Debtor

09-2311-bk

d IN THE

United States Court of Appeals FOR THE SECOND CIRCUIT

IN RE CHRYSLER LLC,

Debtor.

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; INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE, and AGRICULTURAL IMPLEMENT WORKERS OF A MERICA , AFL-CIO (“UAW”), Appellees, INDIANA PENSIONERS, INDIANA STATE TEACHERS RETIREMENT FUND, Appellants. ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF FOR DEBTORS-APPELLEES CHRYSLER LLC, ET AL. JONES DAY Thomas F. Cullen 51 Louisiana Avenue, N.W. Washington, D.C. 20001-2113 (202) 879-3939

JONES DAY Corinne Ball Steven C. Bennett Todd R. Geremia Veerle Roovers 222 East 41st Street New York, New York 10017 (212) 326-3939

Attorneys for Debtors-Appellees Chrysler LLC, et al.

CORPORATE DISCLOSURE STATEMENT Debtor Chrysler LLC is a Delaware Limited Liability Company. CarCo Intermediate HoldCo II LLC holds 100% of the membership interest in Chrysler LLC. As set forth in more detail below, Chrysler LLC holds, either directly or indirectly, 100% of the ownership interest in all of the remaining debtors. Chrysler LLC directly holds 100% of the ownership interest in the following debtors: Chrysler Aviation Inc., TPF Asset, LLC, TPF Note, LLC, Chrysler Institute of Engineering, Chrysler International Services S.A., Chrysler Motors LLC, Utility Assets LLC, Chrysler International Corporation (USA), Chrysler Service Contracts Inc., Chrysler Transport Inc., Dealer Capital Inc., DCC 929, Inc., and Peapod Mobility LLC. Chrysler Motors LLC holds 100% of the ownership interest in the following debtors: Chrysler Realty Company LLC, Chrysler Vans LLC, Global Electric Motorcars, LLC, and Chrysler Dutch Holding, LLC. Chrysler International Corporation (USA) holds 100% of the ownership interest in debtor Chrysler International Limited, LLC. Chrysler Service Contracts Inc. holds 100% of the ownership interest in debtor Chrysler Service Contracts of Florida, Inc. Chrysler International Services S.A. holds 100% of the ownership interest in debtor Chrysler Technologies Middle East Ltd.

Global Electric Motorcars, LLC holds 100% of the ownership interest in debtors NEV Mobile Service, LLC and NEV Service, LLC. Chrysler Dutch Holding, LLC holds 100% of the ownership interest in debtor Chrysler Dutch Investment, LLC. CNI CV holds 100% of the ownership interest in debtor Chrysler Dutch Operating Group, LLC.

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TABLE OF CONTENTS Page PRELIMINARY STATEMENT ................................................................................................... 1 JURISDICTIONAL STATEMENT .............................................................................................. 2 QUESTION PRESENTED............................................................................................................ 2 STATEMENT OF THE CASE...................................................................................................... 2 STATEMENT OF FACTS ............................................................................................................ 7 A.

Chrysler – General Background............................................................................. 7

B.

Chrysler’s Transformation Plan............................................................................. 7

C.

The Economic Meltdown....................................................................................... 8

D.

The Proposed Fiat Sale .......................................................................................... 9

E.

The Purchase Agreement. .................................................................................... 10

F.

The U.S. Government’s Financing Of The Fiat Sale........................................... 11

G.

The Fiat Sale Is Chrysler’s Only Alternative....................................................... 14

H.

Chrysler’s Lenders Under The First Lien Credit Agreement .............................. 15

ARGUMENT............................................................................................................................... 16 I.

STANDARD OF REVIEW ............................................................................................. 15

II.

THE BANKRUPTCY COURT CORRECTLY FOUND THAT, UNDER THE EXIGENT CIRCUMSTANCES FACING CHRYSLER, A SALE OUTSIDE A CHAPTER 11 PLAN WAS JUSTIFIED......................................................................... 17

III.

THE FIAT SALE IS NOT A SUB ROSA PLAN ........................................................... 22

IV.

A.

A Sale Necessitated By Emergent Circumstances Is Not A Sub Rosa Plan........ 22

B.

Nothing In The Sale Order Will Usurp The Debtors’ Final Plan ........................ 24

C.

The Fiat Sale Does Not Violate The Bankruptcy Code’s Priority Rules............. 27 1.

New Chrysler’s assignment of ownership interests is not a distribution of the Debtors’ assets in violation of the priority rules ........ 28

2.

New Chrysler’s assumption and assignment of contracts under section 365 of the Bankruptcy Code is not a distribution of the Debtors’ assets in violation of the priority rules...................................... 29

BANKRUPTCY CODE SECTION 363(f) AUTHORIZES A “FREE AND CLEAR” Sale................................................................................................................... 31

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V.

VI.

A.

Section 363(f)(2) Authorizes The Sale Free And Clear Of The Liens Held By The Collateral Trustee Pursuant To The First Lien Credit Agreement.......... 31

B.

Section 363(f)(3) Also Authorizes The Sale Free And Clear Of The Liens Held By The Collateral Trustee ........................................................................... 37

THE FUNDS’ CLAIM THAT THE GOVERNMENT SPENDING VIOLATES TARP OR EESA PROVIDES NO BASIS FOR REVERSING THE BANKRUPTCY COURT’S APPROVAL OF THE FIAT SALE .................................. 41 A.

The Funds Lack Standing To Challenge The Expenditure Of TARP Funds Here...................................................................................................................... 42

B.

The Court Does Not Have Jurisdiction to Review and Declare Invalid the Government’s Actions in This Action ................................................................. 45

C.

TARP Expressly Precludes Equitable Relief That Interferes With The Secretary’s Spending Decisions........................................................................... 46

D.

TARP Expressly Allocates To The Funding Stability Oversight Board Questions Regarding The Appropriateness Of Particular TARP Expenditures ........................................................................................................ 48

E.

The Funds Waived Any Challenges To The Appropriateness Of Using TARP Money When They Consented To Chrysler Receiving Earlier TARP Loans......................................................................................................... 49

F.

The Secretary Has Authority Under TARP To Provide The Funding Here ........ 49

THE BIDDING PROCESS AND SALE HEARING SATISFIED DUE PROCESS ........................................................................................................................ 51

CONCLUSION............................................................................................................................ 54 CERTIFICATE OF COMPLIANCE.............................................................................................. i

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TABLE OF AUTHORITIES Page CASES Anderson v. City of Bessemer, 470 U.S. 564 (1985)............................................................................................16 Bartel v. Bar Harbor Airways, Inc., 196 B.R. 268 (S.D.N.Y. 1996) ...........................................................................23 Batagiannis v. W. Lafayette Cmty. Sch. Corp., 454 F.3d 738 (7th Cir. 2006) ..............................................................................53 Beal Sav. Bank v. Sommer, 8 N.Y.3d 318 (2007) ...........................................................................................36 Bennett v. Spear, 520 U.S. 154 (1997)......................................................................................42, 43 Bronx Household of Faith v. Board of Educ. of City of New York, 492 F.3d 89 (2d Cir. 2007) .................................................................................45 Cody, Inc. v. Cty. of Orange, 338 F.3d 89 (2d Cir. 2003) .................................................................................16 Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for S. Cal., 508 U.S. 602 (1993)............................................................................................16 Fellheimer, Eichen & Braverman, P.C. v. Charter Tech., Inc., 57 F.3d 1215 (3d Cir. 1995) ...............................................................................17 Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc., 128 S. Ct. 2326 (2008)..................................................................................19, 20 Gulf States Exploration Co. v. Manville Forest Prods. Corp., 896 F.2d 1384 (2d Cir. 1990) .............................................................................16 In re Action Drug Co., Inc., 110 B.R. at 150 ...................................................................................................52

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In re Archway Cookies LLC, No. 08-12323 (CSS), Sale Order (Bankr. D. Del. Dec. 3, 2008) .......................24 In re Bearingpoint, Inc., No. 09-10691 (REG), Sale Order (Bank. S.D.N.Y. Apr. 17, 2009)...................24 In re Beker Indus., Inc., 63 B.R. 474 (Bankr. S.D.N.Y. 1986)............................................................38, 39 In re Brookfield Clothes, Inc., 31 B.R. 978 (S.D.N.Y. 1983) .............................................................................19 In re Capitol Food Corp. of Fields Corner, 490 F.3d 21 (1st Cir. 2007).................................................................................17 In re Channel One Commc’ns, Inc., 117 B.R. 493 (Bankr. E.D. Mo. 1990)................................................................21 In re Chateaugay Corp., 10 F.3d 944 (2d Cir. 1993) ...........................................................................29, 30 In re Chateaugay Corp., 973 F.2d 141 (2d Cir. 1992) ...............................................................................21 In re Chrysler LLC, ___ B.R. ___, 2009 WL 1507540 (Bankr. S.D.N.Y. May 31, 2009)...................1 In re Chrysler LLC, ___ B.R. ___, 2009 WL 1507547 (Bankr. S.D.N.Y. May 31, 2009) (Gonzalez, J.) ............................................................................................1, 28, 32 In re Collins, 180 B.R. 447 (Bankr. E.D. Va. 1995).................................................................39 In re Condere Corp., 228 B.R. 615 (Bankr. S.D. Miss. 1998)..............................................................20 In re Decora Indus., Inc., No. 00-4459, 2002 WL 32332749 (D. Del. May 20, 2002) .........................18, 21 In re Enron Corp, 04 Civ. 1367, 2005 U.S. Dist. LEXIS 2134 (S.D.N.Y. Feb. 14, 2005)........29, 33

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In re Enron Corp., 302 B.R. 463 (Bankr. S.D.N.Y. 2003), aff’d................................................32, 33 In re Fitzsimmons, 725 F.2d 1208 (9th Cir. 1984) ............................................................................16 In re Fortunoff Holdings, LLC, No. 09-10497 (RDD) (Bankr. S.D.N.Y. Feb. 25, 2009) ....................................48 In re G. Survivor Corp. 171 B. R. 755 (Bankr. S.D.N.Y. 1994)...............................................................27 In re Gibson Group, Inc., 66 F.3d 1436 (6th Cir. 1995) ..............................................................................16 In re Global Crossing Ltd., 295 B.R. 726 (Bankr. S.D.N.Y. 2003)................................................................19 In re Gucci, 126 F.3d 380 (2d Cir. 1997) .........................................................................15, 19 In re GWLS Holdings, Inc., No. 08-12430, 2009 Bankr. LEXIS 378 (Bankr. D. Del. Feb. 23, 2009)...........32 In re Harford Sands, Inc., 372 F.3d 637 (4th Cir. 2004 ) .............................................................................15 In re Heine, 141 B.R. 185 (Bankr. D. S.D. 1992)...................................................................37 In re Integrated Telecom Express, Inc., 384 F.3d 108 (3d Cir. 2004) ...............................................................................16 In re Ionosphere Clubs, Inc., 100 B.R. 670 (Bankr. S.D.N.Y. 1989)................................................................19 In re Ionosphere Clubs, Inc., 184 B.R. 648 (S.D.N.Y. 1995) ...........................................................................22 In re Lady H Coal Co., Inc., 193 B.R. 233 (Bankr. S.D. W.Va. 1996) ............................................................20

