How to Interpret the Chrysler Ruling by the Supreme Court

As I mentioned, in my last post, Mr. Leo C. Donofrio, who writes on the Natural Born Citizen Blog, has made an argument about the reason that the Supreme Court in its order of December 14, 2009 instructed the United States Court of Appeals for the Second Circuit to dismiss the appeal as moot.

Mr. Donofrio was kind enough to post a discussion of my post on his blog. He was also quite complimentary of my discussions about the Chrysler case earlier this year.

In addition, Mr. Donofrio posted two comments on this blog. I responded to his first comment, which also referred to his blog commentary, in the comments section of my post. Unfortunately, he found my response lacking, leading him to add comments on his blog post and to leave a second comment to my post.

Rather than continue this discussion in the comments section of the last post (the comments section is rather limiting), I decided to respond in this post, as follows:

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First, let me thank you for recognizing me, in your original post, as a bankruptcy expert.

I'm disappointed that our discussion has led you to question my expertise AND that you don't permit comments on your blog (thus requiring me to respond here).

I'm also disappointed that you are not impressed with my last response.

Let me state my case in a clearer manner:

1. The Bankruptcy Court is a Federal Court.


2. The Court of Appeals is a Federal Court that is two levels above the Bankruptcy Court in the judicial hierarchy. The Court of Appeals can overrule any ruling by a Bankruptcy Judge at its discretion (or any judge at any level subordinate to them, which would be pretty much every court except the Supreme Court).


3. On June 2, 2009 the United States Court of Appeal for the Second Circuit "granted a motion for a stay and for expedited appeal directly to the Court of Appeals pursuant to 28 U.S.C. § 158(d)(2)." That is a direct quote from the opinion issued by the United States Court of Appeals for the Second Circuit on August 5, 2009.


4. Article III, Section 1 of The Constitution of the United States of America, states: "The judicial Power of the United States, shall be vested in one supreme Court." The Supreme Court, therefore, can over-rule any ruling by the Courts of Appeal - and certainly the Bankruptcy Courts.


5. Justice Ginsburg, in her role as a Justice of the Supreme Court, has the authority and right to stay the ruling of any court in the United States of America - for any matter before them, including bankruptcy.

I don't understand why you would make a statement that "Justice Ginsberg apparently erred by extending the stay and the new SCOTUS order effectively vacates her extension." That simply isn't true. In fact, the Supreme Court issued a Per Curium decision on June 9, 2009 vacating Justice Ginsburg's order.

This whole discussion has been about why the Supreme Court said that the appeal of the Chrysler asset sale was moot.

Your argument stands on Judge Gonzalez's order, which, as I discussed above, was over-ruled as to the stay. An argument that Judge Gonzalez has the power to limit the actions of the courts above the Bankruptcy Court would seem to be in violation of, among other things, The Constitution.

The only argument that makes sense to me as to why the Supreme Court would order the Second Circuit Court of Appeals to dismiss the appeal as moot, is Section 363(m) of the Bankruptcy Code, which states "The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal."

I believe you are using the same subsection of The Code for your argument, but focusing, for some reason, on the stay.

My argument is that the sale can't be unwound since there is no dispute as to the good faith of the parties.

In either case, under 363(m), the sale can't be unwound. There is, therefore, no way to compensate the appellant. As a result, there is no reason to hear the case.

I'm sorry if I was unclear in the way that I stated my opinion about the SCOTUS ruling. Since we were discussing our opinions, I thought that was clear. I use quotes when I'm quoting someone and those statements were not in quotes. I never intended it to be a trick, neat or not.

I don't know why you are suggesting that I "fail to confront the facts of the case and the facts of the order."

The facts of the case aren't even being discussed; only an interpretation of a ruling.

The ruling was one paragraph. You and I are both interpreting it.

Here, in full, is the final ruling by SCOTUS:

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

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A Different Interpretation on Chrysler

There are two other blogs that I've reviewed that have commented on SCOTUS's decision on Chrysler, The Bankruptcy Litigation Blog and Natural Born Citizen. Both are written by attorneys, each of whom has a stake in either, or both, of GM and Chrysler. They have, therefore, unsurprisingly cut back on posting to their blogs.

Steve Jakubowski suggests that the SCOTUS action was done to prevent the 2nd Circuit's opinion to be taken as law (citing the Munsingwear decision noted in the SCOTUS decision). He concluded:

Given all the speeches, articles, and thought advanced about the significance and game-changing nature of the Chrysler [case], it's amazing how two simple sentences from the highest court in the land can turn the bankruptcy world on its head.

