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Well, good afternoon everyone and welcome to Cleveland Marshall. My name is Jeff Mearns. I'm the dean of the law school here and it's my pleasure to welcome you to this very interesting and topical program. First I want to express my appreciation to Chris

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Meyers. Chris is the 6th Circuit representative to the Education Committee of the American College of Bankruptcy, and Chris was the brainchild behind this program and we're delighted that he and the American College of Bankruptcy. Has selected Cleveland Marshall as the location for this very

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interesting conversation we're also delighted that you're with us today we have an extraordinarily distinguished group of panelists. I'm sure it's gonna be an interesting and lively conversation. Thank you and Chris, I'll turn it over to you. Thank you Dean Mearns. I'd also like to welcome

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everybody on behalf of the American College of Bankruptcy. The college is a membership by invitation group of about 600. It's comprised of lawyers, judges, professors, and insolvency related professionals. And as Dean Mearns mentioned, I've been involved with the Education Committee of the college as the representative

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from the Sixth Circuit. The college has a strong commitment to the idea of giving back to the community at large both through pro bono and educational efforts and this is obviously part of that, part of that process we have happily with us, both the

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current chair and the current president of the college. The chair of the college is David Heiman from Jones Day who's on the panel and the president, aspiring chair is Paul Singer from Reed Smith who's out there in the audience. So we welcome you on behalf

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of the college and we hope you all enjoy this afternoon's interchange. I'm gonna introduce the panelists very briefly. I could probably do 10 or 15 minutes on each and we would then be done with the time for the panel, so. And the other thing that

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I'm gonna be sure to do is to do this in alphabetical order. I'm not gonna take anyone first for any reason other than the alphabet. First is David Heiman. David is a graduate, both undergrad and law school at the University of Cincinnati. He is, as I

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said, a partner with Jones Day, and he is the chair of their. or active in their restructuring and reorganization practice and the chair of the American College of Bankruptcy included in the cases in which David has been involved include Allied Stores and

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Federated department stores, Boscov's department stores. LTV, Oglebay Norton, Pillotex, USG, White Motor, as well as Chrysler, which is the, the particular item that recommended him for tonight. Second, To David's right, your left is Stephen Karotkin. Stephen is a partner at Weil, Gotshal & Manges.

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He is a graduate with high honors from Union College and also with high honors from NYU Law School. He's practiced with Wild Gotshal in cases including Aleris International, Texaco, Revere Copper and Brass, Formica, Loral Space Communications, Eagle Picher Industries, and Stephen was one of the

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counsel for the debtor in the General Motors case. Third is my partner Stephen Lerner from Cincinnati. Stephen is a graduate, has several degrees I guess from the University of Pennsylvania, has a JD, MBA, and JD, all from Penn, and. Has practiced in the area

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of bankruptcy in such cases as Chrysler, Enron, Mesaba Aviation, Eagle Picher, WCI Steel, All American Semiconductor, and others. Stephen was the counsel for the ad hoc committee of affected Chrysler dealers and also advised dealers, similarly situated in connection with the GM case. Last and certainly

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not least, Thomas Moers Mayer is a partner with the Kramer, Levin, Naftalis and Frankel firm in New York. Tom is a Undergraduate, attendance at Dartmouth summa cum laude, JD magna cum laude from Harvard and editor in the Harvard Law Review, he also

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clerked for Judge Edward Lumbard of the Second Circuit Court of Appeals. Tom and his firm represented the official creditors committee in both the Chrysler and General Motors cases, so they each come with a special relationship to automotive. Some of them have, a substantial

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history outside just the, the OEM cases that we're gonna talk about. But with that I'm gonna start and, and the first thing that I would like sort of. To ask everybody on the panel, these cases involve the unique participation of the Department of Treasury. What's

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it like to have the government as a major player in your bankruptcy case? Why don't we start with Stephen? First of all, when Chris alluded to the government recently, I mean, I'm sure everyone here is familiar with, the TARP program and the TARP

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loans, and how they were made available to both Chrysler and General Motors, but I'm not sure that everyone really knows what the definition of TARP is. You may have heard it in the newspapers, but really, the Wall Street Journal recently had the most

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appropriate definition of TARP, which I'd like to share with you. This TARP, an acronym. A synthetic device designed to cover up an unsightly mess or to protect perishable goods per and firewood banks from the ravages of the elements typically costing somewhere between $12.99 and $700 billion.

