Is the Chrysler Bankruptcy Deal Constitutional?

Damon W. Root | June 8, 2009

That's the question three Indiana state pension and construction funds want the Supreme Court to decide. As The Washington Post reports:

The Indiana funds contend that the sale of most of Chrysler's assets to a new company -- to be jointly owned by Fiat, the United Auto Workers union and the U.S. and Canadian governments -- breaches numerous laws. For one, they argue, the process tramples on the funds' rights as senior lenders to Chrysler because they would recover less than junior lenders. The Indiana funds hold about $42 million of the $6.9 billion in secured loans. Under the agreement hammered out by the Obama administration with most of the first-lien lenders, the group would recover about $2 billion, or 29 cents on the dollar.

The funds also contend that the quick bankruptcy proceedings pursued by Chrysler and the Obama administration -- a federal bankruptcy judge approved the sale 32 days after the automaker filed for one of the largest bankruptcies in U.S. history -- did not comply with bankruptcy law. The Indiana funds are also arguing that the Treasury illegally used money from the federal Troubled Assets Relief Program, meant for financial institutions, to prop up Chrysler.

And as the Legal Times' Tony Mauro notes, this is a tricky one for the Court:

Taken together, the challenges have hurdles including standing to overcome, and the Supreme Court may not want to stand in the way of an arrangement devised by the political branches that its supporters say will save thousands of jobs. But the applications also point out that if the high court does not intervene now, a deal that raises major questions relating to bankruptcy law and the power of the executive branch will go unreviewed, and the questions unanswered.

Comments

Xeones|6.8.09 @ 11:15AM|#

Is anybody else getting the feeling that nobody in the federal gubmint has a goddamned clue what they're doing?

spambot|6.8.09 @ 11:19AM|#

It's constitutional because the government says it is constitutional!! Now get back in line!!!

Gilbert Martin|6.8.09 @ 11:29AM|#

"Is the Chrysler Bankruptcy Deal Constitutional?"

Of course not, but the government tossed the Constitution out with trash back in the "New Deal" era and it's still rotting in the landfill today.

robc|6.8.09 @ 11:35AM|#

the challenges have hurdles including standing to overcome

Huh? Not a lawyer, so help me out. How does a creditor not have standing in challenging a bankruptcy? Seems to me that they are about the only entity with standing.

Ben Kenobi|6.8.09 @ 11:37AM|#

Is it constitutional? Definitely not. Would the court ever rule in such a way? Definitely not.

|6.8.09 @ 11:39AM|#

This is a tricky one, mostly because of timing. Even if the Court does want to take it up, doing so will put the Fiat deal on hold until it decides, which, on the usual calendar, wouldn't be until this fall. That kind of delay could kill the deal.

The Court could pull a Justice Marshall here, and write an opinion on the merits that is pure dicta that would point out the Constitutional problems with all this, while dismissing on standing.

My bet: the Court passes on this one, out of cowardice/institutional self-preservation.

|6.8.09 @ 11:40AM|#

The Chrysler bankruptcy is a shameless violation of bankruptcy law (GM's will be too) but I don't know if it violates the constitution. I mean whatever part of the constitution the SCOTUS has any regard for.

robc|6.8.09 @ 11:44AM|#

RC,

Couldnt SCOTUS do an emergency hearing? Do they ever do that?

Stay the order today, hear arguments tomorrow, decide by Thursday? I dont think the deal falls thru delaying until Friday.

|6.8.09 @ 11:48AM|#

Of course it isn't Constitutional! The whole Auto Bailout has been unConstitutional since Day 1. The issue was struck down in Congress, and Bush/Paulson went over their heads, misusing TARP funds to bailout the Auto Makers without Congressional approval. Congress NEVER voted to give money to the Auto companies!

The President (both Bush and Obama) see the TARP bill for what it really is: An allowance to the exuctive branch as part of an unprecedented power grab. A slush fund for the purpose of doing something Congress doesn't authorize, and a clear violation of the seperation of powers.

|6.8.09 @ 11:52AM|#

I knows me some serious stuff about the domestic auto industry. All of which is useless here.

I don't have a clue what SCOTUS will do here. I appears to this casual observer (IANAL, thanks be to Odin) that we have serious problems with executive overreach, trampling the prerogatives of both the judicial and legislative branches. I just don't know if SCOTUS is in the mood for an Obama smackdown.

|6.8.09 @ 11:53AM|#

Here are the funds involved:

The Indiana State Police Pension Fund;
The Indiana Teacher's Retirement Fund;
The Major Moves Construction Fund.

So the party bought and paid for with union largesse is about to royally fuck their own? I don't know what the Major Moves Construction Fund is but I'm feeling some serious schadenfreude right now.

|6.8.09 @ 11:56AM|#

Couldnt SCOTUS do an emergency hearing? Do they ever do that?

