By on June 9, 2009

The brilliant lawyer, author, and ex-blogger, Bill Patry (now senior copyright counsel at Google), wrote on his Patry Copyright Blog back in 2005 about the greatest Biblical scholar of all time, Rabbi Shlomo Yitzhak (whom everyone affectionately calls “Rashi“).

Bill wrote:

Rashi is used as a learning device for children not because he is simple (he isn’t) but because of the unusual nature of his commentary. His commentary consists of very terse conclusions, but without the questions that prompted the conclusions. Children are left with the task of asking “What’s Bothering Rashi?”

The “What’s Bothering Rashi?” approach to learning text is useful in analyzing statutes because it teaches one to ask the why of things, rather than as we almost always do, just read the literal words divorced from what the law would be like in their absence.

Bill’s post came to mind in thinking about “What’s Bothering Ruthie?” that would prompt her to call a halt to a sale that remarkably worked its way from bankruptcy filing to cert. review in less time than it takes the average person to buy a used Town & Country. Here are a few ideas:

  • Maybe she doesn’t like the lawyers across the street telling her (as reported here by SCOTUS Blog) that “no court, including the Supreme Court, has the authority to hear a challenge by Indiana benefit plans to the role the U.S. Treasury played in the Chrysler rescue.” Tell that to Justice Marshall!
  • Or maybe, like her predecessors during the Depression in the Schechter Poultry Corp. v. US case, she’s wondering whether (as argued here by Ralph Nader) Congress abdicated  the essential legislative functions with which it is vested by letting the Executive Branch alone structure and implement the deal.
  • As noted in my Part I analysis, however, I doubt she’s losing sleep over whether the sale is a sub rosa plan or whether the absolute priority rule was violated.

I’m guessing, though, that what bothers her most—and frankly what’s really been bothering me most (hence Part II)—is the sale’s treatment of tort claimants, both present and future, and Judge Gonzalez’s cursory justification for such treatment. He wrote:

Various objections were raised related to property damage claims and personal injury and wrongful death claims, including those which have not yet occurred. Some of these objectors argue that their claims are not “interests in property” such that the purchased assets can be sold free and clear of them.

However, the leading case on this issue, In re Trans World Airlines, Inc., 322 F.3d 283 (3d Cir.2003) (“TWA“), makes clear that such tort claims are interests in property such that they are extinguished by a free and clear sale under section 363(f)(5) and are therefore extinguished by the Sale Transaction.

The Court follows TWA and overrules the objections premised on this argument. Even so, in personam claims, including any potential state successor or transferee liability claims against New Chrysler, as well as in rem interests, are encompassed by section 363(f) and are therefore extinguished by the Sale Transaction. See, e.g., In re White Motor Credit Corp., 75 B.R. 944, 949 (Bankr. N.D. Ohio 1987); In re All Am. Of Ashburn, Inc., 56 B.R. 186, 190 (Bankr. N.D. Ga. 1986). The Court also overrules the objections premised on this argument.

Additionally, objections in this category touching upon notice and due process issues, particularly with respect to potential future tort claimants, are overruled as to those issues because, as discussed elsewhere in this Opinion, notice of the proposed sale was published in newspapers with very wide circulation.

The Supreme Court has held that publication of notice in such newspapers provides sufficient notice to claimants “whose interests or whereabouts could not with due diligence be ascertained.” Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 317 (1950). Accordingly, as demonstrated by the objections themselves, the interests of tort claimants, including potential future tort claimants, have been presented to the Court, and the objections raised by or on behalf of such claimants are overruled….

Another objection related to an asbestos claim raised both the failure to comply with section 524(g) and that the Sale Transaction improperly provides for the release of third parties, but this objection is overruled as to both issues because section 524(g) is inapplicable to a free and clear sale under section 363 and the Sale Transaction does not contain releases of third parties. Such claims can still be asserted against the Debtors’ estate.

There’s far more to say about this issue than can be summarized in a blog post that only an insomniac at Zero Hedge can appreciate (as attested by the two redwells on my desk relevant to successor liability issues in bankruptcy, one stuffed with about 25 articles and the other with about 110 cases ). Here, for example, is an overview of the successor liability issues, written last September after reading about an asset purchaser’s claim that it had no responsibility to comply with the Simplicity crib recall.