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In any event, dealing with the government was interesting and I, and I think from my perspective, somewhat refreshing because, and I'm sure that my colleagues will agree with me, the people who worked in Treasury and were assigned to deal with

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the automotive manufacturers, as well as the parts suppliers were an incredibly talented and hardworking group of people and you can Be sure that your tax dollars were well spent, at least for these people. I'm not so sure about with the automobile manufacturers and dealing with the

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problems. They were, they worked day and night, they worked harder than we did, and they certainly had the interest of the American people in the forefront of their minds. Now, I will say in dealing with the government, if you're putting up

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$50 billion to help reorganize the company. It's pretty easy to dictate the terms under which the reorganization or the sale will take place. But again, a lot of people talk about, or will suggest that these cases, both the Chrysler and the General Motors

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case were different or unique or they were elements that had never been addressed before in Chapter 11 cases and I would venture to. I disagree with that. I totally disagree with that. And I think that the only difference between the cases

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in which we were involved and the traditional chapter 11 cases was the size of the liabilities, the size of the problems, the number of people involved, the number of contracts involved. But in dealing with those issues, it was no different. And alluding again to the

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government, the government was the DIP lender. It happened to be, as I said, a DIP lender of extraordinary amounts in these cases. But like every other DIP lender in every other case I've been involved with, and in particular, more recently, the DIP lender

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dictates the terms of what happens typically in the reorganization case. It's, it was no different in Chrysler, it was no different in GM, it's no different in the smaller cases. David, David Heiman, do you have a perception? How did you find it to deal with the Treasury?

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Well, first of all, I agree and disagree with Steve on whether this is like every other case. I agree in terms of the legal issues. But the presence of the government to me was a major distinction that in a political

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sense to me makes the cases sui generis. We started working on, this is at Jones Day, we started working on Chrysler just over a year ago. We were instructed very clearly that, bankruptcy is death. And that we will, we will do

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everything within our power to avoid it. In fact, as you're preparing for bankruptcy, you should be preparing only for a shutdown, liquidating bankruptcy, not a reorganization or a sale of assets. And some more stories about that if we have time later. But

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as it relates to the government, I find, I found their presence, both positive and I don't want to say negative, but different to an extreme. So the positive was, as Steve said, by the way, we only got $9

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billion so I don't know about the $50 billion. So they didn't, they didn't control us as much as they did you. The positive was what I just alluded to and why I brought it up because, the fact that we

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were, most of you may know that it's very difficult if you're representing a company to ever convince them that chapter 11 is nirvana. And those of us who do it actually believe that. As you, for many reasons, including our livelihoods, but

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it's very difficult to convince business managers that there's that, that it, it may be the best way and it's a psychological and strategic approach, at least in my experience. When the government got involved, and by the way, they got involved. First, under

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the Bush administration, I think it's an important political point that after, Paulson told the Detroit Three that TARP funds, whether it's a piece of plastic or otherwise, were not available to the big, to the Detroit Three because the TARP funds

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were available only to financial institutions. The Detroit Three together went to Congress to ask for $25 billion and, uh, after some very contentious hearings, were repelled. And so the Bush administration did step up at the end. And those were very intense

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times for Chrysler, particularly because Steve's client was first on that one. So we were down to December 31 without, having funds advanced. So very intense times. But they did give us or loan us. Give us $4 billion to help us get through the next

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phase. And the idea was that there'd be strings attached. There was a maturity of April 30, we had to submit a business plan and a restructuring plan by February 17 and then go from there, one that satisfied the government. The kinds of

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things that are different is we submitted a, three-pronged, business and restructuring plan to the car czars who had not even yet been put into place. So, and we had an April 30th deadline to, to fix all this. So I

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agree with Steve that people there, especially their council, worked day and night to try to make this all go in the right direction. But, they were also some of the most frustrating times in terms of how you deal with government and

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getting things done. And even today as we sold Chrysler on or we closed the sale on June 10 and we were supposed to have our wind down plan funded and ready to go within 30 days thereafter. We're still not there on

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that and it's just a very difficult process for us right now with the government. Switching gears a little bit, Tom Mayer has represented a number of unsecured creditors committee. Tell us a little bit about the composition of these two committees and were there special

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challenges in beginning to represent a group. In the Chrysler or GM cases where the time frames were so tight and you're depriving me of my chance to spout about the government. Well, if you'd like to do that too, you can, you can do that as well.

