Chrysler Will Not Be The Administration’s Last Trip To The Supreme Court

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Justice Ruth Bader Ginsberg reviewed a lawsuit by several Indiana pension funds to block the sale of some Chrysler assets to a group led by Fiat and indicated that there was some chance the Supreme Court would review the deal. The wording of the ruling was that the transactions “are stayed pending further order”.

The head of Fiat said, in reaction to the news, that his company would continue to pursue the set of agreements that would give it de facto control of the No.3 US car company.

Chrysler’s management took a different view from Fiat’s. The firm said that a delay caused by a Supreme Court review could very well cause the company to be liquidated. It is still not clear that auctioning off the assets of Chrysler would be a worse deal for creditors. Some of Chrysler’s brands and manufacturing facilities could be very valuable to one of more of the Japanese or European automakers.

The court’s brief statement, which blocks the progress of the Chrysler restructuring, may not be the last encounter that the Administration has with the high court over of its bailout programs or financial system restructuring plans. Some members of the Supreme Court may feel, probably rightly, that the Framers of the Constitution did not intend that Chrysler should be reconstituted in a way that takes some of the contract rights of those who provided the company capital in the past.

Any signal that the high court will take more than a passing interest in the attempts by Congress and the Administration to pull the wings off the flies of the banking system and car industry may bring an aggressive counter-punch. The question of whether Treasury Secretary Paulson had the right to force the Merrill Lynch buyout on the Bank of America (BAC), a transaction that probably ended up costing the firm’s common shareholders tens of billions of dollars of wealth, is still open. The shareholders of Citigroup (C) may raise an objection to the government forcing the bank’s board to reconstitute itself while the FDIC was simultaneously trying to fire the bank’s CEO. The issue of whether a public company board can be forced to take action which may be against shareholders’ interests because the government has plans for saving the financial and credit system may well be challenged in court.

The fashion in which TARP funds were forced on institutions like Goldman Sachs (GS) which did not need the money raises question again as to why its board of directors did not have the right to turn the money down. In exchange for reluctantly accepting the capital, Goldman must now jump through another arbitrary set of hoops to pay the money back.

The potential of the Chrysler case going before the Supreme Court has to run shivers up the spin of GM. The UAW or some of its members could challenge the right of the government to force a change in the benefits of current workers and retirees. GM can argue that the union voted on the subject. The workers may argue that they had a gun to their heads. GM creditors may claim that they were given pennies on a dollar for their paper only because the government mandated that GM be taken through Chapter 11 based on the Administration’s roadmap, whether the process was legal or not.

The Supreme Court only has to hear one of the cases that arises from any of the actions taken by the government. The fact that these were done to save the economy, perhaps on the backs of parties that should have had the ability to  engage in negotiations without the threat a government veto, may not persuade the court as to their rectitude. The Treasury’s ability to decide any and all issues because of the leverage of its TARP funding may not be viewed as constitutional.

Lawsuits can multiply like locusts. It will only take one aggrieved party to have a modest success challenging the actions of the two more proactive arms of the government as they work to recast the American financial and industrial system to get the third branch to step in and object. That objection will be final.

Douglas A. McIntyre

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