Suffice it to say, however, as touched upon in part in these two briefs filed with the Supreme Court by attorneys for some tort claimants, that there are a number of decisions out there—both state and federal—holding that Section 363(f)’s reference to a sale “free and clear of interests” doesn’t permit a court to enter an sale order “free and clear of claims.”

As such, the argument goes, Section 363(f) can’t be the basis for enjoining a tort claimant’s well-established state law rights to assert successor liability claims under the “product line” and “business continuity” exceptions (and all the more so, even Professor Lubben would agree, for future claimants whose injuries arise or become manifest only after the sale).

And why should all this bother Justice Ruthie so much?  Well, maybe because an opinion deciding the seminal case that opened the door to this variation of the so-called “channeling injunction” against non-consenting tort claimants is in its final draft on one or more of the Justices’ desks (maybe even hers given the way she pounced from the gate at oral argument before petitioner’s counsel had gotten halfway through the second sentence of his opening remarks).

As explained in this neat little summary, the Court is on the verge of deciding Travelers Indemnity Co. v. Bailey, an appeal from the Second Circuit’s decision in modern bankruptcy’s first mega-case, In re Johns-Manville, in which the Second Circuit held that “while there is no doubt that the bankruptcy court had jurisdiction to clarify its prior [1986] orders [enjoining all third-party claims against Travelers], that clarification cannot be used as a predicate to enjoin claims over which it had no jurisdiction [i.e., direct claims against Travelers by the asbestos plaintiffs that Travelers, as Manville’s primary insurer, conspired with Manville to withhold knowledge of the ill effects of asbestos].” Travelers Cas. and Surety Co. v. Chubb Indem. Ins. Co., 517 F.3d 52, 60-61 (2d Cir. 2008).

The implications of this decision are ginormous (an official word), to say the least, and in many ways the arguments in that case echo those made by the tort claimants in their objections to the Chrysler sale. I think that’s “what’s bothering Justice Ruthie and I think that’s what prompted her to stay the sale.

[See Part I of my analysis of Judge Gonzalez’s sale opinion here.]

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19 Comments on “Chrysler Zombie Watch 7: What’s Bothering Ruthie?...”

  • avatar
    Jonathan I. Locker

    I am not entirely sure that it is Ruthie who called the halt to the sale, but it could be any of the Justices. Due to the fact that she has the administrative oversight of the 2nd Federal Appellate district, she is the one who would issue the stay order.

    However, a phone call from ANY of the other 8 justices saying that they wanted another 24-72 hours to look over the paperwork to decide whether or not to hear the case would ALSO prompt Justice Ginsberg to issue the stay.

    So all the questions raised are valid, but we should also be looking at what a Scalia or Roberts might have to say on the subject.

  • avatar

    This makes my head hurt. How can you expect a Chrysler Zombie to figure this stuff out? Sounds like a Supreme Court case to me. I doubt there will be a quick decision.

  • avatar

    Huge legal precedents are being set by the Chrysler bankruptcy. Any chance the SCOTUS wouldn’t join the fray?

  • avatar
    Steven Lang

    I wish that picture had her doing a Vulcan salute.

  • avatar

    This is the kind of case in which you can expect the Supreme Court to take an active interest. There are significant issues relating to the structure and powers of the three branches of government, both procedural and substantive due process concerns, and it’s the type of case that is not likely to make it to the Court unless the Court reaches out to get it. I know if I were on the Supreme Court,(I’m looking for a robe. It’s only a matter of time), I’d be interested in this case.

    The issues regarding tort claims and notice are significant, but I don’t think they are in front of the court. From what I read in the papers, the only issues are whether TARP funds can be used legally to bail out an auto company and whether the secured creditors were treated unfairly. Of these two issues, I think only the second one has any real chance at success. Though the Court wouldn’t decide any of the other issues in this post, that doesn’t mean the Court won’t drop hints that might influence future cases or give people ideas on what other cases to pursue.

