US Justice Ginsburg delays Chrysler reorganization

US flags flutter near a Chrysler dealership in Miami.

The US Supreme Court has put a red light in front of Chrysler's plan to emerge quickly from bankruptcy with the Obama administration as a partner. But this is a stoplight that could just as easily turn green again.

Even if the delay for Chrysler is only temporary, the action Monday is a reminder that emergency economic policies undertaken by the White House – including the attempted rescue of automakers in bankruptcy – is subject to judicial review by the highest court in the land.

And that court marches to its own drummer, not a corporate or White House timetable.

What happened is this: Justice Ruth Bader Ginsburg, acting for the court, has ordered a stay on the sale of key assets from the bankrupt carmaker to a "new Chrysler," which would be partly owned by Fiat. That asset sale, approved by a bankruptcy judge in New York, was poised to roll forward Monday at 4 p.m. unless the Supreme Court intervened.

Obama and the company argue that this plan provides the best – perhaps the only – path for the venerable automaker to survive the recession. But some Chrysler stakeholders, including three pension funds based in Indiana, appealed all the way to the Supreme Court. They argue that the bankruptcy judge upended their legal rights by approving Chrysler's plan. They also say that the Obama administration is violating Congress's intent by using money from the Troubled Asset Relief Program (TARP) for nonfinancial firms such as Chrysler and General Motors. Congress created the TARP last fall to help stabilize the nation's banking system.

Justice Ginsburg's action is simply a temporary stay. After further review, she could still decide to let Chrysler's asset sale go forward, or she could move the case toward a hearing by the full court.

Until now, Chrysler's road through bankruptcy has been on an unusually smooth and fast track since the company entered court supervision on April 30. Traffic signals have all been green. The Italian carmaker Fiat agreed to become a business partner, bringing its small-car focus to Chrysler dealerships. The Obama team agreed to provide more financial support. Key creditors and Chrysler reached a deal on partial debt payments. Union workers signed on to cut labor costs.

In the view of some creditors, however, the Obama administration has manipulated the bankruptcy process, which throughout US history has provided a way for sorting out creditors' claims to the assets of distressed firms. What happens next could matter not just for Chrysler but for General Motors, which entered bankruptcy on June 1 with a similar plan for a fast-tracked reorganization backed by the White House.

Timing is important now. Fiat has said that it could walk away from its role in the new Chrysler if the plan isn't approved by June 15. The Obama task force, for its part, has said that Chrysler won't be viable (and hence worthy of government aid from the TARP) if it doesn't have a global partner such as Fiat.

Chrysler, which kept trying to manufacture excitement on the road, has found plenty of it in court.

– Guest blogger Mark Trumbull is a Monitor staff writer.

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