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I'll hold that to the end. Each of these cases, the committees in these cases were not like anything I'd ever seen before. First they were huge. The Chrysler committee was 11, I think, and GM started out at 15, so they were enormous, and second, each

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was the United Nations. You had suppliers, most of whose contracts were being assumed in Chrysler, almost everybody got assumed in GM, most got assumed, not all. You had deals. Tell the group a little bit what happens if a contract is assumed? If a contract is assumed, the

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buyer ends up performing under the contract, and it's as if the bankruptcy never happened. That's a little bit of an exaggeration because the buyers, especially Chrysler slash Fiat, took the opportunity to try to renegotiate certain terms of the contracts, less, I think true to a lesser

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extent for new GM, but it's as if the bankruptcy never happened and life goes on for the supplier and for the OEM. So that was one species of constituency and their concerns were mostly how do we keep the production line going, how do we know

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our contract is going to be assumed? How do we invest in tooling? how do we invest in inventory without knowing whether we're gonna get paid back for it? The problem was diminished somewhat by the fact that both companies went dark and there weren't actual there

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wasn't actual production going on at the time of these cases, but this is a supply line that works day to day. And those processes were, were very difficult. In Chrysler we had the those of you who know him this will, I think

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cause some amusement. I had as a trade creditor on my committee Magna represented by Bob Weiss and those of you who've been involved in tier 1 or Tier 2 auto bankruptcies know that Bob Weiss represents General Motors most of the time, and his nickname in Detroit

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is the Godfather because he has power of life and death over the suppliers. And to have him as a supplier representative in General Motors was in Chrysler was very interesting. He came up with a checklist of 10 things he wanted Chrysler to do for suppliers, and

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I looked at them and I looked up at Bob and I looked down at the list, and I said, if you were on the other side, as you usually are, would you agree to any of this? And, and Bob looked down at the list and he

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looked up at me and he looked down at the list then he looked up at me again and he said depends on how hard I was gonna jam the other guy. So that was one part of it that was interesting. We had dealers on the committees.

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I'll never pass another dealership and look at it the same way and we should really let Steve Lerner talk about dealers because the dealers are the ones who really got shafted. In this process, Two constituencies got shafted in this process that you don't hear about

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as much as you should. One is the dealers, and I'll let Steve talk about that. And the other was just the final constituency on my committee in Chrysler and GM we also had some bondholders and Chrysler there was no public debt. Were the tort claimants,

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and, and lest you think this is all a bunch of tort lawyer makeup, I had a woman call me up and say that her house had burnt down because her pickup had exploded in the garage. And her insurance company had paid her and sued the

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car company and won, and her lawsuit was still pending when the bankruptcy filed and all through the pending nature of the lawsuit, the car company was calling up and saying we're going to settle. We understand we're at fault. We don't want you to sue us and

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then bang oh bankruptcy and she gets nothing. We'll come back a little and talk about that. Stephen Lerner, tell us about the committee that you represented. Our firm represented the largest group of dealers in the Chrysler case whose franchise agreements were going to be terminated

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by Chrysler. They were just shy of 800 dealers whose agreements were gonna be terminated. We represented about 400 from 47 different states, so we really had coverage, of every type of dealer that Chrysler had. How do you represent a group of 400?

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Not very easily, but what we did is we created a actually really an executive committee that had 9 dealers from a cross section of states, and they basically made all the decisions. We were funded by. By every dealer who joined in the group and

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they basically as part of the agreement allowed the executive committee to make decisions on their behalf. You just picked the nine craziest people you could find. We picked the, well that was for the witnesses. We picked the most. We, we picked the

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most sympathetic witnesses one could have, but, but Tom is exactly right. I mean, the dealers here really got shafted. I think that's putting it mildly and let me go back to the first question, which is, you know, the US government's involvement. I for one believe

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the government was motivated to do. To do the right thing here, but in so doing, if anybody thinks that it wasn't 95% political, they're wrong and as part of the politics, it was clear to us that the dealers were simply not going to be protected.

