Further Analysis of The SCOTUS Decision in POLICE PENSION TRUST, ET AL. V. CHRYSLER

UPDATED: Dec 18, 2009, 1:04 PM.  [Mr. Loeb has commented at his blog to this analysis.  I’m disappointed that he failed to address the facts of the exact language used by Judge Gonzalez in his Sale Order.  Furthermore, his failed assertions as to my report have not been corrected.  I cannot give any respect to his response.  I’ve produced a final comment at his blog and should he choose to publish it, he may have the last word.  But it cannot be disputed that my analysis is accurate as to the exact wording of the Sale Order issued by Judge Gonzalez which placed a prohibition on all stays from the date the Sale Order was entered – June 1st, 2009.

Unlike Mr. Loeb, I must deal with Judicial orders as they are written, not as I may want them to be.  Judge Gonzalez placed a prohibition on all stays from June 1st and for 10 days thereafter.   If that prohibition was legal (and it appears to have been upheld by SCOTUS) then the appeal brought by the Indiana Pension Fund was moot on June 2d when it was brought to the 2d Circuit Court of Appeals.  If that is the case, then Justice Ginsberg erred by extending the stay to June 9th.

Mr. Loeb failed to address the fact that Judge Gonzalez canceled the automatic stay and simultaneously prohibited any other stay from being issued by the very wording of the Sale Order.  (See my analysis below.)  Mr. Loeb – who originally stated that my analysis was poor due to a faulty reading of the facts – has failed to address the undeniable accuracy of this factual analysis which he overlooked in his original reply.

My analysis was dead on accurate as to the facts.  If there is something missing in this picture, Judge Gonzalez will have to clear that up since his order prohibited all stays for 10 days from the date on which the Sale Order was entered – June 1st, 2009.  That a stay was issued by the 2d Circuit Court of Appeals on June 2d – and extended by Justice Ginsberg to June 9th – does not change the FACT that the Sale Order issued by Judge Gonzalez prohibited all stays for 10 days after June 1st.  (My original reply begins below the solid line.)]

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The following analysis is in reply to Bankruptcy Expert Lawrence D. Loeb’s analysis of my report yesterday.  I respect Mr. Loeb and I have read his Fear and Greed blog with interest during the Chrysler bankruptcy.  Please review his report before reading my response below.

Dear Mr. Loeb,

First off, let me say that I have found your blog very enlightening on the Chrysler bankruptcy litigation.  Thank you for highlighting my analysis.  I am not allowing comments at this time, but should you reply at your blog, I will republish the same here.

Yesterday, I was left with the  feeling that SCOTUS found a technical manner within which to dispose of the Indiana Pension Fund’s appeal that seems unfair but is accurate under a technical reading of the law.

I understand your argument and I would agree with it for the most part except that – whether intended by SCOTUS or not – for the appeal which was brought to the 2d Circuit to have been moot at the time it was brought, I believe my interpretation must be correct.  Otherwise, how could an appeal brought on June 2d be moot on June 2d?

Perhaps the SCOTUS reliance on Munsingwear indicates that the case became moot after June 9th when SCOTUS decided not to continue the stay.  If the case only became moot on June 10th, so be it, and I would stand corrected.  However, SCOTUS did not make an affirmative indication of the date the appeal was moot.

Here is the text of yesterday’s SCOTUS ruling:

CERTIORARI — SUMMARY DISPOSITION
09-285
IN POLICE PENSION TRUST, ET AL. V. CHRYSLER LLC, ET AL.
The motion of Washington Legal Foundation, et al. for leave to file a brief as amici curiae is granted. The petition for a writ of certiorari is granted. The judgment is vacated, and the case is remanded to the United States Court of Appeals for the Second Circuit with instructions to dismiss the appeal as moot.  See United States v. Munsingwear, Inc., 340 U.S. 36 (1950).

Had the SCOTUS simply vacated the 2d Circuit decision, I would certainly agree with your analysis.  All these months later, the appeal – since it does not allege a bad faith purchaser – is certainly moot under 363(m).  I think we can agree on that.