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In re Lehman Brothers Holdings Inc., No. 08-13555 (JMP) (Bankr. S.D.N.Y. Sept. 19, 2008) ....................................48 In re Levitz Home Furnishings, Inc., No. 05-45189 (BRL) (Bankr. S.D.N.Y. Dec. 14, 2005).....................................35 In re Lionel Corp., 722 F.2d 1063 (2d Cir. 1983) .............................................19, 21 In re Maxwell Newspapers, Inc. (981 F.2d 85 (2d Cir. 1992).................................26 In re Med. Software Solutions, 286 B.R. 431 (Bankr. D. Utah 2002)..................................................................18 In re Microwave Prods. of Am., Inc., 102 B.R. 659 (Bankr. W.D. Tenn. 1989)............................................................35 In re Naron & Wagner, Chartered, 88 B.R. 85 (Bankr. D. Md. 1988) .................................................................18, 20 In re Orion Pictures Corp, 4 F.3d. 1095 (2d Cir. 1993) ................................................................................27 In re Pecus ARG Holding, Inc., No. 09-10170 (KJC), Sale Order ........................................................................22 In re Penn Trafficco, 524 F.3rd 373 (2d Cir. 2008) ...............................................................................26 In re PW, LLC, 391 B.R. 25 (9th Cir. BAP 2007) ..................................................................35, 36 In re Sababa Group, Inc., No. 08-13174 (Bankr. S.D.N.Y. Sept. 29, 2008)................................................48 In re Stroud Wholesale, Inc., 47 B.R. 999 (E.D.N.C. 1985), aff’d mem., 983 F.2d 1057 (4th Cir. 1986) .......37 In re Strunks Lane & Jellico Mountain Coal & Coke Co., 64 F. Supp. 731 (E.D. Ky. 1946) ........................................................................19 In re Summit Global Logistics, Inc., No. 08-11566, 2008 Bankr. LEXIS 896 (D.N.J. Mar. 26, 2008) .................19, 22

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In re TCIS, Inc., 393 B.R. 71 (Bankr. D. Del. 2008).....................................................................28 In re Terrace Gardens Park P’ship, 96 B.R. 707 (Bankr. W.D. Tex. 1989)................................................................35 In re Timbers of Inwood Forest Assocs., Ltd., 808 F.2d 363 (5th Cir. 1987), aff’d, 484 U.S. 365 (1988) .................................16 In re Titusville Country Club, 128 B.R. 396 (Bankr. W.D. Pa. 1991)................................................................20 In re Torch Offshore, Inc., 327 B.R. 254 (E.D. La. 2005).............................................................................24 In re Trans World Airlines, Inc., No. 01-00056, 2001 WL 1820326 (Bankr. D. Del. Apr. 2, 2001) (“TWA”) ...........................................................................................16, 17, 18, 22 In re U.S. Energy Systems, Inc., No. 08-10054 (RDD), Sale Order.......................................................................22 In re V. Loewer’s Gambrinus Brewery Co., 141 F.2d 747 (2d Cir. 1944) ...............................................................................19 In re WBQ P’ship, 189 B.R. 97 (Bankr. E.D. Va. 1995)...................................................................35 In re Weatherly Frozen Food Group, Inc., 149 B.R. 480 (Bankr. N.D. Ohio 1992)..............................................................20 In re Westpoint Stevens Inc., 333 B.R. 30 (S.D.N.Y. 2005) .......................................................................23, 24 In re Wing, 63 B.R. 83 (Bankr. M.D. Fla. 1986) ...................................................................37 In re WPRV-TV, Inc., 143 B.R. 315 (D.P.R. 1991)................................................................................35 Johnson v. Alvarez (In re Alvarez), 224 F.3d 1273 (11th Cir. 2000) ..........................................................................16

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Kaufman v. S & C Corp., 171 B.R. 38 (S.D. Tex. 1994) .......................................................................45, 46 Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992)......................................................................................38, 39 Matter of Holtkamp, 669 F.2d 505 (7th Cir. 1982) ..............................................................................46 Matter of Robintech, Inc., 863 F.2d 393 (5th Cir. 1989) ..............................................................................46 Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950)............................................................................................45 NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984)............................................................................................16 Stephens Indus. v. McClung, 789 F.2d 386 (6th Cir. 1986) ..............................................................................20 United States v. Security Industrial Bank, 459 U.S. 70 (1982)..............................................................................................42 STATUTES 11 U.S.C. § 361........................................................................................................14 11 U.S.C. § 363.................................................................................................passim 11 U.S.C. § 363(b) ............................................................................................passim 11 U.S.C. § 363(e) .............................................................................................25, 36 11 U.S.C. § 363(f)........................................................................................1, 2, 6, 28 11 U.S.C. § 363(f)(2) ........................................................................................passim 11 U.S.C. § 363(f)(3) ........................................................................................passim 11 U.S.C. § 363(k) .............................................................................................34, 35 11 U.S.C. § 365..............................................................................................4, 26, 27

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11 U.S.C. § 1129(b)(2).............................................................................................37 11 U.S.C. § 1129(b)(2)(A)(ii) ..................................................................................34 12 U.S.C. § 5211(c)(5).............................................................................................44 12 U.S.C. § 5211(d) .................................................................................................44 12 U.S.C. § 5214......................................................................................................43 12 U.S.C. § 5229(a)(1).............................................................................................41 12 U.S.C. § 5229(a)(2)(A) .................................................................................41, 42 28 U.S.C. § 157(b) .....................................................................................................1 28 U.S.C. § 158(d)(2)(A) .......................................................................................1, 2 28 U.S.C. § 158(d)(2)(E) ...........................................................................................2 28 U.S.C. § 1334(a) ...................................................................................................1 OTHER AUTHORITIES Fed. R. Bankr. P. 8013 .............................................................................................15 Hereinafter “MTA” ....................................................................................................3 http://www.financialstability.gov/docs/AIFP/AIFP_guidelines.pdf .......................45 http://www.financialstability.gov/docs/FSOB/FINSOB-Qrtly-Rpt033109.pdf).........................................................................................................45 http://www.gao.gov/new.items/d09553.pdf.............................................................45 Frank A. Oswald and Andy Winchell, Missing the Forest for the Trees in § 363: How the Ninth Circuit’s Bankruptcy Appellate Panel Neglected the Big Picture in the Clear Channel Decision, 2009 No. 4 Norton Bankr. L. Advisor 2 (2009) .................................................................................................36 Joel H. Levitin, et al., Ninth Circuit BAP Dresses Down Lienstripping Could This Be the Last Dance for 363 Sales?, 27-Oct. Am. Bankr. Inst. J. 1, 52-53 (2008) ..................................................................................................36

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John Collen, What Do the Subsections of Section 363(f) Really Mean? 6 J. Bankr. L. & Prac. 563 (1997).......................................................................34 Justin Hyde, GM, Chrysler now say they need billions more: Automakers to cut 50,000 more jobs, speed plant closings, DETROIT FREE PRESS, Feb. 18, 2009...............................................................................................................47 Richard J. Corbi, Section 363(f) “Free and Clear” Sales May Not Survive Appeal, 18 J. Bankr. L. & Prac. 1 Art. 8 (2009) ..............................................................33 Ted Evanoff, GM health-fund at heart of concession talks, THE INDIANAPOLIS STAR, Feb. 22, 2009.....................................................................47 Thomas Moers Mayer, Section 363 Sales: Is the System Working? [no], submitted to Southeast Bankrutpcy Law Institute (April 24, 2009)...................36

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PRELIMINARY STATEMENT The Indiana Pension Funds (the “Funds”), Maria Pasquale (“Pasquale”), and the Ad Hoc Committee of Consumer Victims of Chrysler (collectively, with Pasquale, the “Tort Claimants”) (the Funds and the Tort Claimants are referred to collectively as “Appellants”) appeal an order, entered by the Bankruptcy Court on June 1, 2009 (the “Sale Order”). (The decision supporting the Sale Order (the “Sale Opinion”) is reported at In re Chrysler LLC, ___ B.R. ___, 2009 WL 1507547 (Bankr. S.D.N.Y. May 31, 2009) (Gonzalez). A related decision addressing certain TARP issues that the Appellants raised below (the “TARP Opinion”) is reported at In re Chrysler LLC, ___ B.R. ___, 2009 WL 1507540 (Bankr. S.D.N.Y. May 31, 2009). The Sale Order authorizes a sale of substantially all of the operating assets of Chrysler LLC (“Chrysler”) and certain of its affiliates (collectively, either “Chrysler” or the “Debtors”), free and clear of all liens, claims, encumbrances, and interests, based upon emergency circumstances pursuant to sections 363(b) and (f) of title 11 of the United States Code (the “Bankruptcy Code”) to New CarCo Acquisition LLC (“New Chrysler”). New Chrysler is a newly-established Delaware limited liability company formed by Fiat S.p.A. (“Fiat”) in alliance with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the “UAW”), the Canadian Government and the United States Government.

JURISDICTIONAL STATEMENT The Bankruptcy Court has subject matter jurisdiction over this Chapter 11 proceeding pursuant to 28 U.S.C. § 1334(a) and 28 U.S.C. § 157(b). This Court has appellate jurisdiction pursuant to 28 U.S.C. § 158(d)(2)(A). On May 31, 2009, the Bankruptcy Court issued the Sale Opinion and the TARP Opinion. On June 1, 2009, the Bankruptcy Court entered the Sale Order and the Funds filed notices of appeal from the Sale Opinion and the TARP Opinion. The next day, the Bankruptcy Court granted the Debtors’ motion to certify the Sale Opinion, the TARP Opinion, and the Sale Order for a direct appeal to this Court pursuant to § 158(d)(2)(A), (B). See also 28 U.S.C. § 158(d)(2)(E) (providing parties 60 days to request certification). On June 3, 2009, this Court granted the Debtors’ petition under § 158(d)(2)(A). QUESTION PRESENTED Whether the Bankruptcy Court erred in finding that Chrysler had articulated sound business reasons and had established exigent circumstances to justify sale of substantially all of its operating assets, free and clear of liens, claim, encumbrances, and interests, in conformity with section 363(b) and (f) of the Bankruptcy Code. STATEMENT OF THE CASE The Debtors commenced these cases to implement a prompt sale of most of their operating assets that will preserve Chrysler’s business as a going concern 2

under new ownership and maximize the Debtors’ recovery for the benefit of their creditors. To that end, Chrysler, Fiat and New Chrysler have entered into a Purchase Agreement under which (a) the Debtors will sell most of their operating assets to New Chrysler in exchange for $2 billion in cash and (b) Fiat will contribute state-of-the-art small car and other technology and expertise, as well as its global distribution and purchasing network to New Chrysler (the “Fiat Sale”). (JA1801-02.) In addition, New Chrysler has reviewed Chrysler’s leases and executory contracts, including its supply chain contracts, its dealer agreements and its collective bargaining agreement with the UAW, deciding which to assume based upon the future benefit they will confer on New Chrysler (thereby relieving Chrysler of billions of dollars of liability). (JA3226.) The Fiat Sale is financially backed by the United States Department of the Treasury (the “U.S. Treasury”) and Export Development Canada, an affiliate of the Canadian Government, which together are providing New Chrysler with almost $7 billion in an acquisition finance facility. (JA2349-2374.) In addition the U.S. Treasury and Export Development Canada provided $4.9 billion of debtor-in-possession financing (the “DIP Loan”) (JA2375.) The DIP Loan has a series of milestones which tie its continuing availability to achieving progress with regard to the Fiat Sale. (JA2375-2511.)