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We met with the automobile task force, Steve Rattner and Matt Feldman, and while we had a very polite meeting at the outset of the bankruptcy, it was clear that the dealers were simply not one of the groups that, that the government frankly cared

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about. For one, the employees were obviously taken care of. The unions did very well. The suppliers, as Tom said, almost all the suppliers had their contracts assumed and assigned. on rebuttal. Hold on a minute. Why is it different than any other Chapter 11 case? I

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mean, Tom, you say that the dealers got shafted and the tort claimants got shafted. It's no different than any other chapter. Well, let me finish. Hold on. It's no different than any other Chapter 11 case. Where a debtor rejects contracts or a purchaser decides what contracts

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it wants to take, what employees it wants to take, that's not what happened. That's exactly what happened to General Motors. Stephen, in Eagle Picher, number one, did you shaft the asbestos claimants? There were a lot of asbestos claimants in that case. No, you did.

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I really do want to address the, the political issue here because I, I disagree with Steve and both Steves I disagree with as follows. Number one, I think there was remarkably little politics. You want to talk about politically powerful constituencies who got shafted. One, there's

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a dealer in every congressional district. The dealers were able to mobilize press and congressional support to an unprecedented degree. And the reason the unions did as well as they did is that you need union Labor to operate the plants and they didn't need the dealers and

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they didn't need the minority banks and they didn't need the tort claims. You want to talk about people who got shafted one, it's dealers who had a dealer in every congressional district 2, the tort lawyers who are major contributors to the Democratic Party they got nothing.

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The people who benefited, yes, the auto workers benefited, but that's because they needed the workers to run the plants. Who in the audience has gone into a dealership to buy a car? Of all of you. Does anybody here feel sorry for the dealers? No, but

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wait, you know, that, that's really not, no, no, wait a second. We have, we had a dealer on our committee whose grandfather received his franchise from the Dodge brothers. They have, they have been in business for 101 years, and if the market didn't put them out

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of business, then there are good arguments as to why it shouldn't have happened. Now, to Steve's point, Chrysler and General Motors were different in this respect, and David, you and I talked about this at a similar program over the weekend. Steve's comment is that we do

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this, virtually 5 or 6. This is a road show. Today's my turn to win, by the way. I haven't won one of the. The difference is this in an asset sale, and these were asset sales, which by the way, Chapter 11 no longer

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consists of reorganizing debtors pretty much. Every company is liquidated or it's sold in an asset sale, but in an asset sale, buyers do get to pick the assets they want to buy. You can't force somebody to buy an asset they don't want to buy. So ordinarily,

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although you tried, the buyer, well, the buyer, the buyer says, I want these contracts. I don't want these contracts. Well, who was the buyer in Chrysler? It was effectively Fiat. OK. Fiat became the entity that managed the entity. On the witness stand,

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the best witness as far as I was concerned was the Fiat representative who in cross-examination said, we don't need to get rid of any dealer agreements as part of the bankruptcy, we can do it later. So what makes the difference? The difference is if

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the buyer doesn't say don't assign all the contracts to me, then I think Chrysler's management has a fiduciary duty to maximize the value of old Chrysler. That's who they work for, not new Chrysler. And they should have forced Fiat if that was their legal position, number

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one, to require all of the dealer agreements. Number one, that that guy didn't know what he was talking about. Number 2, he's the same guy after we, after we got the bankruptcy court to approve the sale and it was on appeal and then the Supreme

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Court, he's not been seen since. He's affiliated with the same company who said, oh, we, you know, there was a June 15 closing deadline, so if we didn't close by June 15, it was, you know, maybe

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the deal would go away. I don't think anybody believed it, but And, but in approaching the appellate process, obviously, time was of the essence and we had to convince everybody that we couldn't continue to stay beyond like the 12th or 13th in

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order to close the deal in time. And that same company, Fiat, the crazy people who bought the Chrysler assets said, oh, We, we'll close no matter what. You can't rely on those guys, the people from Europe to I think the problem of what happened to

