NEW YORK - Personal injury lawyers seemingly have secured a windfall from the Chrysler bailout.
Their allegation of bad faith apparently tamed President Obama's Treasury and United Auto Workers leaders, who had agreed to sell Chrysler to Italian automaker Fiat free and clear of tort claims.
A vow to wreck the new business by suing dealers and suppliers helped, too.
Treasury has decided to set tort claims aside for another day, according to a May 26 brief from an official committee of unsecured Chrysler creditors.
"The committee understands from conversations with counsel that the Daimler Released Parties are prepared to go forward with all parts of the settlement agreement other than the mutual release of claims between the debtors and the Daimler Released Parties which can be effectuated at a later time," Thomas Mayer of New York wrote.
"The committee believes this is appropriate and looks forward to completing its investigation in the near future, and which time it may conclude that a mutual release of the debtors and the Daimler Released Parties is appropriate."
New York lawyer Benjamin Deutsch, representing product liability plaintiffs on the committee, chose stronger words.
"The bankruptcy code does not permit New Chrysler to avoid responsibility for products liability claims," he wrote on May 26. "The taxpayers are funding the sale and financing New Chrysler's post closing operations.
"The people of the United States will also be part owners of New Chrysler. Under these circumstances, New Chrysler's refusal to assume the liability for pre-closing products liability claims, or to purchase retroactive insurance for such claims to United States citizens and taxpayers, is not in good faith."
Avoiding responsibility for tort claims would further shake consumer confidence and reduce resale value, he wrote.
Along with car crash suits, the tort claims in bankruptcy court include asbestos exposure suits, class actions of all sorts and lemon law complaints.
Chrysler filed a bankruptcy petition on April 30, seeking to resume manufacturing under Fiat with support from U.S. taxpayers and a Canadian public corporation. Bankruptcy Judge Arthur Gonzalez presides over the case.
On May 4, Deutsch and asbestos lawyer Alan Brayton of Novato, Calif., moved for appointment of a personal injury committee.
On May 5, bankruptcy trustee Diana Adams gave more than they asked, choosing their clients for two of 11 seats on the unsecured creditor's committee.
That gave them as many seats as the U.S. government and the union together.
The committee recommended changes in the plan starting with, "Scope of assumed products liability is too narrow."
New Chrysler should assume claims or indemnify dealers, they wrote.
They stepped away from Treasury's position by declaring, "The Creditors Committee takes no position on whether order approving the sale will bar tort claimants from suing New Chrysler."
On May 19, Deutsch declared, "New Chrysler's refusal to assume responsibility for tort claims is not in good faith."
He wrote, "New Chrysler's failure to assume pre-closing tort claims will leave dealers and component part suppliers exposed to such claims."
Also on May 19, Edward Peterson of Tampa objected to a "free and clear" sale in association with Ralph Nader's group Public Citizen.
"Chrysler's proposed free and clear sale adversely affects its prior customers, and all that guarantees in this day of web and media savvy buyers that New Chrysler will not survive long," Peterson wrote. "The damage done to New Chrysler's ability to survive would be further magnified by the ability of some injured consumers and personal injury victims to reach Chrysler's dealers and suppliers for compensation through the laws of the several states.
"... these dealers and suppliers are likely far less able to address the underlying issues with Chrysler's vehicles than is Chrysler with its greater technical and managerial resources."
For Fiat, Hydee Feldstein of New York defended a free and clear sale.
"Absent a high degree of certainty about the liabilities they will be required to assume, rational economic actors would simply be unwilling to purchase assets from bankrupt entities," she wrote on May 26.
She defined the policy basis of the law as "placing assets into the hands of new owners who will put them to productive use without saddling those new owners with indeterminate and potentially crippling liabilities related to the acquired assets."
"The objectors seem to take the existence of Purchaser for granted," Feldstein wrote. "What the objectors fail to take into account is the adverse effect on Purchaser of being required to pay unknowable but potentially vast sums of money to tort claimants for injury caused by vehicles that Purchaser had no role in putting on the road."
She wrote that inability to buy assets free and clear "would hinder and potentially destroy Fiat's ability to developer Purchaser into a viable automobile manufacturer."
Peter D'Apice of Dallas argued for Pascale that Chrysler sought to resolve asbestos claims under Section 363 when it must resolve them under Section 524.
He wrote that "third parties cannot be shielded from asbestos related personal injury liability by any means other than pursuant to the requirements of section 524."
He wrote that Treasury, the union and Canada "will fare extremely well," and he urged Gonzalez to ignore a chorus of support from beneficiaries.
He wrote that a finding of good faith was not possible in the context of the sale.
For Chrysler, Corinne Ball edged toward middle ground.
She wrote that tort and consumer objections provided no impediment to a sale of assets free and clear of claims "to the extent not otherwise resolved."
She wrote that the sale order was modified and New Chrysler agreed to honor certain lemon law and warranty liabilities that arise prior to closing.
She wrote that in due course Chrysler would address claims on their validity, priority, classification and treatment.
Later that day the unsecured creditors advised Gonzalez that they needed time to discharge their fiduciary duty with respect to tort claims.
Mayer wrote that they must investigate "whether the concessions obtained from the released parties warrant the releases granted therein."
Deutsch pressed the advantage and argued that by clear intent of Congress, Chrysler couldn't sell assets free and clear of product liability claims.
"Under these circumstances, New Chrysler's refusal to assume the liability for pre-closing products liability claims, or to purchase retroactive insurance for such claims to United States citizens and taxpayers, is not in good faith," he wrote.
On May 27, Connecticut Attorney General Richard Blumenthal joined the chorus of support for tort lawyers.
In an objection to the sale, he wrote, "New Chrysler should be clearly liable under a theory of successor liability, among others."
Fiat seeks quick approval of the sale because its financing will expire on June 15.