However, my analysis was premised on the assumption that SCOTUS ordered the 2d Circuit to dismiss the original appeal as being moot retroactive to June 2d.  For the sake of argument, let’s tackle my analysis as if the order was retroactive to June 2d.

As to my argument, you stated:

“Mr. Donofrio’s analysis is interesting, but I think it’s a poor (if not slanted) reading of the law. Section 363(m) states:

The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.

You then continued your analysis as follows:

But nothing in that Section indicates that ONLY the Bankruptcy Court can issue the stay. It would seem unusual that Congress would intend to give the Bankruptcy Court the right to make its judgement appeal-proof (and doing so would seem to conflict with the role of the Supreme Court in the Constitution). Mr. Donofrio did not cite any cases that supported that theory.

My argument did not allege that a 363 sale is appeal-proof.  I made it quite clear that the statute allows for an appeal – notwithstanding a stay – on the issue of whether the purchaser acted in good faith.  The Indiana Pension Fund did not allege that Fiat acted in bad faith so they needed an effective stay to appeal.

363(m) is designed to protect the purchaser.  If there’s no allegation the purchaser acted in bad faith, there is solid statutory protection.  It’s not too far out to imagine that 363(m) was intended to protect the purchaser from having the deal cut out from under him at some later point in time after the sale had been authorized when he might have relied on the sale order to his financial detriment.  If the Bankruptcy Court stays their ruling pending appeal, then the purchaser is fairly warned.  But if the sale order is not stayed, then 363(m) allows the purchaser to act on his purchase.  In cases where assets are melting, this makes perfect sense.

Furthermore, 6004(h) provides for an automatic 14 day stay of a 363 sale.  But it also allows the Bankruptcy Judge to provide otherwise.  6004(h) reads as follows:

(h) Stay of order authorizing use, sale, or lease of property.

An order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise.

So, here we see Congress granting the Bankruptcy Court authority to cancel the automatic stay by including, “unless the court orders otherwise“.  Congress has therefore allowed the Bankruptcy Judge great breadth and scope over whether the sale should be stayed, and Judge Gonzalez apparently jumped all over that provision.

Now let’s look further at your analysis:

“Not only that, but it seems his analysis is based on a poor interpretation of the facts of the case. Specifically, Judge Gonzalez’s Sale Order (Docket 3232 corrections made in Errata Order Docket 3239), dated June 1, 2009, specifically delays the closing of the transaction to allow for an appeal.”

With all due respect, I do not believe my analysis rests on a poor interpretation of the facts.  While the Sale Order may have delayed the closing, it did not stay the entry of the order.  Here’s what the June 1st Order (docket no. 3232) stated:

57. As provided by Bankruptcy Rules 6004(h) and 6006(d), this Sale Order shall not be stayed for ten days after its entry and shall be effective as of 12:00 noon, Eastern Time, on Friday June 5, 2009, and the Debtors and the Purchaser are authorized to close the Sale Transaction on or after 12:00 noon, Eastern Time, on Friday June 5, 2009.4 Any party objecting to this Sale Order must exercise due diligence in filing an appeal and pursuing a stay or risk its appeal being foreclosed as moot in the event Purchaser and the Debtors elect to close prior to this Sale Order becoming a Final Order.” (Emphasis added.)

That little warning by Judge Gonzalez at the end seems rather cryptic in retrospect since it appears the Honorable Court parsed the meaning of “entry” and the “effective” date of such entry.  Or, in the alternative, SCOTUS interpreted, sua sponte, that the Sale Order could not be stayed for ten days after the order was entered on June 1st.

It gets really interesting when you consider that the 2d Circuit Court of Appeals stated that the Sale Order was entered on June 1, 2009.  Here is what the Court wrote in its opinion:

The Indiana State Police Pension Trust,…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. (Emphasis added.)

The “authorization” for the sale was issued on May 31, 2009 while the order was entered on June 1st.  Reading the Sale Order now with the knowledge that it was -  in fact – entered on June 1st, we can see that Judge Gonzalez did – in fact – place a ban on all stays for the ten days running between June 1st and June 10th.

