Tuesday, January 5, 2010

Lots of Holiday Season Activity in Chrysler Bankruptcy Case (Part 2 of 3)

On December 30, 2009, New and Old Chrysler jointly filed a second motion to enforce the automatic stay and the bankruptcy court’s orders approving the sale of assets to New Chrysler and the rejection of 789 dealer agreements (the “Second Enforcement Motion”). The Second Enforcement Motion is directed to several rejected dealers that filed state proceedings to enjoin the creation of new franchises in their former markets. The rejected dealers appear to have a plausible defense: they based their state law proceedings on the recent federal arbitration law that went into effect on December 16, 2009. Those dealers argued that because they may be awarded their franchises back by an arbitrator, New Chrysler should be enjoined from filling those points until the arbitration is concluded.

Of course, Old and New Chrysler were having none of it and demanded that those rejected dealers withdraw their state proceedings. The dealers refused and the Second Enforcement Motion resulted. Because the premise underlying the state proceedings is to preserve the remedy afforded the rejected by Congress in the arbitration legislation, it will be very interesting to see how this motion plays out. A copy of the Second Enforcement Motion may be found here.

Friday, January 1, 2010

Lots of Holiday Season Activity in Chrysler Bankrptcy Case (Part 1 of 3)

Quite surprisingly, the Christmas and New Year’s holiday week was marked by several interesting filings in the Chrysler bankruptcy case relevant to dealers. First, on Christmas Day, a motion was filed seeking reconsideration of the bankruptcy court’s decision and order granting the Debtors’ motion to reject 789 dealer agreements. Second, on December 30, the Debtors and New Chrysler filed a second joint motion seeking injunctive relief and sanctions against certain rejected dealers that filed state law proceedings against New Chrysler. Third, on New Year’s Eve, Debtors’ and New Chrysler filed an adversary proceeding against Oregon, Maine, North Carolina and Illinois state officials seeking a declaratory judgment and injunctive relief to enjoin the enforcement of certain state statutes enacted or soon to be enacted that would have the effect of negating or impacting the effect of the termination of the rejected dealers’ franchises.

On Christmas Day, a small group of former Chrysler dealers whose franchise agreements were rejected filed a motion (the “Reconsideration Motion”) that asks Bankruptcy Judge Gonzalez to reconsider his opinion and order approving the rejection of their franchise agreements. The Reconsideration Motion can be found here. Rather remarkably (to say the least), the Reconsideration Motion accuses Judge Gonzalez of committing a fraud on the court by mischaracterizing the testimony of Fiat executive Alfredo Altavilla in his opinion approving the Debtors’ rejection motion (the “Rejection Opinion”).

In that regard, the Reconsideration Motion focuses on footnote 21 of the Rejection Opinion, which states, in pertinent part, that “Altavilla also responded affirmatively to a question regarding whether a dealership network needed to be for the Fiat Transaction to close, stating that a ‘restructuring needs to occur’” The Reconsideration Motion argues that the footnote mischaracterizes the actual hearing testimony which is quoted in full as follows:

Question: If this transaction closes without an absolute requirement of a particular number of dealers that are being terminated, would Chrysler still go through with this deal – I mean, rather, would Fiat still go through with this deal?

Answer: The answer is that a restructure needs to occur. Whether it occurs before or after the closing of the deal is not a material difference.

The Reconsideration Motion also argues that Judge Gonzalez ignored testimony by Chrysler executives that the Debtors’ estates received no value in exchange for accelerating the ‘rationalization’ of the dealer network through the use of the contract rejection power in bankruptcy.

As for a remedy, the dealers do not argue that New Chrysler could be forced to reinstate them; rather, they argues that the rejections can be reversed within the bankruptcy proceeding and the Debtors’ estates forced to assume those dealer agreements. They argue that would have the effect of converting claims under those previously-rejected franchise agreements from general unsecured claims (that have little chance of payment) into priority administrative expense claims (that stand a reasonable chance of getting paid, at least in part).