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On May 3, 2009, the Debtors filed a motion seeking approval to consummate the Fiat Sale or a similar transaction with some other interested bidder (the “Sale Motion”). In connection with the Sale Motion, the Debtors, after two days of hearings, obtained the Bankruptcy Court’s approval of certain Bidding Procedures on May 7. Despite widespread publicity regarding Chrysler’s situation, however, the only bid received was the offer of New Chrysler to enter into the Fiat Sale. (SPA62.) Judge Gonzalez conducted a hearing on the Sale Motion on May 27-29, 2009. At that hearing (and the Bidding Procedures hearing that preceded it), the Debtors presented testimony from 12 witnesses (either live or through depositions) and introduced 48 exhibits into evidence. The Debtors’ evidence established that: (i) the Fiat Sale is the product of sound business judgment (SPA60), (ii) the Debtors have received the consent to the sale from the Collateral Trustee (SPA70), who holds the first lien on the assets that secure Chrysler’s repayment obligations to the lenders, including the Funds, that are parties to the Amended and Restated First Lien Credit Agreement, dated as of November 29, 2007 (the agreement is the “First Lien Credit Agreement,” the lenders are the “Lenders”), see (JA2512-2681) provided that the cash proceeds of the Fiat Sale are distributed to the Lenders, (iii) despite exhaustive efforts the Fiat Sale is the only alternative to immediate liquidation that the Debtors have, (SPA17-19, SPA33-34) and (iv) the $2 billion

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purchase price is fair, provides more than market value and far exceeds the value the Debtors (and the Lenders) will realize if the Fiat Sale is not consummated. (SPA 17-19, 21.) The evidence also proved that, in light of the ongoing deterioration of the Debtors’ assets, any material delay in closing the Fiat Sale will likely kill it – depriving the Debtors, their stakeholders and the country of its substantial benefits. (See SPA175.) In contrast, the Funds did not call a single witness. They submitted no fact or expert testimony regarding the value of the Debtors’ assets or the fairness of the Fiat Sale. They adduced no evidence that there was any other transaction available, let alone one that might yield more than $2 billion for the Debtors. From this evidentiary record, the Bankruptcy Court made the detailed factual findings that lie at the heart of this appeal, including: ! “The Debtors have demonstrated . . . good, sufficient and sound business purposes and justifications for the immediate approval of the . . . Fiat Sale.” (SPA60-61.) ! “Currently, the Debtors are losing over $100 million dollars per day.” “Unless the Fiat Sale is approved without delay, the Debtors’ assets will continue to erode, and they will be forced to liquidate in the near term.” (SPA60.) ! There are “compelling circumstances for the approval of the . . . Fiat Sale outside of the ordinary course of the Debtors’ business pursuant to section 363(b) of the Bankruptcy Code prior to, and outside of, a plan of reorganization in that, among other things, the Debtors’ estates will suffer immediate and irreparable harm if the relief requested in the Sale Motion is not granted on an expedited basis.” (Id.)

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! “[T]ime is of the essence in (a) consummating the Fiat Sale, (b) preserving the viability of the Debtors’ businesses as going concerns and (c) minimizing the widespread and adverse economic consequences for the Debtors’ estates, their creditors, employees, retirees, the automotive industry and the broader economy that would be threatened by protracted proceedings in these chapter 11 cases.” (SPA60-61.) ! “The consummation of the Fiat Sale outside of a plan of reorganization pursuant to the Purchase Agreement neither impermissibly restructures the rights of the Debtors’ creditors nor impermissibly dictates the terms of a liquidating plan of reorganization for the Debtors. (SPA61.) ! “[T]he consideration provided for in the Purchase Agreement constitutes the highest or otherwise best offer for the Purchased Assets and provides fair and reasonable consideration for the Purchased Assets.” (SPA62-63.) ! “[T]he [Fiat] Sale Transaction is the only alternative to liquidation available to the Debtors.” (SPA63.) ! “[T]he [Fiat] Sale will provide a greater recovery for the Debtors’ creditors than would be provided by any other practical available alternative, including, without limitation, liquidation whether under chapter 11 or chapter 7 of the Bankruptcy Code.” (Id.) ! “In light of the need to grant the relief requested in the Sale Motion on an expedited basis to avoid any erosion in the going concern value of the Purchased Assets, a reasonable opportunity to object or be heard with respect to the Sale Motion and the relief requested therein has been afforded to all interested persons and entities . . . .” (SPA66.) ! “The Debtors may sell the Purchased Assets free and clear of all Claims because, in each case where a Claim is not an Assumed Liability, one or more of the standards set forth in section 363(f)(1)-(5) of the Bankruptcy Code have been satisfied.” (SPA70.)

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In light of these findings, Appellants cannot prevail. As the Bankruptcy Court found, the Fiat Sale meets the requirements of section 363(b) of the Bankruptcy Code and controlling caselaw. STATEMENT OF FACTS A.

Chrysler – General Background.

Chrysler is one of the world’s best-known automobile manufacturers. On the Petition Date, it had approximately 55,000 employees, 70% of whom work in the United States, and it paid health care and other benefits to nearly 106,000 retirees. As of the Petition Date, Chrysler had 33 manufacturing and assembly facilities, 23 of which are located in the United States, and 24 parts depots worldwide. (JA2980-82; SPA2-3.) B.

Chrysler’s Transformation Plan.

In the years leading up to the Petition Date, Chrysler faced a number of challenges borne of its product mix, geographic reach, and scale. In particular, Chrysler’s product offerings have become too heavily weighted towards large vehicles. In addition, Chrysler effectively has no dealer network outside of North America, and is hurt by its relatively small scale. (JA2958-59; JA1746-47; JA1801.) To address these challenges, in September 2006, Chrysler initiated long-term restructuring efforts designed to address declining market conditions (the “Transformation Plan”). (JA1746-47.) An important component of the 7

Transformation Plan was Chrysler’s aggressive pursuit of a strategic alliance that would allow it to reduce its costs and expand into new products and markets. (JA1746-49.) Chrysler initially pursued an alliance with Nissan in 2007, but talks stalled. Discussions with other potential partners were ongoing throughout 2008. (JA1747, 1751-53.) C.

The Economic Meltdown.

Chrysler’s Transformation Plan was halted by the global credit crisis that culminated in the fall of 2008. The crisis had a devastating impact on Chrysler: the lack of dealer and consumer financing, as well as plummeting consumer confidence, resulted in a precipitous drop in vehicle sales. Chrysler’s cash inflow fell dramatically, generating losses that had to be funded with cash reserves. This cash drain swamped the benefits realized from Chrysler’s ongoing restructuring efforts, leaving Chrysler facing a severe liquidity crisis. (JA1931; SPA6). The economic crisis likewise hampered Chrysler’s ongoing efforts to identify a strategic partner. (JA1751.) Merger discussions with GM ended in November 2008, when GM opted to focus on its own liquidity problems. (JA2966-67.) Other potential partners with which Chrysler communicated included Toyota, Volkswagen, Tata Motors, GAZ, Magna International, HyundaiKia and Kia, Mitsubishi Motors and Honda Motor Company. (JA1747-48.) In addition, Chrysler discussed possible asset sales to Beijing Automotive, Tempo

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International Group, Hawtai Automobiles, and Chery Automobile. (JA2966-70; SPA6.) In the end, Chrysler pursued various business combinations with 16 different automotive companies around the world. None of those discussions, other than the discussions with Fiat that culminated in the Sale Order, led to anything. (SPA32.) D.

The Proposed Fiat Sale.

Chrysler began investigating a possible alliance with Fiat in September 2007. By April 2008, discussions included potential collaboration in the products, powertrain, marketing, and manufacturing areas. (JA2959; JA1753.) After additional analyses, Chrysler and Fiat concluded that the two companies were ideally matched because their product offerings and international distribution networks have little overlap. (JA1748) (Testimony of Alfred Altavilla) (“We are where they aren't, we have what they don't, they are where we aren't, they have what we don't.”) Beginning in November 2008, the companies began discussing an integrated, global alliance. (JA2960.) Fiat presented a detailed proposal to Chrysler on December 30, 2008, marking the starting point of a four-month period of negotiations with all interested stakeholders, in conjunction with the U.S. Treasury. (JA1752). Those negotiations ultimately resulted in the proposed Fiat Sale. (JA2960-61.)

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E.

The Purchase Agreement.

On May 3, 2009, Chrysler, Fiat and New Chrysler entered into the Purchase Agreement, under which Chrysler will transfer core assets and certain contracts, as a going concern, to New Chrysler for an immediate cash payment of $2 billion. When the transactions contemplated by the Purchase Agreement are closed and certain initial performance targets are met, Fiat will own 35% of New Chrysler, with the right to acquire an additional 16% only when the U.S. government loans are repaid. Others receiving equity in New Chrysler include: New Chrysler UAW Retiree VEBA (55%), the U.S. Treasury (8%), and the Canadian Government (2%). (JA1923; JA1802.) When the Fiat Sale closes, the lien securing the First Lien Credit Agreement will attach to the sales proceeds, which will then be immediately transferred to the Administrative Agent under the First Lien Credit Agreement for distribution to lenders. (See JA590; JA965; SPA54-303.) The Fiat Sale will create the sixth largest automaker in the world by volume, enhance the geographic footprint of Chrysler’s business, increase sales and reduce costs. (JA1748-49, 2961-63.) The alliance with Fiat will save the Chrysler, Jeep and Dodge brands. New Chrysler’s prospects are particularly high in partnership with Fiat, which engineered its own turnaround during the past decade. (JA1802.)

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Incident to the Fiat Sale, the UAW entered into a new collective bargaining agreement. This agreement was intensely negotiated with Chrysler and Fiat and will be assigned to New Chrysler. (JA1919.) It establishes a new wage structure and work rules. The UAW also negotiated with Fiat a new retiree settlement agreement to provide the Debtors’ current and future retirees with retiree health benefits funded through a 55% stake in New Chrysler Equity and a note of $4.587. (JA3460.) The new collective bargaining agreement, which the UAW has offered only as part of the Fiat Sale and only after Fiat agreed to the new retiree settlement, is a key component in enhancing New Chrysler’s global competitiveness. (JA1916-20; JA1916-20.) Also as part of the Fiat Sale, the Debtors will assume and then assign to New Chrysler various contracts, including most of Chrysler’s dealer agreements, its customer warranty agreements, its supply chain contracts, and various leases. In addition, New Chrysler is taking assets subject to valid prior statutory or possessory liens, rights of recoupement and setoff that have occurred or exist in the ordinary course of Chrysler’s business operations. (JA1961.) F.

The U.S. Government’s Financing Of The Fiat Sale.

On January 2, 2009, the U.S. Government, acting pursuant to the Troubled Asset Relief Program (“TARP”), loaned Chrysler $4 billion (the “Initial TARP Loan”), and contemplated additional loans if Chrysler met certain milestones by

11

March 31, 2009. The TARP loan was conditioned upon obtaining the Lenders’ consent under the First Lien Credit Agreement. The First Lien Credit Agreement was amended by the Lenders to reflect that consent. (JA2682.) The Funds offered no objection. Indeed, part of the loan proceeds were used to make interest payments to the Funds. (JA1931, JA1936.) The Initial TARP Loan required Chrysler to submit a plan demonstrating its ability to sustain long-term viability, obtain labor modifications and attain energy efficiency and competitiveness in the U.S. marketplace (the “Viability Plan”) no later than February 17, 2009. Initial Tarp Loan §§ 7.20-7.23. On February 17, 2009, in the midst of ongoing negotiations with all stakeholders and Fiat, Chrysler submitted its Viability Plan, and requested an additional $5 billion in loans. The Viability Plan discussed three possible scenarios, a “stand alone” plan, a Fiat alliance plan and an orderly liquidation plan, and also incorporated proposed sacrifices from all key stakeholder groups: equity holders, union and non-union employees and retirees, Lenders and second lien lenders, suppliers and dealers. (JA1931-33.) On March 31, 2009, the President of the United States announced that his designee, the Auto Task Force, had determined that Chrysler was not viable on a stand-alone basis and that its Fiat alliance plan was not sufficient, but that Chrysler would be given the 30-day grace period to see if it could improve its alliance plan.