Leo Donofrio's post, on the other hand, concluded that SCOTUS determined the 2nd Circuit opinion moot because Judge Gonzalez did not issue the stay for the 2nd Circuit hearing - it was issued by the 2nd Circuit. Since Judge Gonzalez ruled on the sale and didn't issue a stay; and since there were no issues relative to Section 363(m), any decision by the 2nd Circuit was moot in any event. Specifically, he states:

After proper briefing on the issue and time to study the law, SCOTUS correctly determined that in order for an appeal such as this to not be moot under 363(m) – absent a bad faith purchaser – the court issuing authorization for the sale would have been required to also stay their own sale authorization at the time such authorization was issued, which did not happen here. Judge Gonzalez did not order the sale stayed pending appeal on June 1st.

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

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

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

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

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

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

The 2nd Circuit Court of Appeals heard the appeal on June 5, 2009 and rejected it. They did keep the stay in place through the afternoon of June 8th. The 2nd Circuit decision was then appealed, along with a request for stay, to the Supreme Court on June 7, 2009 and an initial stay was granted by Justice Ginsburg on June 8, 2009.

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

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

Anybody have any alternative views?

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Last Word On Chrysler

The Supreme Court of the United States announced a decision on the Indiana Pensioners v. Chrysler on Monday.

SCOTUS granted certiorari, vacated the decision of the 2nd Circuit Court of Appeals, and remanded the case to the 2nd Circuit to be dismissed as moot.

This doesn't surprise me, but I am disappointed. As I pointed out in June, without an allegation of a lack of good faith, there didn't appear to be any way to pursue the claim.

Over at CreditSlips, Stephen Lubben doesn't seem to think the decision means much. As I commented, however, I suspect this indicates that SCOTUS would not look kindly upon a repeat performance (Chrysler and GM were "unique" cases). I wouldn't be surprised if any attempt to duplicate Chrysler received quite a different reception upon a request for stay from SCOTUS.

I take it as SCOTUS saying "we'll let you get away with this THIS time, but don't try it again."

Of course, I could simply be dreaming.

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New Article Worth Reading

Heidi N. Moore has written another article pointing out some of the flaws in the Taibbi rant that I think is worth reading.

She could have added that if, as Goldman Sachs has stated, they were hedged on their AIG exposure, then it was the counterparties insuring Goldman that were saved by the Government - not Goldman (although that probably had systemic implications).

While we don't know Goldman's oil book, the CFTC study reportedly found that speculators were net short. If Goldman was short, it would be directly contrary to Taibbi's argument (he asssumed their positions in his story).

Taibbi's piece was so chock full of errors that it would take a writer almost 12 pages to document all of them. Ms. Moore's piece does a good job of summarizing the worst of Taibbi's errors in her article - in significantly less space.

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Must Read Article on Goldman - If You're Sick of All the Nonsense

FINALLY, a journalist (Heidi N. Moore) has written an article about Goldman so that people know that they aren't the minions of the Devil (or Anti-Christ, or whatever).

I strongly suggest that you read it.

Heidi also micro-blogs on Twitter at http://twitter.com/moorehn.

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I Think I Owe Yvette Kantrow An Apology

After speaking with a mutual acquaintance, it appears that Ms. Kantrow was attempting to be facetious in her seeming praise of Taibbi. Her goal, apparently, was to question why such a high profile article wasn't being critiqued by the Columbia Journalism Review.

It seems that Ms. Kantrow has a habit of writing biting bits of satire. In my defense, I did ask what she was smoking.

Perhaps, part of what threw me was her suggestion that CJR was influenced by their funding from Goldman Sachs. It seems more likely to me that they've come to the conclusion that Rolling Stone has lowered itself to the level of the National Enquirer and, thus, really wasn't "journalism" anymore.

Clearly, I wasn't the only one who misunderstood her intent, as the comments that have been accepted for her column (mine, as yet, has not), took her as supportive of Taibbi.

Some Examples:

From: AMY REBECCA WILLIAMS,

Hmm...Sounds to me like the well-nuanced sound of Yvette doing some desperate backpedaling. How ARE those Goldman-Sachs algorithms doing these days, Yvette. Do tell!

Taibbi was dead on.


Posted on: July 18, 2009 9:27 PM

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From: James,

I have not seen anyone refute Taibbi's facts. The major criticism of his piece has been that it was too hard on GS and too specific. Taibbi answered those ridiculous charges. But no one has refuted his facts, that I've seen.

You have made some reckless accusations about Taibbi's facts and about CJR, without any evidence, as far as I can tell. Talk about hyperbolic -- you take the cake! Here's a clue: it doesn't help your own credibility much.


