Chrysler Merger with Fiat Grinds a to Halt Pending SCOTUS Review

Solicitor general files papers urging Supreme Court to oppose further delay of Chrysler sale

In a stunning Supreme Court order by Justice Ruth Bader Ginsburg, Chrysler's merger with Fiat – encouraged and engineered by the Obama administration – is now on hold until the Supreme Court can hear the case. This unexpected move may interfere with the administration's hopes for a fast-track bankruptcy.

"Looks like we're going to get our day before the Supreme Court and that's a very good sign," said Indiana Treasurer Richard Mourdock.

Three Indiana pension funds, representing police, teachers and taxpayers – stand to lose at least $6 million dollars if the deal goes through. This is a tiny fraction of the billions at stake. Yet they argue that Obama overstepped his authority by using federal bailout money, and that the bankruptcy court unfairly put the claims of others – including the United Autoworkers Union – ahead of theirs.

"The big issue here is whether or not average Americans, retirees like those I represent, are going to have their wealth protected or taken away from them by actions of the federal government," said Mourdock.

Today, U.S. Solicitor General Elena Kagan – in opposing the Indiana pension funds – argued that the pension fund losses "cannot outweigh" the "grave consequences" that a collapse of Chrysler would cause.

"The government's argument is that the harm to Chrysler, which is possibly the loss of the entire business, far outweighs the harm to this group that's owed a very relatively small amount of money," said Lynn LoPucki, a law professor at UCLA.

As the case is scrutinized by the Supreme Court, timing is critical. The deal with Fiat is set to close by June 15. If the case is not resolved by then, the Italian automaker could cancel the proposed merger.

"It could mean Chrysler is pushed in Chapter 7 - full liquidation, because we could see Fiat walk away," said Rebecca Lindland, an analyst with HMS Global Insight.

For the Indiana pension funds, the gamble is that they stand to recover more of their money if Chrysler is broken up and sold off.

"We're going to see some return far better we think than the 29 cents on the dollar that we've been offered," said Mourdock.

What happens in this case is critical not only for Chrysler, but for General Motors. Some of the disappointed creditors in the GM case are making the very same arguments made by the Indiana pension funds, so what the Supreme Court ultimately decides has enormous consequences.

GM last week filed for bankruptcy, hoping for a quick restructuring.

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