Tuesday, December 15, 2009

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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Anonymous said...

Mr. Loeb,

I have replied to your analysis in full at my blog. I do not have comments enabled, but should you reply here, I will update my blog with your further analysis. I am very interested in continuing the discussion.



Leo C. Donofrio


Lawrence D. Loeb said...

Mr. Donofrio:

I think we’re trying to dissect a paragraph and see more than is there.

We know, for a fact, that Justice Ginsburg stayed the sale until the 10th so that she could consider extending the stay for an accelerated appeal; so there was a stay.

I really don’t believe the stay was the issue.

The mootness, as I commented after the close of the sale, would come from the closing of the sale and the lack of a cause under 363(m) – no charge of a lack of good faith.

Once the sale was closed, it was hard to see what relief would be available if Indiana won. I, at the time, questioned whether the Court could rearrange the ownership after the sale (since the sale would be a done deal). You, yourself, noted that such relief would have “changed the entire sale drastically.”

In your comment today, you seem to believe SCOTUS vacated the 2nd Circuit retroactive to June 2nd; but they didn’t SAY that. All they did was vacate the opinion and say that retrying now would be meaningless as the sale is closed. The hearing was June 5th. I don’t think SCOTUS was looking to set the actual clock back. I think, to them, the mootness was due to the June 10th close.

To me, that means they didn’t want the 2nd Circuit opinion to be precedent, not that they were questioning the stay.

I’m not sure how, or why, you are focused on the stay as the issue. I believe the only issue is 363(m) and (I’m hoping) to avoid similar cases in the future.

Lawrence D. Loeb

Anonymous said...

But Mr. Loeb,

I'm rather disappointed in your reply.

The Sale Order was entered on June 1st. By it's very wording no stay was available for 10 days thereafter.

Justice Ginsberg apparently erred by extending the stay and the new SCOTUS order effectively vacates her extension.

You stated:

"I think we’re trying to dissect a paragraph and see more than is there."

I'm seeing exactly what's there. The Sale Order was entered on June 1st. The Sale order states unequivocally that no stay is available for 10 days after the order is entered. That's what is written. That's the the fact of the matter. If you'd like to assume the order means something other than what it say, than you ought to make that clear. But I'm not the one reading things into the passage which aren't there in reality.

"In your comment today, you seem to believe SCOTUS vacated the 2nd Circuit retroactive to June 2nd; but they didn’t SAY that. All they did was vacate the opinion and say that retrying now would be meaningless as the sale is closed."

But they didn't SAY that either.

It'a amazing that you critique me
for applying my analysis without an exact quote from SCOTUS, then go on to issue your own interpretation as if it was a quote. That's a neat trick.

But my implication is based on the facts - the Sale Order prohibited a stay as of June 1st. That's the facts. There's no argument otherwise.

You fail to confront the facts of the case and facts of the order. I'm not impressed. It's your blog. You can have the final word. I've said my peace.

Leo Donofrio

Lawrence D. Loeb said...

I responded to Mr. Donofrio's comment in a post yesterday.

Lawrence D. Loeb