I don't know. I doubt they could consider the raft of Constitutional issues raised by this case in a few days. They would be very hard pressed to decide this case by the end of the current session - the parties need to brief it, opinions need to be drafted, they already have a full plat, etc.

|6.8.09 @ 11:56AM|#

I haven't even read the whole post, much less the supporting links, but...

All morning, the yammerers on CNBC have been saying that the government's argument consists largely of whether the harm suffered by the plaintiffs outweighs the potential harm suffered by the other parties. No mention of any actual legal arguments.

Should be a slam dunk for the Constitutional Scholar's team.

|6.8.09 @ 11:59AM|#

So I started on my high fiber diet, and long story short, I am a leaf on the wind.

robc|6.8.09 @ 11:59AM|#

They would be very hard pressed to decide this case by the end of the current session - the parties need to brief it, opinions need to be drafted

Havent these people heard of "pulling an all-nighter"? I realize it might kill some of the older members of the court, but is that a bad thing?

|6.8.09 @ 12:01PM|#

The Indiana funds hold about $42 million of the $6.9 billion in secured loans. Under the agreement hammered out by the Obama administration with most of the first-lien lenders, the group would recover about $2 billion, or 29 cents on the dollar.

I suspect these funds bought their bonds at issue; unlike the evil rapacious vulture fund fiends (who bought on the cheap in the secondary market, from people smarter than the guys in Indiana), they will, in fact, suffer a massive loss.

kinnath|6.8.09 @ 12:13PM|#

Here are the funds involved:

The Indiana State Police Pension Fund;. . .

I wonder what the consequences will be for driving a big Chrysler sporting a UAW bumper sticker in the great state of Indiana.

KT|6.8.09 @ 12:19PM|#

Constitutionality hasn't been a requirement for the government to act in a long time, if ever.

ShutterGeek|6.8.09 @ 12:19PM|#

While the question in the headline may be relevant in the abstract, none of the issues before the court in this case are constitutional in nature. They all seem to involve interpretation of bankruptcy law and the TARP legislation.

So, whatever happens, the court is *NOT* going to find the bankruptcy unconstitutional.

ShutterGeek|6.8.09 @ 12:23PM|#

robc,

Standing involves more than just an interest in the deal.

To have standing, the plaintiffs would have to demonstrate that they've suffered harm. For example, in the "misapplication of TARP funds" claim, they would need to demonstrate that they are suffering a harm because of that misapplication.

|6.8.09 @ 1:01PM|#

http://www.creditslips.org/creditslips/2009/06/shocked-shocked-1.html

|6.8.09 @ 1:10PM|#

Shuttergreek and robc,

It's actually even more than that. The requirement for standing is- (1) injury in fact, which means an invasion of a legally protected interest that is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical; (2) a causal relationship between the injury and the challenged conduct, which means that the injury fairly can be traced to the challenged action of the defendant, and has not resulted from the independent action of some third party not before the court; and (3) a likelihood that the injury will be redressed by a favorable decision, which means that the prospect of obtaining relief from the injury as a result of a favorable ruling is not too speculative.

When challenging appropriations legislation like TARP, they'll likely lose on prong 1 because the court will say that they have no particularized interest (greater than any other member of the public) that is protected by that legislation.

|6.8.09 @ 1:10PM|#

They would be very hard pressed to decide this case by the end of the current session - the parties need to brief it, opinions need to be drafted

Back in 2000, they decided Bush v Gore in a very short time -- less than a month IIRC -- obviously due to the extremely time-dependent nature of the case.

John E. Vincent|6.8.09 @ 1:11PM|#

What people keep forgetting is that ANYTHING is "constitutional" if the Congress passes it. It's only unconstitutional when the SCOTUS declares it so (in practice).

Congress writes a law, President signs it. There's nothing unconstitutional about that.

Not that I agree with the laws being written.

Paul G|6.8.09 @ 1:16PM|#

It will also be an unfair deal for Ford, who've managed to stay clear of this mess for now. Don't you think the Gov't will go with Chrysler or GM when they need vehicles being that they have so much invested in it. With Ford on the outside looking in.

|6.8.09 @ 1:17PM|#

It's illegal under TARP and bankruptcy law. AND TARP itself is unconstitutional. Double Whammy.

While I'm not sure SCOTUS would strike down TARP as a violation of separation of powers, both the bankruptcy and the bailouts are flat-out illegal under the law as written, and I can see how the courts could rule otherwise.

|6.8.09 @ 1:19PM|#

Er CAN'T see how the courts could rule otherwise.

Seriously, can anyone see how the court could AVOID recognizing the bailout/bankruptcy as illegal?

robc|6.8.09 @ 1:23PM|#

adam,

I can see how standing on the TARP issue could come into question, but not the bankruptcy asset decision. It seems to clearly meet all the points.

|6.8.09 @ 1:24PM|#

When challenging appropriations legislation like TARP, they'll likely lose on prong 1 because the court will say that they have no particularized interest (greater than any other member of the public) that is protected by that legislation.

