when it enacted Section 363, nor what the Treasury had in mind when it loaned the Debtors billions of taxpayer dollars. Accordingly, the State urges this Court, if it is inclined to allow the Sale, to do so subject to the retention of product liability claims.
Dated: Hartford, Connecticut
May 26, 2009
STATE OF CONNECTICUT
RICHARD BLUMENTHAL,
ATTORNEY GENERAL
By: /s/ Denise Mondell
Denise Mondell (DM-8434)
Matthew F. Fitzsimmons
Assistant Attorneys General
Office of the Attorney General
State of Connecticut
55 Elm Street
Hartford, CT 06106
Phone: (860) 808-5150
Fax: (860) 808-5383

The objection lodged in the Chrysler proceedings by a representative for asbestos plaintiffs, Ms. Pascale, once again illustrates the importance of the issues to be decided in the Manville/Travelers case awaiting a US Supreme Court decision on the scope of bankruptcy court jurisdiction. Specifically, paragraph 8 of the pleading sets out the following objection regarding the scope of injunctions that may be issued by they Chrysler bankruptcy court:

[5] “The Sale Transaction, including any affiliated agreements and
proposals, provides for releases of, or injunctions in favor of,
non-Debtor third parties, outside of a plan of reorganization and
to the detriment of unsecured creditors as a whole and tort
claimants in particular.”

Full Text of All Objections by Ms. Pascale:

Less than self-evident on the docket, the pleading is docket number 1175, filed May 19. The objection in itself is quite brief as it consists of only nine numbered paragraphs. Ms. Pascale is identified in paragraphs 5 and 6 as the widow of an individual who allegedly died from mesothelioma, with a wrongful death action pending in California in Los Angeles as case number BC 345910, and a trial date of June 15, 2009.

In paragraph 8 of the objection, Ms. Pascale sets out the following six objections (but with numbers added by me for ease of reference):

Mrs. Pascale objects to the 363 Motion on the following grounds:

1) The 363 Motion purports to grant successor liability protections
to New Chrysler from asbestos personal injury and wrongful
death claims, but the 363 Motion fails to comply with the
statutory requirements of 11 U.S.C. § 524(g).

2) As currently structured, sale of substantially all of Chrysler’s
assets constitutes an impermissible sub rosa plan of
reorganization and includes various releases, assumptions and
discriminatory treatment which would be prohibited in a plan.

3) The 363 Motion does not specify what will happen to tort claims
like Mrs. Pascale’s. Such claims are not listed among the
Assumed Liabilities that Fiat will assume. The Debtors should
be required to explain how tort claims will be treated and what
assets, if any, will be available for payment of tort claims if the
Sale Transaction is approved and consummated.

4) The Sale Transaction, including any related ancillary
agreements, as currently structured, allocates proceeds and
consideration of the sale disproportionately in favor of certain
unsecured creditors to the detriment of other, similarly situated
unsecured creditors, including Mrs. Pascale, and is not in the
best interests of unsecured creditors as a whole.

5) The Sale Transaction, including any affiliated agreements and
proposals, provides for releases of, or injunctions in favor of,
non-Debtor third parties, outside of a plan of reorganization and
to the detriment of unsecured creditors as a whole and tort
claimants in particular.

6) Chrysler has not met and cannot meet its burden to
demonstrate that the sale of substantially all of its assets as
contemplated by the 363 Motion satisfies all of the requirements
of 11 U.S.C. § 363 and General Order M-331 of this Court.

Naming and Politics in Chapter 11 Cases: It’s interesting to watch the politics and gamesmanship in bankruptcy court. As previously covered here on this blog, the asbestos objector constituency was officially recognized by The Office of the US Trustee and given a seat on the Official Committee of Unsecured Creditors as shown at docket number 366. Moreover, Chrysler’s asbestos issues are no secret to analysts or others, and finally started being mentioned in public articles around May 6.