Posted on: July 20, 2009 8:21 AM

Ms. Kantrow, I'm sorry for mistaking your satire. You believing that Taibbi's article was good was significantly more believable than Orson Welles' report of Martians in New Jersey; so I don't feel embarrassed by my mistake.

Perhaps, in the future, you might take some steps to make sure that your actual opinion is clear. Maybe post pictures where you stick out your tongue?

Best of luck in the future.

Larry Loeb

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I Know that I'm Late to the Taibbi Party But ...

I didn't read the Taibbi article when it first came out because I was occupied with other matters, but I was flabbergasted when I did.

What a piece of garbage.

To write a blog post pointing out all of the errors would have taken hours and would have required at least the length of his article - and I don't think my readers want THAT much to read.

Initially, I was just going to use my few Twitter posts and leave it at that. Then I read this piece, from The Deal, questioning why the Columbia Journalism Review hadn't opined on the article - something I don't particularly care about, but this Executive Editor apparently does.

That gave me a specific, and finite, subject to write on. This is the response I left on that site.

As per usual, it is awaiting their review.

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Wow!

Taibbi produces a piece of crap article spewing conspiracy fantasies - reminding me of the mumblings I used to hear from a drunk at the Jersey shore - and he's a hero worthy of praise?

In my opinion, he's done two things:

1. Brought into question whether there a need for Rolling Stone to exist; and


2. Raised the issue of what quality controls publications should impose to ensure that financial journalism isn’t financial fiction.

Rolling Stone
Rolling Stone has always prided itself as a publication free of "the man;" where different points of view could be expressed and where the "truth" could come out.

Arguably that was valuable in the 70s, when there were large media companies controlling the news - although it was The New York Times that broke The Pentagon Papers and The Washington Post that broke Watergate.

It was impossible back then for an individual to be heard unless the major media companies provided a platform.

Today, however, any crank can write his "truth" on the Internet. People WILL find it if it's compelling enough.

Taibbi's expletive filled piece of garbage could have just as easily been a blog post. Rolling Stone added no value, except for their audience base.

Financial Journalism
As to whether it's "OK to get some facts wrong, sling around unsubstantiated charges and throw away even the pretense of balance, as long as you believe the big picture you're painting is more or less correct?" WHAT ARE YOU SMOKING???

Taibbi has (if you look at his bio on Wikipedia), shall we say "interesting," journalistic credentials. According to an article about a lecture given by Taibbi at NYU from the Bullpen "After his stint as an athlete, Taibbi started the alternative, youth-oriented, English-language magazine 'The eXile' in Russia. 'We were out of the reach of American libel law, and we had a situation where we weren't really accountable to our advertisers. We had total freedom,' he said." Other parts of that article discuss his enjoyment of writing prank articles and distress at having to be accountable to advertisers and libel law in the US. He still managed to get fired from the New York Press in August 2005 after writing a column entitled "The 52 Funniest Things About The Upcoming Death of The Pope" (Wikipedia has three cites for that one).

He has been used by sources that have an agenda against Goldman Sachs; and a tale to spin to produce a piece of propaganda that Goebbels would have been proud of. His background seems to make him the perfect mouthpiece for a smear job like the one he has written.

As for his mistakes, they are too numerous to list without matching the length of his venomous treatise. I’m sure that his sources know the difference between a Credit Default Swap, an Interest Rate Swap, and a Collateralized Debt Obligation – although he apparently doesn’t. He also seems to believe that accrued bonuses are paid in cash (if you're going to write an article about finance, you really should know the difference between accrued expenses and cash expenditures).


By the way, as to his "larger point" about Goldman Sachs having too much power. It's amazing that everyone making this argument seems to assume that all Goldman Sachs alumni get along. While Goldman has worked hard on its image as a collegial place with no stars, those who have even a passing knowledge of what goes on remember that Paulson allegedly maneuvered Corzine out of the firm and that retired partners rebelled at their treatment at the IPO.

It's not a monolithic colossus.

People also seem to uniformly forget that the initial recipients of TARP money weren't given a choice in the matter. They were told that they were taking it, and the terms of the deal (dividend rate, warrants, etc.). Goldman and JP Morgan Chase couldn't wait to pay it back - particularly after Congress added retroactive strings to the deal. What was initially pitched as a plan where all firms would accept the money so no one would appear weak became a license for Congress to attempt to manage how the firms were managed (because they manage the US Economy SO well).

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Are you speaking for The Deal or for yourself when you are advocating slinging mud randomly at Wall Street firms in the hope that some will stick?

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