Indiana State Police Pension Trust v. Chrysler LLC

During a May 29, 2009 interview with Human Events, Mourdock said, "This is the first time in the history of American bankruptcy law when secured creditors received less than unsecured creditors." Mourdock also stated, "The Chrysler deal is a clear violation of the Fifth Amendment to the Constitution and more than 150 years of bankruptcy law." Mourdock also stated that under the Fifth Amendment, private property cannot "be taken without due process of law. That clearly has not happened in this case. There has been no process of law consistent with long-standing precedent whatsoever."[24]

On May 26, 2009, while speaking in front of U.S. District Judge Thomas Griesa, Mourdock stated, "As fiduciaries, we can't allow our retired police officers and teachers to be ripped off by the federal government. The Indiana state funds suffered losses when the Obama administration overturned more than 100 years of established law by redefining 'secured creditors' to mean something less ... The court filing is aimed not only at recouping those losses but also reasserting the rule of law ..."[25]

During a May 21, 2009, interview with Reuters, Mourdock stated, "They bought according to the rules, and then the rules got changed," and, "Our portfolios are no longer going to buy the secured debt of American corporations that are accepting bailout monies. It is an unacceptable risk for us to purchase that debt."[26]

Chrysler said in a statement that Mr. Mourdock, a Republican, was politically motivated and was willing to put Chrysler in liquidation over less than 1 percent of the three funds' assets.[27]

U.S. Solicitor General Elena Kagan, later an Associate Justice of the Supreme Court, defended the use of TARP funds for helping Chrysler, and argued that the pension funds' appeal to block the sale to Fiat lacked legal merit. She said that the losses that the pension funds would incur "cannot outweigh" the potential larger problems that a collapse of Chrysler would create. She wrote, "As an economic matter ... blocking the transaction would undoubtedly have grave consequences."[28] She also said, "The liquidation of Chrysler would have very severe effects on the American and Canadian economies ... More than 38,000 Chrysler employees would lose their jobs; 23 manufacturing facilities and 20 parts depots will be shuttered; more than 3,000 Chrysler dealers would suffer significant and possibly fatal harm to their businesses; and billions of dollars in health and pension benefits for current and former Chrysler workers would be wiped out."[29]

U.S. Representative Joe Donnelly (D-Indiana), objecting to the lawsuit, declared, "This claim endangers the present offer made by Chrysler and threatens to provide the pension funds with a much lower return than has already been offered."[25]

U.S. Representative Gary Peters (D-Michigan), with a district that includes Auburn Hills, Michigan, where Chrysler's headquarters is located, said,

It is quite clear that Indiana's case is not in the best interest of the people of Indiana. Indiana officials are fighting over $4.8 million at the risk of costing their state over $20 million in tax revenue, tens of millions more in related costs and putting 4,000 of their own people out of work.[30]

U.S. Representative John Dingell (D-Michigan), stated,

By refusing to make the relatively small sacrifices that would avert a calamity. The pension funds will instead create a great catastrophe, which is the same kind of short-sighted thinking that got us into the Great Depression.[31]

Shelly Lombard, a credit analyst and portfolio manager of high yield and distressed corporate securities at Gimme Credit, defended the Treasury Department's actions by saying, "Even though the debt was secured, it was clear the auto industry was very, very troubled at this time ... If it wasn't, it wouldn't have been offered at such a steep discount." Lombard also pointed out that during the current recession, even secured bank debt is not a guarantee. She explained that the market's low price could have been due to a relative lack of buyers or because the debt was faulty. She also compared the transaction to purchasing a house at a bargain price, and stated, "Either there's a divorce and the people just want to get out of there, or the foundation is cracked. In an industry in such turmoil, due diligence becomes even more critical."[32]

Hedge fund managers from Pacific Investment Management, Barclays Capital, Fridson Investment, and Schultze Asset Management Advisors have predicted that the Treasury Department's actions will discourage them from lending money to unionized companies with underfunded pension and medical obligations, such as airlines and auto suppliers.[33] The Financial Times wrote that the Obama administration's treatment of Chrysler's secured creditors "disturbed the security of expectation that has made lenders willing to provide capital as secured credit, thus handicapping all US industry and undermining what has been, for all its flaws, one of the best financial reorganisation processes in the world, now emulated elsewhere."[34]

An editorial in The Economist argued that the Treasury Department's actions could "establish a terrible precedent. Bankruptcy exists to sort legal claims on assets. If it becomes a tool of social policy, who will then lend to struggling firms in which the government has a political interest?"[35]

A Wall St. Journal editorial by James Taranto stated,

Congress established bankruptcy courts to provide for the orderly restructuring and liquidation of financially distressed companies, and the decisions of these tribunals are subject to review by the ordinary judicial courts. The Obama administration's plan for Chrysler – which involved giving a politically favored constituency (the United Auto Workers) priority at the expense of both taxpayers and legally privileged secured creditors – was an effort to circumvent the rule of law.[36]

Former U.S. Speaker of the House Newt Gingrich wrote,

In a rigged proceeding in which the federal government disregarded bankruptcy law in favor of the political outcome it desired, the Chrysler bankruptcy laid the predicate for the much larger General Motors bankruptcy to come. Against law and precedent, the unions were moved to the front of the line when it came to who would benefit from the bankruptcy. The Obama Treasury Department strong-armed Chrysler's creditors into a deal in which the UAW was given 55 percent ownership of the company while Chrysler's secured creditors – investors who would have received priority in a non-political bankruptcy proceeding – were left with just 29 cents on the dollar.[37]

Francis Cianfrocca, the CEO of Bayshore Networks, wrote,

The administration's management of the Chrysler bankruptcy has led to an astonishingly reckless abrogation of contract law that will introduce a new level of uncertainty into business transactions at all levels, and make wealth generation more difficult going forward ... An extraordinary uncertainty has been created when the most powerful man in the world can rewrite contracts and choose winners and losers in private negotiations as he sees fit. Since this is an unquantifiable uncertainty, and not a quantifiable risk, its effect on business and investor confidence will be large and unpredictable. As in the 1930s, a time when government also cavalierly rewrote private contracts, the prudent approach for business will be to invest minimally and wait for another administration.[38]

Governor of Indiana Mitch Daniels wrote an Op-Ed in the Wall Street Journal just before the one year anniversary of the Court's reversal of the underlying Second Circuit ruling:

But thanks to a quiet correction by the Supreme Court — and a little Hoosier stubbornness — the rule of law has been re-established. The greatest benefits will accrue not to lenders and borrowers but to all those whose jobs are created because investors once again can trust that the money they've risked is safe from seizure by the state.[39]