Moreover, 363(m) also provides that not only must the “sale” be stayed pending appeal, but the “authorization” for the sale must also be stayed.  363(m) states,  “…unless such authorization and such sale or lease were stayed pending appeal.”

Congress used the word “and” which signifies that the authorization for the sale and the closing of the sale are two different things both of which must be stayed pending appeal. This is important because the authorization happened on May 31, 2009 and the order was entered granting such authority on June 1st.  But the sale didn’t close until June 10th.  The statute is quite clear.  In order for the appeal to not be moot, both the authority and the sale must be stayed pending appeal.

The Sale Order entered on June 1st states unequivocally that “this Sale Order shall not be stayed for ten days after its entry”.

If SCOTUS interpreted the Bankruptcy Code as granting the Bankruptcy Judge authority to place such a prohibition on staying the Sale Order then there was no stay available to the Indiana Pension Fund on June 2d, 2009 and therefore the appeal – as of June 2d – was moot.  If the dismissal of the appeal as being moot was retroactive to June 2d, this must have been the technicality that enabled SCOTUS to do what they did.

More of your analysis:

“In addition, on June 2, 2009, Judge Gonzalez issued an “Order Certifying Sale Order for Immediate Appeal to United States Court of Appeals, Pursuant to 28 U.S.C. § 158(d)(2)” (Docket 3237) which approved the appeal. Since the stay was already in place under the Sale Order, there was no need to extend it.”

You have assumed here that a stay was already in place when the appeal reached the 2d Circuit Court of Appeals.  But that Court made no mention of a pre-existing stay.  Instead, the Court of Appeals stated that they granted a motion for a stay on June 2d:

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).

Had there been a pre-existing stay issued by Judge Gonzalez, the Court of Appeals should have extended the stay rather than granting it.  And the motion would likely have requested an extension as well.

Now let’s revisit that little warning again from the June 1st Sale order:

“Any party objecting to this Sale Order must exercise due diligence in filing an appeal and pursuing a stay or risk its appeal being foreclosed as moot…”

This will be hard to swallow for many observers and particularly for the Indiana Pension Fund, but it certainly appears that – in retrospect – when Judge Gonzalez warned any party intending to appeal to “exercise due diligence” in order to avoid their appeal being moot, he was making reference to the necessity of basing such an appeal on the only issue not protected by 363(m), bad faith of the purchaser.

Also, in your analysis above, you stated that Judge Gonzalez “approved the appeal” since he also approved the certification of the appeal to the 2d Circuit, but the motion to certify the appeal was made by the Debtor (Old Chrysler).  (See docket #3086).  At that time, Judge Gonzalez had no reason to assume that the Indiana Pension Fund would not include an argument that the purchaser acted in bad faith.  Had they done so, no stay would have been necessary as 363(m) does not require a stay to invalidate a 363 sale based on that contention.  Hence, as far as Judge Gonzalez was concerned, such an appeal would have been proper.

I admit, none of this analysis seems equitable, fair or even possible.  But there is a trend in law and government now where important issues are based on tongue twisting complex interpretations of statutory construction which appear to obviously say one thing but which – under an intense microscopic review of the technicalities – actually say something vastly different and in a language written in Martian legalese and translated by intellectual harbingers of tidy chaos preaching esoteric unholy scripture based upon what the meaning of is isn’t.

Such is the entire mess created by the Chrysler bankruptcy, a true legal disaster car accident of epic proportions.

Mr. Loeb concluded as follows:

Given that series of facts, even if Mr. Donofrio’s interpretation of who must stay the sale were true, I don’t see how Chrysler would have failed that test.

Bottom line, I don’t think that Mr. Donofrio’s interpretation is correct. I believe the Supreme Court didn’t want the 2nd Circuit opinion to be law in that circuit, so they vacated it.

Anybody have any alternative views?

Yup.

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by Leo C. Donofrio, Esq. for the Law Office of Pidgeon and Donofrio

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