12

If Chrysler subsequently demonstrated a viable plan, the President further committed that the U.S. Government was prepared to provide substantial additional capital to fund it. (JA2915.) The President also announced two additional TARP Auto Programs; one to support the manufacturers’ (including Chrysler’s) obligations to the suppliers and another to support their warranty obligations (Id.) During the 30-day grace period, Chrysler also received a commitment for additional TARP monies, in the form of an additional working capital loan of $500 million to allow it to operate until April 30, 2009; Chrysler also received TARP monies to support the Supplier Program and the Customer Warranty Program. (JA3006-08.) Obtaining a consent and amendment to the First Lien Credit Agreement was a condition to each such extension of TARP funds to Chrysler. (JA2688.) Again, the Funds accepted interest payments from the proceeds of those TARP loans without objection. The U.S. Government, along with the Canadian Government, has now agreed to make available to New Chrysler up to $7 billion of incremental funding for up to seven years, and a reduced amount for one year thereafter. (JA2349.) The Governments have also agreed to provide $4.9 billion in debtor-in-possession financing to allow the Debtors to complete the Fiat Sale. (JA2375.)

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G.

The Fiat Sale Is Chrysler’s Only Alternative.

Chrysler’s need for a strategic alliance has been well known for some time. Media coverage of Chrysler’s discussions with Nissan, GM and others was significant. Few stories have been more prominent than Chrysler’s ongoing negotiations with Fiat. (JA1746-47.) Nonetheless, no other transaction has emerged that affords the Debtors any opportunity to preserve their assets as a going concern and to realize the value associated with doing so. (SPA1-48; 1936.) When Chrysler was unable to submit a fully consensual Fiat alliance plan to the U.S. Government by April 30, the Initial Tarp Loan terminated, accelerating the loans under the First Lien Credit Agreement. Initial Tarp Loan, § 2.05(a); (JA2584.) At that point, Chrysler had no access to funding outside of chapter 11. Furthermore, no party, other than the United States (and Canadian) Government was willing to provide any DIP financing. (JA1936.) Even then there was a limited tolerance to continue funding losses. (JA2832.) Chrysler’s cash situation is dire and the company continues to function only because of Government support. Without it, Chrysler will have to liquidate. (JA1936.) In addition to obtaining funding from the DIP Loan, Chrysler also obtained approval to use cash collateral securing the obligations under the First Lien Credit Agreement: first on an interim basis on May 4, 2009, (see JA590; JA966.) These orders not only authorize Chrysler to use cash collateral, but also directed Chrysler

14

to distribute to the Lenders the cash proceeds from the Fiat Sale as a form of adequate protection. 11 U.S.C. 361, 363; Interim Cash Collateral Order, para. 6(c); Final Cash Collateral Order, para 6(c). These orders were uncontested. H.

Chrysler’s Lenders Under The First Lien Credit Agreement

Under the First Lien Credit Agreement, as of the Petition Date Chrysler owed the Lenders approximately $6.9 billion. The Funds hold $42 million – or about 0.61% – of that debt. Chrysler’s obligations under the First Lien Credit Agreement are secured by a first lien on substantially all of Chrysler’s assets. Under the governing documents (the “Loan Documents”), that lien is held solely by the Collateral Trustee, who has exclusive authority once an event of default has occurred to exercise all rights with respect to the collateral, including any right under “Bankruptcy Law.” The Collateral Trustee works at the direction of the Administrative Agent, whose actions are binding on all Lenders when taken at the request of Lenders holding a majority of the outstanding debt. Lenders holding more than 90% of Chrysler’s outstanding debt support the Fiat Sale and have instructed the Administrative Agent to direct the Collateral Trustee to consent to the Fiat Sale. ARGUMENT I.

STANDARD OF REVIEW A bankruptcy court’s findings of fact are reviewed for clear error; its

conclusions of law are reviewed de novo. See Cody, Inc. v. Cty. of Orange, 338 15

F.3d 89, 94 (2d Cir. 2003); In re Gucci, 126 F.3d 380, 390 (2d Cir. 1997). Bankruptcy Rule 8013 provides that “[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.” See also In re Harford Sands, Inc., 372 F.3d 637, 642 (4th Cir. 2004 ) (“We do not weigh the credibility of witnesses on appeal.”). The clear-error standard is “significantly deferential.” Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for S. Cal., 508 U.S. 602, 623 (1993). Under it, as this Court has held, “[w]e will reverse the bankruptcy court only if we are ‘left with the definite and firm conviction that a mistake has been committed.’” Gulf States Exploration Co. v. Manville Forest Prods. Corp., 896 F.2d 1384, 1388 (2d Cir. 1990) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)). “Where there are two permissible views of the evidence, the factfinder’s choice between them cannot be clearly erroneous.” Anderson v. City of Bessemer, 470 U.S. 564, 574 (1985). On clear-error review, it is thus “the responsibility of an appellate court to accept the ultimate factual determination of the fact-finder unless that determination either is completely devoid of minimum evidentiary support displaying some hue of credibility or bears no rational relationship to the supportive evidentiary data.” Fellheimer, Eichen & Braverman, P.C. v. Charter Tech., Inc., 57 F.3d 1215, 1223 (3d Cir. 1995).

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II.

THE BANKRUPTCY COURT CORRECTLY FOUND THAT, UNDER THE EXIGENT CIRCUMSTANCES FACING CHRYSLER, A SALE OUTSIDE A CHAPTER 11 PLAN WAS JUSTIFIED The overriding objective of a business reorganization in bankruptcy is – and

always has been – to preserve the value of the debtors’ assets as a going concern. NLRB v. Bildisco & Bildisco, 465 U.S. 513, 528 (1984) (“fundamental purpose of reorganization is to prevent the debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources”). Preserving the debtor’s business as a going concern permits the economy to benefit from the continued participation of the debtor’s productive assets; it permits the debtor’s employees to keep their jobs; and it preserves for the debtor’s creditors the incremental value of the going concern over the liquidation value. See 7 Collier on Bankruptcy ¶ 1100.01 (Resnick & Sommer eds., 15th ed. rev. 2008).1 Reorganization courts have long recognized that, in emergency situations, these objectives may justify a sale of substantially all of a debtor’s assets outside the normal chapter 11 plan process. In In re Trans World Airlines, Inc., No. 011

See Fields Station LLC v. Capitol Food Corp. of Fields Corner (In re Capitol Food Corp. of Fields Corner), 490 F.3d 21, 25 (1st Cir. 2007) (primary purposes of chapter 11 are preservation of businesses as going concerns and maximizing recoverable assets); NMSBPCSLDHB, L.P. v. Integrated Telecom Express, Inc. (In re Integrated Telecom Express, Inc.), 384 F.3d 108, 119 (3d Cir. 2004) (same); Johnson v. Alvarez (In re Alvarez), 224 F.3d 1273, 1278 n.9 (11th Cir. 2000) (purpose of chapter 11 is to provide creditors with going-concern value rather than more meager satisfaction through liquidation). 17

00056, 2001 WL 1820326 (Bankr. D. Del. Apr. 2, 2001) (“TWA”), application of these principles preserved thousands of jobs and saved TWA’s business as a going concern. In TWA, the court approved the sale of substantially all of TWA’s assets to American Airlines at the outset of the chapter 11 case because “TWA had no other strategic transaction available to it and had no other offer for value to which it could turn. . . . TWA was unable to procure adequate capital infusion to implement that plan. Its only alternative was a free fall chapter 11 filing with the high likelihood of a piecemeal liquidation of the enterprise.” TWA, 2001 WL 1820326, at *4. Denying a request for a stay pending appeal of its sale order, the TWA court discussed in detail the public interest served by American’s acquisition of TWA’s assets as a going concern: [T]here is a substantial public interest in preserving the value of TWA as a going concern and facilitating a smooth sale of substantially all of TWA’s assets to American. This includes the preservation of jobs for TWA’s 20,000 employees, the economic benefits the continued presence of a major air carrier brings to the St. Louis region, and preserving consumer confidence in purchased TWA tickets American will assume under the sale. . . . [T]he Sale Order implements the public interest that favors an organized rehabilitation (albeit here as only a part of a larger viable enterprise) of a financially distressed corporation which lies at the core of chapter 11. I conclude that the alternative to the Sale Order in this case is a free-fall chapter 11 leading to a liquidation with the subsequent substantial disruption of diverse economic relationships and likelihood of material 18

adverse harm to a very broad spectrum of creditor constituencies. Id. at *14 (emphasis added). Similarly, in In re Brookfield Clothes, Inc., 31 B.R. 978 (S.D.N.Y. 1983), the debtor sought to sell substantially all of its assets outside a plan. After thoroughly reviewing scores of cases authorizing assets sales outside a plan of reorganization, the court found “sufficient[ ] exigent circumstances to warrant the immediate sale.” Id. at 986. The court noted that “the wasting asset in this instance may be characterized as the ‘going concern’ value of the fully stopped business,” and found particularly relevant “[t]he absence of any means on the part of the debtor to return the business to operation, the need to sell the business as an ongoing entity, [and] the lack of interest by any [other] prospective purchaser.” Id. at 986. A sale of substantially all of a debtor’s assets early in a chapter 11 also provided the background for an opinion recently issued by the United States Supreme Court. See Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc., 128 S.Ct. 2326, 2330 n.2 (2008). In Piccadilly, Justice Breyer, though dissenting from the majority on the proper tax treatment of the sale, confirmed the rationale that supports such sales: “[O]ne major reason why a transfer may take place before rather than after a plan is confirmed is that the preconfirmation bankruptcy process takes time. . . . And a firm (or its assets) may have more value (say, as a going 19

concern) where sale takes place quickly. . . . Thus, an immediate sale can often make more revenue available to creditors or for reorganization of the remaining assets.” 128 S. Ct. at 2342 (7-2 decision) (Breyer, J., dissenting) (citations omitted). Piccadilly, Brookfield and TWA are merely three of many examples of courts approving asset sales outside the normal plan process to preserve the going concern value of the debtor’s business.2 When Congress enacted section 363 of the Bankruptcy Code, it codified what reorganization courts already knew: a debtor must be permitted to sell its assets during the course of a reorganization case when necessary to preserve value for the estate. The leading Second Circuit case on the standard to be applied to a proposed section 363 sales is Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel 2

See, e.g., In re Decora Indus., Inc., No. 00-4459, 2002 WL 32332749, at *3 (D. Del. May 20, 2002) (approving 363(f) sale of substantially all assets of chapter 11 debtor that had no source of future financing: “Debtors have two alternatives: (1) proceed with the Proposed Transaction, or (2) terminate business operations, employees and commence a liquidation of assets. . . . All parties agree that an asset sale, as opposed to liquidation, will provide more money to the estate to satisfy the creditors’ claims, as well as maintaining the going concern value of Debtors. . . .”); In re Med. Software Solutions, 286 B.R. 431, 441 (Bankr. D. Utah 2002) (court approved sale of essentially all of debtor’s assets at outset of chapter 11 case); In re Naron & Wagner, Chartered, 88 B.R. 85, 90 (Bankr. D. Md. 1988) (approving sale of operating subsidiary where purchase price exceeded its estimated liquidation value and “failure to close the sale quickly will likely result in a halt of [subsidiary]’s continuous operations. If [subsidiary] cannot be sold as a going concern, there will be a substantial decrease in its value to the Debtor’s estate.”). 20

