576 F.3d 108 (2nd Cir. 2009), 09-2311-bk, In re Chrysler LLC

• Docket Nº: 09-2311-bk.
• Citation: 576 F.3d 108
• Opinion Judge: DENNIS JACOBS, Chief Judge.
• Party Name: IN RE CHRYSLER LLC, Debtor. Indiana State Police Pension Trust, Indiana State Teachers Retirement Fund, and Indiana Major Moves Construction Fund, Objectors-Appellants, The Ad Hoc Committee of Consumer-Victims of Chrysler LLC, Objector-Appellant, William Lovitz, Farbod Nourian, Brian Catalon, Center for Auto Safety, Consumer Action, Consumers for A
• Attorney: Glenn M. Kurtz, Thomas E. Lauria (Owen C. Pell, Karen M. Asner, on the brief), White & Case LLP, New York, NY, for Objectors-Appellants Indiana State Police Pension Trust et al. Nancy Winkelman, (M. Christine Carty, Barry E. Bressler, Richard A. Barkasy, on the brief) Schnader Harrison Segal & Le...
• Judge Panel: Before: JACOBS, Chief Judge, KEARSE and SACK, Circuit Judges.
• Case Date: August 05, 2009
• Court: United States Courts of Appeals, Court of Appeals for the Second Circuit

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576 F.3d 108 (2nd Cir. 2009)

IN RE CHRYSLER LLC, Debtor.

Indiana State Police Pension Trust, Indiana State Teachers Retirement Fund, and Indiana Major Moves Construction Fund, Objectors-Appellants,

The Ad Hoc Committee of Consumer-Victims of Chrysler LLC, Objector-Appellant,

William Lovitz, Farbod Nourian, Brian Catalon, Center for Auto Safety, Consumer Action, Consumers for Auto Reliability and Safety, National Association of Consumer Advocates, and Public Citizen, Objectors-Appellants,

Patricia Pascale, Objector-Appellant,

Chrysler LLC, aka Chrysler Aspen, aka Chrysler Town & Country, aka Chrysler 300, aka Chrysler Sebring, aka Chrysler PT Cruiser, aka Dodge, aka Dodge Avenger, aka Dodge Caliber, aka Dodge Challenger, aka Dodge Dakota, aka Dodge Durango, aka Dodge Grand Caravan, aka Dodge Journey, aka Dodge Nitro, aka Dodge Ram, aka Dodge Sprinter, aka Dodge Viper, aka Jeep, aka Jeep Commander, aka Jeep Compass, aka Jeep Grand Cherokee, aka Jeep Liberty, aka Jeep Patriot, aka Jeep Wrangler, aka Moper, aka Plymouth, aka Dodge Charger, Debtors-Appellees,

International Union, United Automobile, Aerospace, and Agricultural Implement Workers Union of America, AFL-CIO ("UAW"), Appellee,

Fiat S.P.A. and New Carco Acquisition LLC, Appellees,

Chrysler Financial Services Americas LLC, Appellee,

The Official Committee of Unsecured Creditors, Appellee,

United States of America, Appellee,

Export Development Canada, Appellee. ^[*]

No. 09-2311-bk.

United States Court of Appeals, Second Circuit

August 5, 2009

Argued: June 5, 2009.

Decided: June 5, 2009.

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[Copyrighted Material Omitted]

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Glenn M. Kurtz, Thomas E. Lauria (Owen C. Pell, Karen M. Asner, on the brief), White & Case LLP, New York, NY, for Objectors-Appellants Indiana State Police Pension Trust et al.

Nancy Winkelman, (M. Christine Carty, Barry E. Bressler, Richard A. Barkasy, on the brief) Schnader Harrison Segal & Lewis LLP, New York, N.Y. and Philadelphia, PA, for Objector-Appellant The Ad Hoc Committee of Consumer-Victims of Chrysler LLC.

Adina H. Rosenbaum, (Allison M. Zieve, on the brief), Public Citizen Litigation Group, Washington, D.C., and Elizabeth J. Cabraser (Robert J. Nelson, Scott P. Nealey, on the brief) Lieff, Cabraser, Heimann & Bernstein, LLP, San Francisco, CA, and Harley E. Riedel (Edward J. Peterson, on the brief) Stichter, Riedel, Blain & Prosser, P.A., Tampa, FL, for Objectors-Appellants William Lovitz et al.

Sander L. Esserman (Robert T. Brousseau, Jo E. Hartwick, Cliff I. Taylor, on the brief) Stutzman, Bromberg, Esserman & Plifka, PC, Dallas, TX, and Alan R. Brayton (Christina Skubic, on the brief) Brayton Purcell LLP, Novato, CA, for Objector-Appellant Patricia Pascale.

Thomas F. Cullen, (Corinne Ball, Steven C. Bennett, Todd R. Geremia, Veerle Roovers, on the brief), Jones Day, New York, N.Y. and Washington, D.C., for Debtors-Appellees Chrysler LLC et al.

Deborah M. Buell, (James L. Bromley, Luke A. Barefoot, Kimberly C. Spiering, James Croft, on the brief), Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for Appellee International Union of United

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Automobile Aerospace and Agricultural Workers of America.

Steven L. Holley (John L. Warden, Laurent S. Wiesel, on the brief) Sullivan & Cromwell LLP, New York, NY, for Appellees Fiat S.p.A. and New CarCo Acquisition LLC.

Martin J. Bienenstock (Judy G.Z. Liu, on the brief) Dewey & LeBoeuf LLP, New York, NY, for Appellee Chrysler Financial Services Americas LLC.

Kenneth H. Eckstein, (Jeffrey S. Trachtman, Thomas Moers Mayer, on the brief) Kramer Levin Naftalis & Frankel LLP, New York, NY, for Appellee The Official Committee of Unsecured Creditors.