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the dealers though was peculiarly awful, especially in Chrysler in particular, and Steve hasn't yet mentioned this, but the, the story that really struck a lot of dealers, and I had 3 on my committee, including one who was incredibly vocal and seems to know every congressperson there

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is, Tamara Darvish, if you go on to darkcars.com, you can see Tammy selling cars. She's very forceful. What happened in Chrysler is that in the months leading up to bankruptcy. a guy named Press, who I've forgotten what his title was, Jim Press is head of North

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American sales, he went to the dealers around this country and he said, buy more, buy on credit, borrow, we need you to pump up the volume, and if you don't, we are going to remember who does this. This was 3 months before the bankruptcy and, and

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people who didn't want to borrow hawked their assets to help out Chrysler. And then Chrysler filed and rejected their dealership. Hey, hey, you know, this is bankruptcy, Tom. You're not, you're not, trying to react to what the debtor did wrong in the past. I would

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acknowledge to you that they took that too far, but the question is, what's in the best interest of all the constituencies? What do you do to maximize the value of the estate? How are you going to assure the best possible result in recovery. It's

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not by going back and taking one guy who said, you know, doing what he thought he was supposed to do and convincing people they need to spend more money on their showrooms and so forth. That is a raw deal for those people, but

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you can't let that push in the wrong direction what the best result is. David, in another case, if I were a buyer. And was ready to take a lot of cutting him off. Ordinarily if I were a buyer and willing to take a lot

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of executory contracts, wouldn't the estate analysis be give them everything so that there won't be claims against the residual estate? Sure. Yes, and you're saying, so why are the dealers, so, so why did Chrysler take a different position? Because what Steve, what Steve said is

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only part of the equation. It is, whether you agree with it or not, it is the absolute uniform view among, car manufacturers that fewer dealers is better. And, while the guy at Fiat who was on the stand didn't know what he

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was talking about, there is no question that Fiat expected a streamlined dealer organization. Steve Karotkin, when did you start to prepare for the bankruptcy filing? David said he started about a year ago to prepare for a non-bankruptcy except a Chapter 7 liquidation. When did you get

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involved? We got involved actually about this time last year. No, about, about actually about this time last year, right before Thanksgiving, although we had represented General Motors on a regular basis prior to that time, we really got involved with contingency planning. Around this time

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in 2008. And of course, at that time, no one really believed it would happen. That's the time that David alluded to that Rick Wagoner was taking his private aircraft to the The United States government to get money and everybody thought

00:26:49.099 - 00:27:02.209

that they would come through with the money before the end of the year. And as David mentioned, it, it was hardly easy and, we actually had to be prepared to file by January 1st in case they didn't get the money. By the end of

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December when they actually would run out of cash, and they closed on the loan from the government on New Year's Eve at about midnight. And the numbers are just 2 minutes. The numbers at General Motors are are absolutely staggering. They have, annual payments to suppliers

00:27:18.630 - 00:27:33.020

of $50 billion and they're paying about $5 billion every month. And if they didn't get the money at the end of December, they had no money to pay the the suppliers at the beginning of January. And the, and the standard arrangement is those payments go out

00:27:33.020 - 00:27:50.650

in the first days of each calendar month. That's correct, right. And they have 11,000 suppliers. Ours was different with the suppliers. We had q different timing, but, you know, the same basic idea, yeah, David, maybe some of it, David Heiman, maybe some of

00:27:50.650 - 00:28:10.869

us saw you on the front page of The New York Times, um, just photographed in a. Well, aside from the reprints that you were distributing, just one. Very good. How did you come to land on the front page of The New York Times? Well, it

00:28:10.869 - 00:28:27.609

costs me a lot of money. Actually, first of all, it was, you know that my name was not below my picture, right? It was a, just a sort of an ad-lib kind of picture by the photographer. The day before, the front page of The

00:28:27.609 - 00:28:44.040

New York Times had the three CEOs who were testifying in Congress. So I think they decided not to do that again. But, we had been preparing, and I assume Steve was going through the same thing with Rick Wagoner. We had been

00:28:44.040 - 00:29:05.410

preparing Bob Nardelli virtually 24/7 from the day we got involved in the case for these hearings. And, it was as though we were going into the most serious trial preparing this witness for cross-examination. And, of course, because of that, he wanted to have

00:29:05.589 - 00:29:22.719

his senior lawyers, with him so that would have been me, was me and our trial partner from Washington, Tim Cullens. So we had gone the day before to the Senate hearings, which by the way. were very impressive in my mind. They were, there's

00:29:22.719 - 00:29:41.439

the decorum and, while politics were clearly at play, there was respect and you know, thoughtfulness, I thought. And it was a much smaller room, much smaller than this room actually. And so I was so excited to be an American that day.