  • avatar

    Anybody know what kinda wheels my man Clarence Thomas drives?

  • avatar

    Re Steve Jakubowski:

    I didn’t understand a word of what you wrote…. other then Ruth G want’s to keep the door open to more lawsuits from PO’d Sebring owners.

    Are we posting odds on what the Supreme’s will do next?

  • avatar

    It may just be as simple as the fact that she received it on Friday, and wanted something more than a weekend to chew on it. The fact that it is high profile and the complaint from a state government adds a bit to the pressure.

    Also given the high profile nature of the thing, she may need to have a chat or two with her friend/opponent Scalia and some of the rest of them. (See high profile comment above for context.)

    The court also has to deal with the reality that whatever happens here also impacts the GM case. Since objections will predictably be lodged, they may as well use this to set a precedent of sorts for GM.

    Folks need to remember that it’s a stay, not a ruling. The Amerikkka-is-going-Socialist camp is reading a bit too much into the whole thing; the stay could be lifted if they choose. It’s more than a tad early to declare victory, and the information a bit thin to provide much material for speculation.

  • avatar

    One of my favorite movie lines was from a film, The Winslow Boy.
    In it, the winning lawyer says “it is easy to do justice, very hard to do right.”
    Reading the above reaffirms this.
    I know we need laws.
    They make it possible for a civilized world to exist without chaos.
    We give up our “right” when we agree to live as a group.

    There is no doing right.
    There is only the law…and the lawyers.

    The above reminds me that the law today is a continuance of earlier decisions, right or wrong.
    Just precedence piled upon precedence.

  • avatar

    I wish that picture had her doing a Vulcan salute.

    Interestingly—given the photo—the Vulcan salute came from a Hebrew blessing..

  • avatar

    IIRC, Justice Thomas drives a Corvette.

  • avatar

    Pch101 shorter version:

    Nothing to see here. Move it along.

    As for moving America to socialism, it’s only when conservatives express concern that those on the left have a problem with calling America socialist. When it’s a leftist calling for a more socialist America, that’s just fine with progressives.

    For example:

    Newsweek cover story in February (co-written by Evan Thomas, grandson of American Socialist Party leader Norman Thomas) titled: We Are All Socialists Now”.

    Washington Post columnists E.J. Dionne and Harold Meyerson, both men of the left, have suggested that Obama is putting us on the path to “social democracy.”

    When the financial crisis blew up las fall, Democratic activist and noted liberal blogger Matt Yglesias said that the crisis offered a “real opportunity” for “massive socialism”.

    Pch101 is using the “call them McCarthyite red baiters” gambit from the progressive playbook. He figures that if you laugh hard enough at the commie hunters that you won’t realize that Alger Hiss was really a spy.

    BTW, Pch, how do you feel about that professor & State Dept. functionary that was arrested along with his wife for spying on behalf of Castro’s Cuba?

  • avatar

    I don’t get the legalese, but I do hear Steven :

  • avatar

    Pch101 shorter version:

    Nothing to see here. Move it along.

    I guess that you must have read a different post. Because if you read what I actually wrote, it bears zero resemblance to your alleged interpretation of it.

    I know that you come here with a lot of political baggage, but your penchant for layering your own points of view on everything is preventing you from actually understanding what others have to say. If you wish to debate, you should at least attempt to know what it is that you’re debating.

  • avatar

    Interesting analysis.
    What’s bothering Ruthie is that Obama has circumvented established bankruptcy law and precedent. In the end the outcome may be the same.
    For the present, Obama, Chrysler, and likely, GM have run into a brick wall.

  • avatar

    The stay’s been removed. Thus left the drama llama.

  • avatar

    As for moving America to socialism, it’s only when conservatives express concern that those on the left have a problem with calling America socialist. When it’s a leftist calling for a more socialist America, that’s just fine with progressives.

    Context matters. “Social democracy” refers to what has been going on in the rest of the developed world. Smart people are also known to use terms somewhat ironically.

  • avatar

    So, what’s bothering Ruthie?

    Absolutely nothing.

  • avatar


    Would you please start your own blog. It would be well worth reading.

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