Jeannette A. Vargas, Assistant United States Attorney, (Tara LaMorte, Li Yu, David S. Jones, on the brief) for Lev L. Dassin, Acting United States Attorney for the Southern District of New York, New York, NY, and John Rapisardi, Of Counsel to the Presidential Task Force on the Auto Industry, Cadwalader, Wickersham & Taft LLP, New York, NY, for Appellee United States of America.

Michael J. Edelman, Vedder Price P.C., New York, NY, for Appellee Export Development Canada.

Joan Pilver, Assistant Attorney General, (Matthew F. Fitzsimmons, on the brief) for Richard Blumenthal, Attorney General of the State of Connecticut, Hartford, CT, for Amicus Curiae State of Connecticut.

Roger Netzer, (Lisa D. Bentley, Emma-Ann Deacon, on the brief) Willkie Farr & Gallagher LLP, New York, NY, and Robert G. Zack, Chief Legal Officer, Oppenheimer Senior Floating Rate Fund and Oppenheimer Master Loan Fund, LLC, New York, NY, for Amici Curiae Oppenheimer Senior Floating Rate Fund and Oppenheimer Master Loan Fund, LLC.

Before: JACOBS, Chief Judge, KEARSE and SACK, Circuit Judges.

DENNIS JACOBS, Chief Judge.

The Indiana State Police Pension Trust, the Indiana State Teachers Retirement Fund, and the Indiana Major Moves Construction Fund (collectively, the " Indiana Pensioners" or " Pensioners"), along with various tort claimants and others, appeal from an order entered in the United States Bankruptcy Court for the Southern District of New York, Arthur J. Gonzalez, Bankruptcy Judge, dated June 1, 2009 (the " Sale Order"), authorizing the sale of substantially all of the debtor's assets to New CarCo Acquisition LLC ("New Chrysler"). On June 2, 2009 we granted the Indiana Pensioners' motion for a stay and for expedited appeal directly to this Court, pursuant to 28 U.S.C. § 158(d)(2). On June 5, 2009 we heard oral argument, and ruled from the bench and by written order, affirming the Sale Order " for the reasons stated in the opinions of Bankruptcy Judge Gonzalez," stating that an opinion or opinions would follow. This is the opinion.

In a nutshell, Chrysler LLC and its related companies (hereinafter " Chrysler" or " debtor" or " Old Chrysler") filed a pre-packaged bankruptcy petition under Chapter 11 on April 30, 2009. The filing followed months in which Chrysler experienced deepening losses, received billions in bailout funds from the Federal Government, searched for a merger partner, unsuccessfully sought additional government bailout funds for a stand-alone restructuring, and ultimately settled on an asset-sale transaction pursuant to 11 U.S.C. § 363 (the " Sale"), which was approved by the Sale Order. The key elements of the Sale were set forth in a Master Transaction Agreement dated as of April 30, 2009: substantially all of Chrysler's operating assets (including manufacturing plants,

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brand names, certain dealer and supplier relationships, and much else) would be transferred to New Chrysler in exchange for New Chrysler's assumption of certain liabilities and $2 billion in cash. Fiat S.p.A agreed to provide New Chrysler with certain fuel-efficient vehicle platforms, access to its worldwide distribution system, and new management that is experienced in turning around a failing auto company. Financing for the sale transaction-$6 billion in senior secured financing, and debtor-in-possession financing for 60 days in the amount of $4.96 billion-would come from the United States Treasury and from Export Development Canada. The agreement describing the United States Treasury's commitment does not specify the source of the funds, but it is undisputed that prior funding came from the Troubled Asset Relief Program ("TARP"), 12 U.S.C. § 5211(a)(1), and that the parties expected the Sale to be financed through the use of TARP funds. Ownership of New Chrysler was to be distributed by membership interests, 55% of which go to an employee benefit entity created by the United Auto Workers union, 8% to the United States Treasury and 2% to Export Development Canada. Fiat, for its contributions, would immediately own 20% of the equity with rights to acquire more (up to 51%), contingent on payment in full of the debts owed to the United States Treasury and Export Development Canada.

At a hearing on May 5, 2009, the bankruptcy court approved the debtor's proposed bidding procedures. No other bids were forthcoming. From May 27 to May 29, the bankruptcy court held hearings on whether to approve the Sale. ¹ Upon extensive findings of fact and conclusions of law, the bankruptcy court approved the Sale by order dated June 1, 2009.

After briefing and oral argument, we affirmed the bankruptcy court's order on June 5, but we entered a short stay pending Supreme Court review. The Supreme Court, after an extension of the stay, declined a further extension. The Sale closed on June 10, 2009.

The factual and procedural background is set out in useful detail in the opinions of Bankruptcy Judge Gonzalez. This opinion is confined to a discussion of the arguments made for vacatur or reversal. The Sale Order is challenged essentially on four grounds. First, it is contended that the sale of Chrysler's auto-manufacturing assets, considered together with the associated intellectual property and (selected) dealership contractual rights, so closely approximates a final plan of reorganization that it constitutes an impermissible " sub rosa plan," and therefore cannot be accomplished under § 363(b). We consider this question first, because a determination adverse to Chrysler would have required reversal. Second, we consider the argument by the Indiana Pensioners that the Sale impermissibly subordinates their interests as secured lenders and allows assets on which they have a lien to pass free of liens to other creditors and parties, in violation of § 363(f). We reject this argument on the ground that the secured lenders have consented to the Sale, as per § 363(f)(2). Third, the Indiana Pensioners challenge the constitutionality of the use of TARP funds to finance the Sale on a number of grounds, chiefly that the Secretary of the Treasury is using funds appropriated for relief of " financial institutions" to effect a bailout of an auto-manufacturer,...