00:29:41.569 - 00:29:57.869

The way you get into these hearings is at least the ones where there's, there are crowds of people who want to go, and many of you probably have had this experience. This was my first experience, is, you have to stand in line. Well,

00:29:57.949 - 00:30:13.310

of course, people as important as we are, don't stand in line. And I had no idea about this. They said, just go over to such and such, they'll meet, meet so and so, and they'll take you to this person who's standing in line for

00:30:13.310 - 00:30:30.790

you. They actually pay people to stand in line for you. I have no idea how much and I don't want to know. But so it's still a mad rush. There are people demonstrating and, picketing and yelling and screaming, this is bad, the government

00:30:30.790 - 00:30:47.329

is bad, the OEs are bad, everybody's bad. And so it's just chaotic. And so to get into this room, you sort of rush in and grab whatever seat you can. So we picked this a seat, like we were a half-hour before the hearing started.

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I gave my newspaper to my partner and I got a call in this hearing room and, at that moment in time, they took a photograph, unbeknownst to us, and more, more importantly, unbeknownst to us, there was a sign in front of both of us

00:31:03.489 - 00:31:18.670

that said, Reserved for Chrysler. And keep in mind, this was at a time when no one, but no one was supposed to know that there was any contingency planning for bankruptcy. So when I, when I was in my, breakfast room the next morning

00:31:18.670 - 00:31:34.310

and opened the paper, I was a bit horrified. By the picture? The picture was, the picture was very nice, and there were those of us who knew what it meant when he was in that picture sitting behind the Chrysler sign. I did get a number of

00:31:34.310 - 00:31:55.630

calls and emails saying, gee, I didn't realize you weren't well. Tom Mayer, you described the composition of your committee as a United Nations. How do you in the time frame that you had come forward with a position when some of the constituencies

00:31:55.630 - 00:32:09.800

on your committee are probably in deep disagreement one with the other? Sometimes it just comes down to a majority vote. You try to craft a consensus at Chrysler, everything was compressed and the consensus on the committee was very clearly in favor of having the deal go

00:32:09.800 - 00:32:24.920

through even though there were people on the committee who were getting close to nothing based on the deal and felt distinctly aggrieved. In General Motors, it was more interesting. The US Trustee, which is the Department of Justice official that puts people on the committees. Had

00:32:24.920 - 00:32:39.119

assembled a committee that was very finely balanced. You had the UAW, the United Auto Workers, that wanted the deal to go through, but you had the United Steel Workers and the International Union of Engineers, which were getting nothing out of the deal. Those of you who

00:32:39.119 - 00:32:53.000

think this was just to pay off to organized labor, you should talk to a steel worker or an engineer whose retirees got virtually nothing out of GM. You had 3 suppliers, 2 suppliers who didn't know whether their contracts were being assumed. You had dealers who

00:32:53.000 - 00:33:08.439

didn't know whether their contracts were being assumed. You had the PBGC that wanted the deal to go through very badly, so you had a very finely balanced committee, and we were initially, opposed to the sale going through unless certain changes were made. And in fact

00:33:08.439 - 00:33:28.699

certain changes were made, and on the basis of those changes, the critical votes on the committee flipped, and the committee ended up supporting them. One of the more controversial aspects about the two cases was the use of Section 363 asset sales to accomplish what looked to

00:33:28.699 - 00:33:45.520

some like a reorganization plan. What's the current standard, and I'll let anybody who wants to respond. What's, what do you think the current standard is for when you have to have a plan of reorganization and when you can accomplish the same thing with an asset

00:33:45.520 - 00:34:01.310

sale? I should let Steve do it since he took the losing, position. You can lose again. Only the judge. What Chris is referring to, commonly referred to as a sub rosa plan, and the principle here is really one that's more of process and that's