That basically renders it impossible for anyone to challange the legality of ANY appropriations spending.

If so, that's a major hole in the system, IMO.

|6.8.09 @ 1:39PM|#

While I understand the need for something like 'standing' in normal, everyday law, I don't like the idea of being required to prove that I, personally, have been harmed by the government. We all know we are harmed by it every day, but to be able to prove it? It's like trying to prove a negative.

When it comes to Constitutionality issues, I don't think there should be such a high bar for determining 'standing'. Any American citizen with the dollars to pay for it should be able to challenge the Constitutionality of a particular piece of power-grabbing/misuse of power.

T|6.8.09 @ 1:40PM|#

That basically renders it impossible for anyone to challange the legality of ANY appropriations spending.

Yup. And that won't change. You are not eligible to demand accountability from your government.

LibertyMark|6.8.09 @ 1:49PM|#

That basically renders it impossible for anyone to challange the legality of ANY appropriations spending.

Yup. It seems to me that there are many federal laws that have no pathway for challenge due to standing.

And it can also prevent enforcement of federal laws. Back in the 90s, when Clinton was galivanting with his NATO friends through the former Yugoslavia, he explicitly violated the War Powers Act. Congress failed to authorize military action, and the 90-day limit on military force in the Act was violated. A group of congress-critters sued, saying their votes against authorization gave them standing. The SCOTUS disagreed, rendering the War Powers Act completely dead.

|6.8.09 @ 3:15PM|#

"When challenging appropriations legislation like TARP, they'll likely lose on prong 1 because the court will say that they have no particularized interest (greater than any other member of the public) that is protected by that legislation.

That basically renders it impossible for anyone to challange the legality of ANY appropriations spending.

If so, that's a major hole in the system, IMO."

That's basically true. The few court cases that touch on appropriations issues usually deal with some government contractor or some other person who isn't getting paid because the government is claiming that it can't legally pay him. Appropriations 'law' is more made by the Comptroller General and the various executive agencies comptrollers and lawyers.

|6.8.09 @ 3:16PM|#

That basically renders it impossible for anyone to challange the legality of ANY appropriations spending.

Of course we can! We just have to do it at the ballot box.

I don't like that fact any more than you do, but c'est la vie. If you're not willing to work through the political process, but want to run crying to the courts for this type of thing, tough.

Jim Crow|6.8.09 @ 3:25PM|#

I don't like that fact any more than you do, but c'est la vie. If you're not willing to work through the political process, but want to run crying to the courts for this type of thing, tough.

Yeah, only pansies whine about being subject to the tyranny of the majority...

|6.8.09 @ 4:37PM|#

The basic challenge by the Indiana funds, as I understand it, is not one of constitutional law, although that is also an issue, but one of basic fundamental bankruptcy law! That is, the funds are secured creditors and the bankruptcy court must honor their secured positioning over unsecured creditors. By turning over valuable assets to Fiat -an unsecured interested party, it would be like me giving all my good stuff (coin collection, vehicles, awesome golf clubs) to my brother, and telling my secured creditors that they are free to help themselves to anything they want in my sock and underware drawer. If this and the GM bankruptcy case go through as the Administration has orchestrated, then creditor rights as we have come to know them in theis country, go out the window.

robc|6.8.09 @ 4:51PM|#

Ginsburg has issued the stay, so I guess there is some level of reasonableness to the standing.

|6.8.09 @ 5:40PM|#

If you're not willing to work through the political process, but want to run crying to the courts for this type of thing, tough.

Tell it to all those gay folk wanting to get married, Tulpa.

|6.8.09 @ 8:32PM|#

Hmm. I would think that Ford might have standing to challange the TARP spending, on takings grounds. That is, if the government explicitly funds a competitor, which allows them take market share away from you, or causes your stock price to fall, that could be considered a taking. Ford shareholders could challange also. They've lost money because Ford's stock declined because it was placed in direct competition with a subsidized company.

Of course takings law is complete eviscerated already ... but I'm just saying theoretically.

|6.8.09 @ 8:35PM|#

Not to mention shareholders of Honda, Toyota, smaller banks etc.

Aren't Bank of America's shareholders already sueing over a similar issue ?

|6.8.09 @ 10:43PM|#

Tell it to all those gay folk wanting to get married, Tulpa.

If they want to condemn themselves to either a lifetime of unhappiness or a messy divorce by getting married, they obviously aren't listening to me anyway.

Well, they could get lucky and have their spouse die before boredom and discord set in, but that's like catching lightning in a bottle.

reinkefj|6.10.09 @ 1:12PM|#

The Gooferment creates a "plan". (It just happens to enrich the UAW. One of Obama's biggest supporters.) The losers appeal to the Gooferment's courts. And, they expect "justice"? Yeah, right. And, the "tooth fairy" is going to put a little something under their pillow too!