Corp.) (“Lionel”), 722 F.2d 1063, 1070 (2d Cir. 1983). Under section 363, the Lionel court held, the relevant test is whether there is a “good business reason” for the sale. Id. at 1071. See also In re Gucci, 126 F.3d at 387; In re Chateaugay Corp., 973 F.2d 141, 143 (2d Cir. 1992); In re Global Crossing Ltd., 295 B.R. 726, 743 (Bankr. S.D.N.Y. 2003). The “good business reason” on which reorganization courts have most often relied in allowing the sale of a debtor’s property prior to plan confirmation is that delay will erode significantly the value of that property. Lionel, 722 F.2d at 106669. As the Lionel court stated, “[i]n such cases . . . the bankruptcy machinery should not straightjacket the bankruptcy judge so as to prevent him from doing what is best for the estate.” Id. at 1069. Courts applying section 363(b) have routinely authorized asset sales outside of plans where the debtor, like Chrysler here, lacked resources to continue operating. See, e.g., In re Summit Global Logistics, Inc., No. 08-11566, 2008 Bankr. LEXIS 896, at *30 (D.N.J. Mar. 26, 2008) (approving section 363 sale of business because “the failure to consummate a sale at this juncture will result in a complete shut down of the debtor’s operations” and “a going concern sale proves much more lucrative than a sale of a non-operational entity”).3 3

See also Stephens Indus. v. McClung, 789 F.2d 386, 390 (6th Cir. 1986; In re Lady H Coal Co., Inc., 193 B.R. 233, 244 (Bankr. S.D. W.Va. 1996); In re Weatherly Frozen Food Group, Inc., 149 B.R. 480, 483 (Bankr. N.D. Ohio 21

The Bankruptcy Court made an express finding that Chrysler is in just that position based upon several facts. First, any material delay will require hundreds of millions of dollars to restart Chrysler’s plants; Chrysler’s workers will move on; and Chrysler’s suppliers and dealers will likely fail. (JA219-221; JA1653; JA9971005; JA1392-1399; JA1653; JA1549.) In light of these realities, Fiat conditioned the Fiat Sale on a closing by June 15, 2009, and the United States and Canadian Governments imposed a number of tight timing milestones. (See JA1809-10.) Thus, if the Fiat Sale does not occur quickly, the opportunity it represents will be lost forever. Moreover, as the Bankruptcy Court recognized, “the Debtors are losing over $100 million dollars per day. . . . Unless the Fiat Sale is approved without delay, the Debtors’ assets will continue to erode, and they will be forced to liquidate in the near term.” (SPA60.) III.

THE FIAT SALE IS NOT A SUB ROSA PLAN Given these exigencies, the Bankruptcy Court found that “[t]he Fiat Sale

does not constitute a sub rosa plan of reorganization.” (SPA61.) Arguing otherwise, the Funds marry a misunderstanding of the Fiat Sale with a flawed interpretation of the applicable legal principles. Properly viewed, the Fiat Sale is a value-preserving transaction that in no way usurps the chapter 11 plan that will

1992); In re Titusville Country Club, 128 B.R. 396, 400 (Bankr. W.D. Pa. 1991); In re Channel One Commc’ns, Inc., 117 B.R. 493, 496 (Bankr. E.D. Mo. 1990). 22

follow. It is much like the dozens of similar transactions that courts have routinely approved. Moreover, because neither New Chrysler’s ownership arrangements nor its assumption of contracts constitute a distribution of the Debtors’ assets, they are not relevant to the sub rosa analysis. A.

A Sale Necessitated By Emergent Circumstances Is Not A Sub Rosa Plan

In virtually every case in which a court has applied Lionel and authorized a sale under section 363(b), it has had to decide whether, under the circumstances presented, the benefits to the estate and its creditors justified a sale outside of a plan. If they did, the transaction could not be an impermissible sub rosa plan because no creditors would be denied to their detriment any of the protections afforded then in connection with plan confirmation. In In re Chateaugay Corp., 973 F.2d 141 (2d Cir. 1992), for example, this Court reviewed an order approving the sale of the debtors’ aircraft and missile divisions. Affirming, the Court stated that “[w]hat is presently feasible and necessary is a sale of Aerospace’s assets. The courts below found that further delay risks that the assets will be sold later and for less.” Id. at 144. The Court added: “It is true that delay might strengthen the Aerospace Committee's negotiating hand . . . but only at the risk of diminishing the value ultimately to be obtained from Aerospace's assets. A sale now protects all creditors.” Id. See also In re Decora Indus., Inc., No. 00-4459, 2002 WL 32332749, at *8-9 (D. Del. May 20, 2002); Bartel v. Bar Harbor Airways, Inc., 196 23

B.R. 268, 273 (S.D.N.Y. 1996); In re Ionosphere Clubs, Inc., 184 B.R. 648, 653 (S.D.N.Y. 1995); In re Summit Global Logistics, Inc., 2008 Bankr. LEXIS 896 (Bankr. D.N.J. Mar. 26, 2008); TWA, 2001 WL 1820326, at *4.4 Because this case, like many that have preceded it, involves selling a deteriorating asset at a price that exceeds any other available alternative, it does not implicate sub rosa issues. B.

Nothing In The Sale Order Will Usurp The Debtors’ Final Plan

Nor will the Fiat Sale in any way usurp the normal plan process. The Fiat Sale will involve the transfer of most, but not all, of the Debtors’ assets. Once the Fiat Sale is completed (and even if it is not), the Debtors will proceed with an orderly wind down of their estates. They were able to obtain DIP Financing to bridge the Fiat Sale, and as part of that financing, the U.S. Government committed 4

Accord In re Bearingpoint, Inc., No. 09-10691 (REG), Sale Order at ¶ T (Bankr. S.D.N.Y. Apr. 17, 2009) (Docket No. 468) (“The sale and assignment of the Acquired Assets outside of a plan of reorganization pursuant to the Agreement neither impermissibly restructures the rights of the Debtors’ creditors nor impermissibly dictates the terms of a liquidating plan of reorganization for the Debtors. The Transactions do not constitute a sub rosa chapter 11 plan.”); In re Archway Cookies LLC, No. 08-12323 (CSS), Sale Order at ¶ T (Bankr. D. Del. Dec. 3, 2008) (Docket No. 258) (same); In re Pecus ARG Holding, Inc., No. 0910170 (KJC), Sale Order at ¶ Z (Bankr. D. Del. Mar. 13, 2009) (Docket No. 262) (same); Proxymed Transaction Services, Inc., No. 08-11551 (BLS), Sale Order at ¶ AA (Bankr. D. Del. Sept. 9, 2008) (Docket No. 191) (same); In re U.S. Energy Systems, Inc., No. 08-10054 (RDD), Sale Order at ¶ X. (Bankr. S.D.N.Y. Mar. 13, 2009) (Docket No. 419) (“The Sale does not constitute a sub rosa Chapter 11 plan for which approval has been sought without the protections that a disclosure statement would afford.”).

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to provide up to $260 million for the winding down. In addition, also as part of the Fiat Sale, the Debtors obtained a Transition Services Agreement to provide the personnel, records, access and support services needed to meet their responsibilities under chapter 11. The Debtors will market their remaining assets and engage in the normal routines of a large bankruptcy case. They will monetize assets and, when finished, seek confirmation of a plan that will provide for distribution of the assets in the Debtors’ estates. To be sure, in some cases, sale orders have contained provisions seemingly unrelated to the sale – provisions of the sort typically found only in a final plan. Courts have on occasion found such transactions to fall outside the bounds of section 363(b). For example, in In re Westpoint Stevens Inc., 333 B.R. 30 (S.D.N.Y. 2005), a debtor with first and second lien lenders sought approval to sell substantially all of its assets to a purchaser who held some of the debtor’s first lien debt and nearly all of its second lien debt. In exchange, the debtor received stock in the purchaser’s parent, with the first lien and second lien creditors getting replacement liens in the transferred securities. 333 B.R. at 33-34. But the Westpoint sale order did not stop there. It further provided that, upon closing, the first lien lenders would receive a specified portion of the securities in full satisfaction of their claim, and the second lien lenders would receive the remaining securities in partial satisfaction of theirs. In addition, it

25

directed that all liens would terminate upon distribution of the securities. Id. at 34. In essence, the order provided not only for the sale of assets, but also (1) determined the value of the first and second lien lenders’ claims, (2) allocated the sale proceeds between the claims, (3) directed that the lienholders’ claims would be completely satisfied upon payment, and (4) then released the underlying security interest. On appeal, the District Court observed that “[t]he first aspect of the transaction” – i.e., the sale of assets in exchange for stock and grant of a replacement lien – “is clearly within the scope of authority granted to the bankruptcy court by section 363 of the Bankruptcy Code.” Id. at 51 (emphasis added). As to the additional elements of the order, however, the court held that “[n]othing in the language of the relevant subsections of Bankruptcy Code section 363 . . . provides the Bankruptcy Court with authority to impair the claim satisfaction rights of objecting creditors or to eliminate the replacement liens.” Id. at 51. “Where it is clear that the terms of a section 363(b) sale would preempt or dictate the terms of a Chapter 11 plan,” the Westpoint court explained, “the proposed sale is beyond the scope of section 363(b) and should not be approved under that section.” Id. at 52. The Fiat Sale bears no resemblance to the rejected aspects of the Westpoint scheme. The Debtors will receive cash, not equity (thereby avoiding any valuation

26

issues). There will be no allocation or prioritization of the sale proceeds among creditors, as the $2 billion will go entirely to the Lenders (who are owed $6.9 billion). The Sale Order will neither provide for satisfaction of any creditor’s claim, nor terminate the Lenders’ security interest, which will attach to the proceeds of the sale. Nothing undertaken in connection with the Fiat Sale will either “impair the claim satisfaction rights of objecting creditors” or “eliminate the replacement liens.” See 333 B.R. at 51. And neither the express terms of the Purchase Agreement nor the transactions it contemplates will dictate any of the terms of the Debtors’ final plan or impair any creditor’s rights in connection therewith. See In re Torch Offshore, Inc., 327 B.R. 254, 260 n. 7 (E.D. La. 2005) (affirming bankruptcy court’s approval of sales of majority of debtor’s assets in face of sub rosa plan argument, finding that sales “do not contain any provisions dictating the terms of any future reorganization plan, preordaining the way creditors will vote on such a plan, or attempting to vary the priorities of [the debtors’] creditors”). C.

The Fiat Sale Does Not Violate The Bankruptcy Code’s Priority Rules

The Funds have asserted that the Fiat Sale is a sub rosa plan because it will somehow result in “distributions” or “diversions” from the Debtors’ estates in violation of the Bankruptcy Code’s priority rules. But the only distributions that will occur in connection with the Fiat Sale will go entirely to the Lenders. In 27

particular, under the First Lien Credit Agreement, the lien securing the Debtors’ indebtedness will attach to the $2 billion in sale proceeds. Those proceeds will be paid to the Lenders under the First Lien Credit Agreement. Pursuant to the Interim Cash Collateral Order, dated May 4, 2009, Chrysler obtained consent to use cash collateral securing the obligations under the First Lien Credit Agreement. The Cash Collateral Orders authorized and directed the Debtors to distribute the cash proceeds of the Fiat Sale to the Lenders. That direction was reaffirmed in the Final Cash Collateral Order approved on May 29, 2009. Neither the Interim nor the Final Cash Collateral Orders were disputed by the Funds. Confronted with the fact that the Lenders will receive all proceeds of the Fiat Sale, the Debtors argue that arrangements New Chrysler has entered into with constituencies who are critical to its creation and ultimate success (i.e., the Governments that are financing the undertaking, employees who comprise the skilled workforce that New Chrysler needs, and suppliers without whom cars cannot be built), somehow amount to a distribution of the Debtors’ assets. As explained below, however, they do not. 1.

