O.k., so it’s not really “another” round (and, yes, I was looking for an excuse to use ‘quixotic’) — but, the Second Circuit which rejected Mourdock’s challenge of the Chrysler bankruptcy from the bench issued its written opinion (h/t Indiana Law Blog) explaining the rejection. Mourdock’s $2 million windmill tilt failed because Indiana, through an agent, had already waived its standing to challenge the bankruptcy sale and because, (and this is important) there was no scenario in which Indiana would get more money. (I’m almost tempted to see if the html “blink” codes still work because Mourdock seems to fail to address this point when he’s asked about the bankruptcy.)
Chrysler was a wasting asset – it was not producing cars and yet it was paying rents, overhead, and salaries. It was hemorrhaging cash. Chrysler had been shopping itself around for the prior two years without success. Fiat was the only game in town. Liquidation was valued at $800 million. So between the $2 billion under the challenged plan and $800 million under the only alternative, the bankruptcy court chose the option that gave creditors $2 billion. Understandably, the Circuit Court didn’t think this was an abuse of discretion. This had the further consequence that Indiana didn’t have an “injury in fact.” In other words, Indiana couldn’t show that it was actually harmed by these actions because it would have received less money under the available alternative.
And, as if that wasn’t enough, Indiana had contractually waived its ability to object. To participate in this investment, Indiana had agreed to be bound by decisions of majority creditors, acting through an agent. (Indiana’s stake was a small percentage of the total.) That agent consented to the agreement. Indiana protested that the mean old government made these creditors enter into the agreement (which got them more money than the alternative). The court said that these proceedings weren’t the proper place to bring this sort of challenge, essentially claiming that their fellow investors breached a fiduciary duty. The court declined to consider whether Indiana could maintain an action against those fellow investors in a separate proceeding.
We will never truly know what the real outcome at Chrysler might have been had the government stayed out of private business and allowed the tried and true bankruptcy code to function normally. The Chrysler bankruptcy was a sham, administered by Obama’s minions to protect his UAW allies.
Fiat offered no alternative since they purchased nothing to speak of and obtained U.S financial backing to convert the business to the Fiat nameplate. Bondholders, for the first time in history, played second fiddle to debtors with less standing. We will regret this precedent in the future.
How can the government stay out of it *and* have the bankruptcy process occur? Bankruptcy is entirely a government creation.
Doug, these are the same people who said “Keep your government hands off my Medicare!”
They truly don’t understand what the Federal Government does…