One might then think that Ms. Pascale might readily identify use the title of her pleading to readily identify the constituency she represents. But, the title of the objection does not on its face reveal the reality that the objection is being asserted by an asbestos claimant, and instead bears the ponderous title:

OBJECTION OF UNSECURED CREDITORS COMMITTEE MEMBER,
PATRICIA PASCALE, TO MOTION OF DEBTORS AND DEBTORS IN
POSSESSION, PURSUANT TO SECTIONS 105, 363 AND 365 OF THE
BANKRUPTCY CODE AND BANKRUPTCY RULES 2002, 6004 AND 6006,
FOR (I) AN ORDER (A) APPROVING BIDDING PROCEDURES AND
BIDDER PROTECTIONS FOR THE SALE OF SUBSTANTIALLY ALL OF
THE DEBTORS’ ASSETS AND (B) SCHEDULING A FINAL SALE
HEARING AND APPROVING THE FORM AND MANNER OF NOTICE
THEREON; AND (II) AN ORDER (A) AUTHORIZING THE SALE OF
SUBSTANTIALLY ALL OF THE DEBTORS’ ASSETS, FREE AND CLEAR
OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES, (B)
AUTHORIZING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN
EXECUTORY CONTRACTS AND UNEXPIRED LEASES IN CONNECTION
THEREWITH AND RELATED PROCEDURES, AND
(C) GRANTING CERTAIN RELATED RELIEF

A comment/question was posed under yesterday’s post about the asbestos issues bubbling up in the Chrsyler case. The question is whether the Chrsyler bankruptcy would cause a stay of all underlying asbestos cases as against all defendants. The question is interesting and again underscores the importance of what the US Supreme Court has to say in Travelers/Manville about the scope of bankruptcy court jurisdiction. The short answer is that the bankruptcy code’s automatic stay provisions do not stay cases against co-defendants, and adverse existing precedent would have to be overcome to obtain a stay for all defendants based on “related to” jurisdiction in the bankruptcy court.

The “related to” precedent arises from Federal-Mogul’s chapter 11 petition filed October 1, 2001. Soon thereafter, some car makers sought to use the FM proceedings as the forum to hold a global Daubert hearing on whether friction products can cause asbestos-related disease. Among other things, there were arguments that the bankruptcy court could exert “related to” jurisdiction based on express or implied indemnity claims that might be asserted against FM by other entities involved with friction products, and various arguments about the inter-related nature of the friction product claims. The asbestos plaintiff’s bar vigorously opposed that approach.

Judge Wolin denied the effort, concluding that he lacked jurisdiction. The 3rd Circuit declined to reverse him based on issues regarding its appellate jurisdiction. For a complete synopsis of the issues and rulings from the Crowell & Moring lawyers who have for years represented insurers in asbestos bankrutcies, go here. The 3rd Circuit’s opinion, In re Federal-Mogul Global, Inc., 300 F.3d 368 (3rd Cir. 2002) provides the following brief synopsis:

” In re Federal-Mogul Global, Inc., No. 01-10587, 2002 Bankr.LEXIS 105, *4-5 (Bankr.D.Del. Feb. 8, 2002) (hereinafter, Feb. 8 Order). The District Court’s written opinion supplementing the order was issued on February 15, 2002. In re Federal-Mogul Global, Inc., No. 01-10578 et al., slip op. (Bankr.D.Del. Feb. 15, 2002) (hereinafter, Feb. 15 Op.).

The District Court held that it lacked subject-matter jurisdiction because the claims against the Friction Product Defendants were not “related to” the Federal-Mogul bankruptcy proceedings. The court found it unlikely that “Congress … intended that the bankruptcy of a single player [in a multi-player industry] would have automatic, nation-wide impact in which every manufacturer and distributor and all tens of thousands of injured parties are concentrated in a single reorganization proceeding.” Feb. 15 Op. at 16. Specifically, the District Court found that under this court’s influential decision in Pacor, Inc. v. Higgins (In re Pacor), 743 F.2d 984 (3d Cir.1984), “related-to bankruptcy jurisdiction [does] not extend to a dispute between non-debtors unless that dispute, by itself, creates at least the logical possibility that the estate will be affected.” Id. at 17.

The District Court noted that Pacor made clear that there is no “related to” jurisdiction over a personal injury claim *376 against a non-debtor “without the filing and adjudication of a separate claim for indemnification” against the debtor. Id. at 18. Further, the District Court observed that “cases since Pacor have failed to endorse the proposition that any contract of indemnification will support an extension of related-to jurisdiction.” Id. at 22 (emphasis in original).”