New Chrysler’s assignment of ownership interests is not a distribution of the Debtors’ assets in violation of the priority rules

As the Bankruptcy Court expressly found: “New Chrysler made certain agreements and provided ownership interests in the new entity, which was neither

28

a diversion of value from the Debtors’ assets nor an allocation of the proceeds of the sale of the Debtors’ assets.” Sale Opinion at 22. Rather, those arrangements reflect some assignment of New Chrysler’s value. The value the Debtors will realize from the Fiat Sale is the $2 billion they will be paid for their assets. That $2 billion is substantially more than the Debtors could have gotten anywhere else for those assets, and all of that amount is going to the Lenders, in complete compliance with the Code’s treatment of liens. Accordingly, the Bankruptcy Court properly recognized that receipt of an ownership interest in New Chrysler is not a distribution from the Debtors’ estates, nor a diversion of value from the Debtors’ assets, nor an allocation of the Debtors’ proceeds of the Fiat Sale. 2.

New Chrysler’s assumption and assignment of contracts under section 365 of the Bankruptcy Code is not a distribution of the Debtors’ assets in violation of the priority rules

Nor does New Chrysler’s assumption of some of the Debtors’ material contracts, including their dealer agreements, supply chain contracts, equipment and realty leases, as well as their collective bargaining agreement, work any improper distribution of the Debtors’ assets. Section 365 of the Bankruptcy Code gives debtors broad power to pick which contracts they want to perform. See, e.g., In re Maxwell Newspapers, Inc., 981 F.2d 85, 89 (2d Cir. 1992). The business judgment rule “presupposes that the estate will assume a contract only where doing so will be to its economic advantage.” COR Route 5 Co., LLC v. Penn Traffic Co. 29

( In re Penn Trafficco), 524 F.3rd 373, 382 (2d Cir. 2008); see also In re Chatueaugay Corp. 10 F.3d 944, 954-55 (2d Cir. 1993) (“[section 365] provid[es] ‘a means whereby a debtor can force others to continue to do business with it . . . .”). Moreover, section 365 permits Fiat, on behalf of the buyer, New Chrysler, to review the “inventory of executory contracts of the debtor and decide which ones it would be beneficial to adhere to.” Orion Pictures Corp v. Showtime Networks, Inc. (In re Orion Pictures Corp), 4 F.3d. 1095, 1098 (2d Cir. 1993). See also In re G. Survivor Corp. 171 B. R. 755, 759 (Bankr. S.D.N.Y. 1994) (recognizing that selection of contracts for assumption or rejection in connection with debtor’s asset sale is fundamental component of economic value of transaction, and that purchaser’s participation in such selections is not inappropriate). The preferential treatment afforded assumed contracts in a chapter 11 case is not confined to transactions undertaken through a final plan. Such assumptions virtually always afford priority to the nondebtor counterparty to the assumed executory contract. It is bedrock bankruptcy law that counterparties whose contracts are assumed (and thus benefit from the Bankruptcy Code’s cure provisions) often fare better than other classes of creditors. See In re Chateaugay Corp., 10 F.3d 944, 955 (2d Cir. 1993) (“estate’s election to assume a contract or lease under Section 365 entitles the other contracting party to assert its claims on a

30

priority basis”). But such assumptions do not violate the Bankruptcy Code’s priority rules. That conclusion is even more apt here, where the buyer is designating the contracts to be assumed and the buyer is paying the cure amounts. (See SPA118, 124.) There is simply no distribution of the Debtors’ property here. The funds expended to provide for contract cures, and later payments made to secure continued performance, are provided by the buyer. See In re TCIS, Inc., 393 B.R. 71, 77 (Bankr. D. Del. 2008) (upholding buyer-funded settlement, outside of a plan, because “the money to be paid . . . is non-estate property”). With little else to argue, the Funds suggest that the Fiat Sale is a sub rosa plan because, after the sale, as before, “Chrysler will sell Chrysler, Jeep and Dodge cars, trucks and minivans, produced at Chrysler plants, manned by Chrysler’s union workers.” The Funds’ Memorandum of Law in Support of Emergency Motion for Expedited Appeal, at 3. As a factual matter, that is wrong. After the Fiat Sale, a new entity, controlled largely by Fiat, will sell Chrysler vehicles manufactured at its plants by its employees. It will do so by virtue of having purchased the Debtors’ assets, as a going concern. As a legal matter, if the Funds’ cockeyed way of looking at the Fiat Sale were correct, then every going-concern sale would be a sub rosa plan.

31

In the end, the Fiat Sale is precisely that – a sale of assets for a price that far exceeds liquidation value, to a purchaser who wants to use the assets in a productive enterprise. It thus looks very much like the myriad transactions that have been permitted in circumstances much less dire than those now before the Court. IV.

BANKRUPTCY CODE SECTION 363(f) AUTHORIZES A “FREE AND CLEAR” SALE A.

Section 363(f)(2) Authorizes The Sale Free And Clear Of The Liens Held By The Collateral Trustee Pursuant To The First Lien Credit Agreement

The Funds hold approximately $42 million of the $6.9 billion of outstanding debt under the First Lien Credit Agreement. (JA2910-2914.) They argue that section 363(f)(2) of the Bankruptcy Code does not authorize the sale of assets to New Chrysler free and clear of liens on the property because they have not consented to the transfer. As the Bankruptcy Court held, however, their argument fails because the entity that actually holds the liens, the Collateral Trustee, has consented to the sale. (See SPA24-27.) Under the Loan Documents, Chrysler granted a security interest in most of its assets, as well as the proceeds thereof (the “Collateral”), to the Collateral Trustee. (See JA2855) (“Each Grantor hereby grants to the Collateral Trustee . . . a security interest in . . . .”) (emphasis added). (See also JA2558-2559.) (definitions of “Collateral” and “First Priority Secured Parties”). The Funds’ 32

assertion that they have not consented to the sale is thus irrelevant because they do not hold the liens on the Collateral that Chrysler pledged under the First Lien Credit Agreement. See In re Enron Corp, 04 Civ. 1367, 2005 U.S. Dist. LEXIS 2134, at *26-*29 (S.D.N.Y. Feb. 14, 2005) (where collateral was pledged “to” a collateral trustee “for the benefit of” a bank group, bank group did not have standing to proceed against collateral in bankruptcy). Moreover, under the Loan Documents, each Lender, including the Funds, “irrevocably designated” the Administrative Agent to act as its agent “on its behalf” and expressly agreed to be bound by any act taken (or decision not to act) by the Administrative Agent at the request of Lenders holding a majority of the debt under the First Lien Credit Agreement (the “Required Lenders”). (JA25842586.) Chrysler’s commencement of its chapter 11 case was an “Event of Default” under the First Lien Credit Agreement. Upon a default, the Collateral Trustee (acting at the direction of the Administrative Agent) is granted the power “to do, at its option . . . , all acts and things which the Collateral Trustee deems necessary to . . . realize upon the Collateral,” including taking any “Collateral Enforcement Actions” permitted under the security documents. Id. §§ 2.2 and 2.3. A “Collateral Enforcement Action” is defined to mean any effort “to exercise . . . any

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rights or remedies with respect to any Collateral,” including any other right or remedy “under any Bankruptcy Law ….” Id. § 1.1 (emphasis added). Proceeding under these provisions, the Administrative Agent, at the request and instruction of Lenders holding $6.376 billion (92.5%) of the debt under the First Lien Credit Agreement, caused the holder of the first lien on the Debtors’ assets – the Collateral Trustee – to consent to the Fiat Sale in exchange for an immediate cash payment of $2 billion, pursuant to section 363(f)(2) of the Bankruptcy Code. (JA3117.) The Administrative Agent’s action is thus sufficient to authorize the transfer of the Debtors’ assets to New Chrysler free and clear of the first lien on those assets imposed by the Loan Documents, pursuant to section 363(f)(2). Moreover, because this action was taken at the request of the Required Lenders, all Lenders, including the Funds, have contractually agreed to be bound by that action, and thus are deemed to have consented to the sale. The Funds argue otherwise, citing section 9.1(a) of the First Lien Credit Agreement, which they construe as requiring unanimous consent from the Lenders to allow the Administrative Agent to consent to the sale of substantially all of the Collateral free and clear of liens. But section 9.1(a) merely describes the circumstances in which parties may amend, modify or supplement the Loan Documents, and then sets forth certain categories of waivers, amendments, supplements or modifications that require the written consent of the affected

34

parties, including those that would “release all or substantially all of the Collateral . . . (except as provided in the Loan Documents).” (JA2588.) The Funds’ suggestion that this provision requires unanimous lender consent to the sale of assets constituting the Collateral after an event of default is wrong for three reasons. First, the Debtors’ proposed sale is not a release of the Collateral. A sale of assets that constitute Collateral under the Loan Documents does not “release” that Collateral because the “proceeds” from the sale of those assets remain as Collateral that secures Chrysler’s obligations to the Lenders. See Security Agreement §§ 2.(a)(xv), 3.4 and 3.5; CTA § 2.11(b); Debtors Ex. 55 at § 3(a). Nor is the lien on the transferred assets discharged or released. Rather, the lien attaches to the proceeds of the sale. See N.Y. U.C.C. Law § 9-315(a)(2) (Consol. 2009) (a “security interest attaches to any identifiable proceeds of collateral”). Second, a transfer of assets through a section 363 sale does not require any “amendment, supplement or modification” to the Loan Documents. Once an Event of Default occurs, the CTA expressly grants the Collateral Trustee the right to “realize upon the Collateral” and “to sell all ... of the Collateral.” CTA §§ 2.2 and 2.3 (emphasis added). See also Security Agreement § 3.6 (granting right to “realize upon ... and/or ... sell ... the Collateral or any part thereof (or contract to do [so])”).

The Collateral Trustee’s power to sell all the Collateral upon an Event of

35

Default necessarily includes the power to consent to such a sale under section 363(f)(2) of the Bankruptcy Code without amending or modifying any Loan Documents. See (JA2786-2790; 2798) (Collateral Trustee has right to take any Collateral Enforcement Action with respect to Collateral, which includes exercising any right under “any Bankruptcy Law”). Third, even were section 9.1(a)(iii) contorted to otherwise apply to the sale of the Collateral to New Chrysler as an “amendment” of the Loan Documents, the consent of all Lenders still would not be required because such an “amendment” would be “otherwise provided [for] in the Loan Documents ....” First Lien Agreement § 9.1(a)(iii); see CTA §§ 2.2, 2.3, 2.5(c), 2.11(b); Security Agreement § 3.6. Two recent cases are directly on point: In re GWLS Holdings, Inc., No. 0812430, 2009 Bankr. LEXIS 378 (Bankr. D. Del. Feb. 23, 2009), and Beal Sav. Bank v. Sommer, 8 N.Y.3d 318 (2007). In both, the courts analyzed contractual provisions that were identical in all material respects to section 9.1(a)(iii) of the First Lien Credit Agreement, and held that they did not require an administrative agent to obtain unanimous consent from the lenders to dispose of the collateral after a default because such action was not a “waiver, amendment, supplement, or modification” of the credit agreement. See In re GWLS, 2009 Bankr. LEXIS 378 at *12-15; Beal, 8 N.Y.3d at 327-31.

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Indeed, in this case, there is a clear and unmistakable expression of the parties’ intent to preclude an individual dissenting lender, such as the Funds, from interfering with the enforcement actions of the Collateral Trustee See Beal Sav. Bank, 8 N.Y.3d at 332 and n.3 (urging parties to make their intent clear on this issue in the loan documents). Less than five months after the Beal decision was rendered, Chrysler and the Collateral Trustee expressly provided, in section 2.5(c) of the CTA, that “no Holder Representative or any other Secured Party” shall, without the consent of the Administrative Agent, “take any Collateral Enforcement Action” or “object to, contest or take any other action that is reasonably likely to . . . hinder” the manner in which the Collateral Trustee exercises its rights with respect to the Collateral. In short, the Collateral Trustee held the lien and validly consented to the sale of the Collateral pursuant to section 363(f)(2) of the Bankruptcy Code. The Funds are contractually bound by that decision and have no standing to now object to that sale. B.

Section 363(f)(3) Also Authorizes The Sale Free And Clear Of The Liens Held By The Collateral Trustee

Even if the Funds had not consented to the Fiat Sale for purposes of section 363(f)(2) as discussed above, section 363(f)(3) affords an additional basis for allowing the Fiat Sale free and clear of any liens the Funds claim in the subject property. 37

A sale can be made free and clear of liens pursuant to section 363(f)(3) of the Bankruptcy Code so long as the purchase price exceeds “the aggregate value of all liens on such property.” Lower courts throughout this circuit have confirmed that “value of the liens” for purposes of section 363(f)(3) means the actual economic value placed on the liens – not the face amount of the liens. Perhaps the seminal case in the area is In re Beker Indus., Inc., 63 B.R. 474, 476 (Bankr. S.D.N.Y. 1986). There, a chapter 11 debtor sought to sell real property free and clear of all liens, even though the sale price was less than the face amount of the liens. To fix the meaning of the term “value” as used in (f)(3), the Court first noted that when used in § 506(a) with respect to the interest of a creditor, “value” means actual value as determined by the court, not the amount of the lien. Beker, 63 B.R. at 476. The court reasoned that interpreting “value” to mean the economic value of a secured claim (rather than its face amount) was consistent with other parts of the Bankruptcy Code, including the adequate protection provisions in section 361 and provisions allowing a sale of encumbered property for less than the face amount of a lien pursuant to sections 1129(b)(2)(A)(ii) and 363(k). Id. at 476-77. Finally, the court noted (and commentators have agreed) that if objecting lienholders believe that a higher sale price could be obtained for property, they can acquire the property and sell it themselves. See id. at 478; John Collen, What Do the

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Subsections of Section 363(f) Really Mean?, 6 J. Bankr. L. & Prac. 563, 572 (1997). Myriad other courts have reached the same conclusion. See In re Terrace Gardens Park P’ship, 96 B.R. 707, 713 (Bankr. W.D. Tex. 1989) (applying Beker to authorize sale under section 363, noting that “[i]t makes no sense to read into Section 363(f)(3) a restriction inconsistent with the adequate protection scheme which pervades both Section 363 and the rest of the Code, just because the sale is free of liens”); In re Levitz Home Furnishings, Inc., No. 05-45189 (BRL) (Bankr. S.D.N.Y. Dec. 14, 2005).5 The Funds urged the court below to reject Beker and construe section 363(f)(3) to require that the purchase price for the assets sold be greater than the nominal amount of the liens, relying on Clear Channel Outdoor, Inc., Appellant, v. Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. BAP 2007). In Clear Channel, the issue was whether a senior secured lender who had credit bid to purchase substantially all of the debtors’ property at a price that was less than the nominal 5

Accord In re Collins, 180 B.R. 447, 450 (Bankr. E.D. Va. 1995) (characterizing as “a better reasoned solution” the interpretation that section 363(f)(3) authorizes sale free and clear where price is lower than face amount of liens, but greater than secured value of claims); In re WBQ P’ship, 189 B.R. 97, 105-06 (Bankr. E.D. Va. 1995) (sale permitted under section 363(f)(3) if purchase price equals or exceeds value of liened property); In re WPRV-TV, Inc., 143 B.R. 315, 320 n.14 (D.P.R. 1991) (citing Beker as “better reasoned view”); Oneida, 114 B.R. at 356-57 (Bankr. N.D.N.Y. 1990); In re Microwave Prods. of Am., Inc., 102 B.R. 659, 660-61 (Bankr. W.D. Tenn. 1989). 39

amount of the total secured debt, could take the property free and clear of a junior secured lender’s lien. The Panel, concluding that section 363(f)(3)’s reference to “aggregate value of the liens” meant the face amount of the liens, stated that the “economic value” reading “would essentially mean that an estate representative could sell estate property free and clear of any lien, regardless of whether the lienholder held an allowed secured claim.” 391 B.R. at 40. Clear Channel has been widely criticized. See, e.g., Joel H. Levitin, et al., Ninth Circuit BAP Dresses Down Lienstripping - Could This Be the Last Dance for 363 Sales?, 27-Oct. Am. Bankr. Inst. J. 1, 52-53 (2008); Corbi, Richard J., Section 363(f) “Free and Clear” Sales May Not Survive Appeal, 18 J. Bankr. L. & Prac. 1 Art. 8 (2009); Frank A. Oswald and Andy Winchell, Missing the Forest for the Trees in § 363: How the Ninth Circuit’s Bankruptcy Appellate Panel Neglected the Big Picture in the Clear Channel Decision, 2009 No. 4 Norton Bankr. L. Adviser 2 (2009). The Clear Channel approach would make section 363 sales virtually impossible in the situations where they are needed most – that is, when an asset is rapidly deteriorating and value will be lost if it is not sold immediately. In nearly all such situations, some or even all of the secured lenders will be “under water.” If that condition alone precludes a free and clear section 363 sale, then the provision has little raison d’etre.

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While the language of section 363(f)(3) may be imprecise, its import is clear: a debtor may not sell liened assets at less than their market value because doing so could impair the interests of the lienholders. But there is no such risk when the purchase price is at or above market value and the secured party is afforded the “adequate protection” (usually, as here, through a lien on the sales proceeds) that is required by section 363(e). Here, the Debtors’ estates will clearly receive value that exceeds the “aggregate value of all liens” on the property to be sold. (SPA17) (“Indeed because of the overriding concern of the U.S. and Canadian governments to protect the public interest…the Fiat Transaction presents an opportunity that the market place alone could not offer.”) The purchase price here is an immediate cash payment from New Chrysler in the amount of $2 billion (in addition to the value of the contract liabilities assumed by New Chrysler). In contrast, the total proceeds available for recovery by the first lien holders should their collateral be liquidated would fall within the lower end of a range between zero and $800 million. May 27, 2009 Hearing Transcript (Testimony of Robert Manzo). Under these circumstances, section 363(f)(3) applies and, for this additional reason, the Debtors’ property can be sold free and clear of all liens on that property.

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V.

THE FUNDS’ CLAIM THAT THE GOVERNMENT SPENDING VIOLATES TARP OR EESA PROVIDES NO BASIS FOR REVERSING THE BANKRUPTCY COURT’S APPROVAL OF THE FIAT SALE The Funds are expected to again press their flawed argument that the Fiat

Sale should be stopped because, according to the funds, the Government is unlawfully funding the transaction with TARP money. The Bankruptcy Court properly rejected that argument, finding that the Funds do not have standing to even raise the TARP and EESA issues, as they have suffered no injury as a result of the alleged violation. The Funds’ lack of standing (for the reasons the court cited below, and other reasons) precludes review in this Court. Even if the Court Funds had standing to raise the TARP issue, their claim still fails for at least five reasons. First, sovereign immunity prevents the Court from entertaining the action. Second, the TARP statute expressly bars courts from providing the relief the Funds seek here – an Order enjoining the Treasury Secretary’s TARP spending decisions. Third, the statute allocates to the Financial Stability Oversight Board, not to courts, questions regarding the appropriateness of TARP expenditures. Fourth, the Funds have waived their right to assert that the funding violates TARP by acquiescing in the use of TARP funds to provide loans to Chrysler on multiple occasions. Finally, even if the Funds could press their TARP claims, they lose on the merits as the Government funding here is appropriate under TARP. 42

At bottom, the Funds are the wrong party, seeking the wrong relief, in the wrong forum. A.

The Funds Lack Standing To Challenge The Expenditure Of TARP Funds Here.

The Bankruptcy Court correctly recognized that the Funds have no standing to pursue their TARP argument. (SPA51-56.) The issue of standing “involves both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise.” Bennett v. Spear, 520 U.S. 154, 162 (1997). There are three elements to constitutional standing: (1) the plaintiff must have suffered an “injury in fact,” which is actual or imminent; (2) there must be a casual connection between the injury and the conduct complained of; and (3) it must be likely, not merely speculative, that the injury will be redressed by a favorable decision. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal citations omitted). In addition, the “plaintiff’s grievance must arguably fall within the zone of interests protected or regulated by the statutory provision or constitutional guarantee invoked in the suit.” Bennett, 520 U.S. at 162 (internal citations omitted). Here, the Funds meet neither Article III nor prudential limitations on standing. As to the Funds’ secured claims, they cannot show Article III standing as they have no injury in fact for at least two reasons. First, they are bound by their Administrative Agent’s consent to the Fiat Sale, so they are not injured when that 43

consensual sale goes forward. Second, as the Bankruptcy Court expressly found, the collateral being sold is worth considerably less than the $2 billion the Lenders are receiving. Funding a transaction – through TARP or otherwise – that pays a premium to the Funds does not harm them. Even if they could show an injury in fact, the injury the Funds allege is not “causally connected” to the Government’s use of TARP funds. As the Bankruptcy Court noted, “If a non-governmental entity were providing the funding, in this case, the [Funds] would be alleging the same injury, i.e., interference with their collateral.” (SPA52.) Thus, “it is not the actions of the lender that the [Funds] are challenging, but rather the transaction itself.” Id. Indeed, “the [Funds] would suffer the same injury regardless of the identity of the lender.” Id. To the extent the undersecured Funds are pressing their TARP arguments as unsecured creditors, they fare no better. As the Bankruptcy Court noted, “[i]n view of the fact that the face value of the liens on the collateral exceeds the value of the collateral itself, all holders of unsecured claims are receiving no less than they would receive under a liquidation.” Id. To the extent the Funds are unsecured creditors, they have no injury at all. The Funds also cannot show redressability. A decision in their favor on the TARP issue would provide them no relief, as the Government’s obligation to fund this deal is not tied to TARP funds. Pursuant to an agreement dated May 5, 2009,

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the governments of the United States and Canada collectively committed to provide Chrysler with $4.9 billion in debtor-in-possession financing.6 In describing the commitment to provide funding, the agreement says: Subject to the terms and conditions hereof, each Lender [which included the U.S. and Canadian governments] severally, and not jointly, agrees to make term loans (each, a “Loan”) in Dollars to the Borrower from time to time during the Commitment Period in an aggregate amount not exceeding the Commitment of such Lender … See 5/5/09 DIP Agmt. at ¶ 2. Nowhere does the agreement specify that the source of the funds will be TARP, nor does the agreement make the Government’s funding obligation contingent upon the availability of TARP or EESA funds. Given that the Government’s obligation is not tied to TARP, the appellants are essentially requesting an advisory opinion on the statute’s meaning – a request beyond the Court’s Article III powers. See Bronx Household of Faith v. Board of Educ. of City of New York, 492 F.3d 89, 117 (2d Cir. 2007) (declining to answer a question where “[t]o answer would be to give an advisory opinion on a hypothetical question”). The Funds similarly fail to clear the prudential standing hurdle. They cannot show that they fall within the “zone of interests” protected by TARP’s spending limitations. Even if the Government were violating TARP in providing the 6

An amendment to the agreement on May 20, 2009, increased that amount to roughly $4.9 billion. 45

funding here, there is no plausible argument that the TARP spending limitations were designed to protect creditors in bankruptcy proceedings in which debtors are alleged to have improperly received TARP funds. As the Funds are not within TARP’s zone of interests, they lack prudential standing. B.

The Court Does Not Have Jurisdiction to Review and Declare Invalid the Government’s Actions in This Action

The Funds would have the court in bankruptcy review and find unlawful the Government’s decisions under TARP. But, to the extent that TARP provides for judicial review at all, it is only through an APA claim. See 12 U.S.C. 5229(a)(1). Where Congress requires parties to use a specified review mechanism to challenge government action, courts lack jurisdiction to entertain such challenges, See, Whitney Nat’l Bank v. Bank of New Orleans & Trust Co., 379 U.S. 411, 419 (1965) (holding that Congress’s “carefully planned and comprehensive method for challenging [Federal Reserve] Board determinations” indicated that “the statutory procedure is to be exclusive”); Gen. Fin. Corp. v. FTC, 700 F.2d 366, 368 (7th Cir. 1983). (“[T]he specific statutory method [of review], if adequate, is exclusive.”) By attempting to assert their TARP claims here, the Funds improperly seek an end run around the review mechanism contemplated by Congress.

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C.

TARP Expressly Precludes Equitable Relief That Interferes With The Secretary’s Spending Decisions.

Not only does the Court lack jurisdiction, but the Funds are seeking a forbidden form of relief. They request an Order preventing the Government from providing funds in connection with the Fiat Sale. The TARP statute, however, expressly precludes courts from interfering with the Treasury Secretary’s use of TARP funds except to prevent a constitutional violation. In particular, 12 U.S.C. § 5229(a)(2)(A) provides: No injunction or other form of equitable relief shall be issued against the Secretary for actions pursuant to section 5211 [which provides the Secretary the ability to purchase troubled assets], 5212, 5216 or 5219 of this title, other than to remedy a violation of the Constitution. The only constitutional provision that the Funds mentioned below is the Takings Clause. Any Takings claim, however, is a non-starter. A necessary prerequisite to a Takings claim in the bankruptcy context is the existence of a property right, as opposed to a contract right. In distinguishing between the two, the Supreme Court has held that to establish a property right that gives rise to a potential Takings claim, a creditor must be asserting a lien in some collateral included in the bankruptcy estate. See United States v. Security Industrial Bank, 459 U.S. 70 (1982). In particular, the Court drew a sharp distinction between “the contractual right of a secured creditor to obtain repayment of his debt,” modification of which would not give rise to a Takings claim, and the “property 47

right of the same creditor in the collateral” (i.e., the lien), modification of which could. See id. at 75. Here, the Funds have no property rights in the collateral. Rather, their interest is purely contractual. As noted above, the Loan Documents grant liens directly to the Collateral Trustee. The Collateral Trustee acts at the direction of the Administrative Agent, who in turn, acts on instructions from the majority of the Lenders. The Funds have thus contractually agreed to be bound by the collective choice of the group, and not to take any action inconsistent with that collective choice. No one disputes that a majority of the Lenders have approved the sale. Thus, the Funds have no cognizable property interest, and accordingly no Takings claim. As the Funds have not identified any other putative constitutional violation (and none exists), they cannot obtain the equitable relief that they seek. See 12 U.S.C. § 5229(a)(2)(A). D.

TARP Expressly Allocates To The Funding Stability Oversight Board Questions Regarding The Appropriateness Of Particular TARP Expenditures.

Consistent with its desire to minimize judicial involvement in TARP spending oversight, Congress instead provided a specific mechanism to police spending decisions. In particular, 12 U.S.C. § 5214 establishes a Financial Stability Oversight Board, which consists of the Chairman of the Board of

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Governors of the Federal Reserve System, the Treasury Secretary, the Director of the Federal Housing Finance Agency, the Chairman of the SEC, and the Secretary of HUD. Id. at § 5214(b). The statute assigns that Board responsibility for “reviewing the exercise of authority under a program developed in accordance [with TARP], including policies implemented by the Secretary and the Office of Financial Stability … including . . . the designation of asset classes to be purchased, and plans for the structure of vehicles used to purchase troubled assets[.]” Id. at § 5214(a)(1)(A) (emphasis added). This also includes the authority to ensure that “the policies implemented by the Secretary are (1) in accordance with the purposes of this chapter; (2) in the economic interests of the United States; and (3) consistent with protecting taxpayers ….” Id. at § 5214(e) (emphasis added). Clearly, if the Funds have legitimate complaints about the funding decisions, they should raise them (at least in the first instance) with the Oversight Board. E.

The Funds Waived Any Challenges To The Appropriateness Of Using TARP Money When They Consented To Chrysler Receiving Earlier TARP Loans.

The Funds’ own conduct further precludes them from pressing their TARP challenge.

In late December 2008, the Government extended a $4 billion loan to

Chrysler that the Government identified as coming from TARP. Similarly, in February, the Government made an additional $500 million loan available, again

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citing TARP. The Funds objected to neither. Indeed, Chrysler used the government money, inter alia, to pay interest to the Funds (and the other Lenders). Having directly benefited from Chrysler’s receipt of TARP funds, the Funds are in no position now to argue that such expenditures are unlawful. F.

The Secretary Has Authority Under TARP To Provide The Funding Here.

The Funds’ TARP claims fail for the additional reason that the funding here falls within the Secretary’s authority under TARP. In EESA (the statute that created TARP), Congress gave the Secretary broad powers to implement the purposes of the Act, including “[i]ssuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities or purposes of this chapter.” 12 U.S.C. § 5211(c)(5). Moreover, Congress expressly authorized the Secretary to adopt program guidelines for TARP implementation, specifically including “[c]riteria for identifying troubled assets for purchase.” 12 U.S.C. § 5211(d).

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The Secretary has established such guidelines, including through its Auto Industry Financing Program. See http://www.financialstability.gov/docs/AIFP/AIFP_guidelines.pdf. These guidelines specifically authorize the Secretary to invest in automotive manufacturers when certain criteria are met. Id. As these guidelines reflect, the Treasury Secretaries of two separate administrations have explicitly determined that loans like those here are appropriate under TARP. Nor have these guidelines, or the specific determinations that the Secretary made under them here, ever been attacked through an administrative challenge, notwithstanding wide reporting of the Secretary’s actions, including in the statutorily-required public reports made by both the Government Accountability Office and the Financial Stability Oversight Board. See, e.g., Auto Industry: Summary of Government Efforts and Automakers’ Restructuring to Date, GAO-09-553 (available at http://www.gao.gov/new.items/d09553.pdf); Quarterly Report to Congress pursuant to section 104(g) of the Emergency Economic Stabilization Act of 2008 (available at http://www.financialstability.gov/docs/FSOB/FINSOB-Qrtly-Rpt033109.pdf).

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In short, the Treasury Secretary appropriately exercised his statutory authority in devising program guidelines, and the expenditures here fall well within those limits. VI.

THE BIDDING PROCESS AND SALE HEARING SATISFIED DUE PROCESS Due process merely requires that a party be “informed that the matter is

pending and can choose for himself whether to appear or default, acquiesce or contest.” Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950). Moreover, it is well settled that the amount of process that is due must be evaluated in the context of the exigencies associated with any particular situation. Kaufman v. S & C Corp., 171 B.R. 38, 40 (S.D. Tex. 1994) (noting that “[w]ith his usual utilitarian focus, Justice Holmes simply said that ‘what is due process depends on circumstances.’”) (quoting Moyer v. Peabody, 212 U.S. 78, 84 (1909)). In other words, the Due Process Clause does not impose a bright-line rule, but rather “depends upon the facts and circumstances of each particular case.” Matter of Robintech, Inc., 863 F.2d 393, 396 (5th Cir. 1989) (holding that 13 day notice was adequate given the circumstances in that case). If circumstances demand, even shortening a response period from thirty days to one day has been held to be consistent with due process requirements. See Matter of Holtkamp, 669 F.2d 505, 509 (7th Cir. 1982).

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Given the exigencies here, due process requirements have easily been satisfied. The Bidding Procedures Order required the Debtors to provide notice to various creditors and stakeholders (including Appellants) within two business days after the Order was entered, over two weeks in advance of the hearing on the Sale Motion. No one disputes that the Debtors in fact mailed the Sale Notice to each required party only one business day after entry of the Order.

Nor is there any

dispute that the parties availed themselves of the opportunity to be heard – some 347 objections to the Fiat Sale were filed, including lengthy objections from Appellants. Given the need for speed, a need that this Court itself recognized in setting the expedited briefing schedule, the notice below certainly conformed with due process. Moreover, courts have also noted that “street or common knowledge” can contribute to interested parties’ adequate notice of sale. See, e.g., In re Action Drug Co., Inc., 110 B.R. at 150. Here, no one can dispute that strong speculation of a possible Chrysler filing was swirling long before that filing ever occurred. As early as mid-February, the media was reporting that “[t]he administration asked GM and Chrysler to address bankruptcy as part of their plans.” Justin Hyde, GM, Chrysler now say they need billions more: Automakers to cut 50,000 more jobs, speed plant closings, DETROIT FREE PRESS, Feb. 18, 2009. In a similar vein, “Standard & Poor’s said . . . there was high probability GM and Chrysler could file

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for bankruptcy this year or next. Another rating agency, Moody’s, put the probability at 70 percent.” Ted Evanoff, GM health-fund at heart of concession talks, THE INDIANAPOLIS STAR, Feb. 22, 2009, at 1D. While Chrysler was working its hardest to avoid a filing, bankruptcy was a real possibility, and suppliers and other creditors were almost certainly considering the ramifications that a Chrysler filing would have for them. Any claim of inadequate time must be evaluated against this backdrop. Nor can the parties advance a due process claim predicated on allegations of insufficient discovery. First, there is no due process right to any discovery in a civil case. See Batagiannis v. W. Lafayette Cmty. Sch. Corp., 454 F.3d 738, 742 (7th Cir. 2006) (“There is no constitutional right to discovery even in criminal prosecutions.”) (citing Wardius v. Oregon, 412 U.S. 470 (1973)). Second, the Debtors produced nearly 350,000 pages of documents and made 13 witnesses available for deposition, including all the people they called to testify in connection with the Sale Motion. To be sure, the exigencies of this case, including the need to close the transaction by June 15, 2009, placed everyone under time pressure. But such time pressure is not unusual in the bankruptcy context. Indeed, many cases have upheld very similar timeframes. See, e.g., In re Fortunoff Holdings, LLC, No. 09-10497 (RDD) (Bankr. S.D.N.Y. Feb. 25, 2009) (substantially all of debtor’s assets sold

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within 20 days of petition date); In re Lehman Brothers Holdings Inc., No. 0813555 (JMP) (Bankr. S.D.N.Y. Sept. 19, 2008) (four days); In re Sababa Group, Inc., No. 08-13174 (Bankr. S.D.N.Y. Sept. 29, 2008) (16 days). The willingness of courts, including this Court, to accommodate legitimate needs for expediency, thereby preserving value for debtors and creditors alike, is a cause for commendation, not concern. CONCLUSION For the above reasons, the Court should deny the appeal and affirm the Sale Order. Allowing the sale to proceed expeditiously serves the interests of the Debtors, their stakeholders and the country at large.

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Dated: June 4, 2009 New York, New York

Respectfully submitted, /s/ Corinne Ball Corinne Ball Steven Bennett Todd R. Geremia Veerle Roovers JONES DAY 222 East 41st Street New York, New York 10017 Telephone: (212) 326-3939 Facsimile: (212) 755-7306 Thomas F. Cullen JONES DAY 51 Louisiana Avenue NW Washington, DC 20001 Telephone: (202) 879-3939 Facsimile: (202) 626-1700

ATTORNEYS FOR DEBTORSAPPELLEES, CHRYSLER LLC, ET AL.

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CERTIFICATE OF COMPLIANCE This brief complies with the type-volume limitation in Federal Rule of Appellate Procedure 32(a)(7)(B)(i). It contains 13,070 words as counted by the word-processing system used to prepare the brief, exclusive of the parts of the brief exempted from the type-volume limitation by Federal Rule of Appellate Procedure 32(a)(7)(B)(iii).

Dated:

June 4, 2009 _/ s / Todd R. Geremia ______ Todd R. Geremia

Attorney for Debtors-Appellees, Chrysler LLC et al.

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