00:34:01.310 - 00:34:13.969

important. In both cases there was an asset sale, and there are really two ways you can accomplish an asset sale in a Chapter 11 case. One is to do what Chrysler and General Motors did, which is file a motion, ask the court for permission, and

00:34:13.969 - 00:34:31.699

apply a very easy to satisfy standard which is, the debtor's business judgment, and that is something that really is not controversial if what you're doing is truly simply selling assets. So there are assets sold and there's a purchase price paid in return. The question that

00:34:31.699 - 00:34:49.500

was presented in these cases was whether the sale was really more than that, more than simply selling assets for a purchase price, and if it's more than that, meaning that you're now determining, for example, how creditors pre-bankruptcy claims are going to be paid, then that is

00:34:49.500 - 00:35:05.789

like a plan because what a plan of reorganization is in essence is the contract pursuant to which creditors' claims are paid. Typically when you get into the treatment of claims, it's a different process that takes more time generally, but also gives creditors greater rights, more disclosure,

00:35:06.138 - 00:35:21.254

rights to vote, and rights to object. So if you're a debtor and you want something to happen quickly and you don't want to have a creditor vote, then you want to construct it as part of a section 363 sale. Because it's faster, easier, and cheaper, more

00:35:21.254 - 00:35:34.385

important if you're a buyer. True, but in this case, who are the buyer? I mean, we did not have a market of, of buyers. There was only one buyer, and that was the US government principally driving and, and of course in GM I think

00:35:34.385 - 00:35:49.850

they were literally the only owner of the business of new, new GM and Chrysler with some other constituents. But here's the argument that we and the Indiana pension funds who were, a very, very small minority of the first secured creditor group in Chrysler. The argument

00:35:49.850 - 00:36:06.449

was that this was not a sale only, but it was a disguised plan for the following reasons. There were several prepetition claims that we argued and we lost, more so on a factual finding than I think legal principle where we thought this was really a

00:36:06.449 - 00:36:24.919

plan and this is, this is what what was argued one. The owners of new Chrysler were the US government, the UAW through what's called the Viva Trust, but let's call it just for ease, union claims of about $10 billion the US, the

00:36:24.919 - 00:36:39.959

Canadian government, and Fiat, those were the four owners. Fiat didn't pay anything in cash. They contributed technology, and that was what they got, that's what they paid in consideration for the stock. Technically they received about $400 million in cash, but we'll pass over that. The

00:36:40.169 - 00:36:56.340

the company did or Fiat Fiat, well, Newco received $400 million no, from Old Co in the form of a tax refund. OK, well that, well, that didn't actually come out. There you go, being technical again. The US government and the UAW, we argued, as

00:36:56.340 - 00:37:16.000

the Indiana pension pensioners did, that they received their equity in new Chrysler, not for new contributions of equity, but as treatment of their prepetition claims, and the reason we argued it was as follows the US government was, as David said earlier had contributed $4 billion

00:37:16.000 - 00:37:31.199

in a third lien secured claim. But as we know, the the assets of Chrysler were worth in the end, pursuant to the sale to be $2 billion in cash plus the assumption of liabilities, but that was only enough to pay partially the first secured creditors.

00:37:31.260 - 00:37:47.100

So the US government's loan was completely unsecured. OK, they made a loan to new Chrysler as well. I don't remember what the exact loan was, 10 billion dollars-ish in terms of the, the, the exit financing, but the question is, what did the US government pay? What

00:37:47.100 - 00:38:03.425

did the US government pay to get their equity? Well, it was our view that they converted their unsecured claim, OK, their $4 billion and that was. They were given equity for that. And therefore you treated a prepetition claim. Now, some would say, wait a minute, they

00:38:03.425 - 00:38:14.584

got their equity in respect of the loan they made to new Chrysler, but the loan that they made to New Chrysler was debt, and they were getting paid 100% of the debt. It wasn't like they made a $6 billion loan and we're only getting repaid $4

00:38:14.584 - 00:38:32.209

billion and 2 billion dollars credited equity. They were getting all of their debt. The union claim was $10 billion rounded. Against old Chrysler, and after the deal was constructed, old Chrysler didn't owe the the VA claim anything. And what was converted was the equity piece that the union

00:38:32.209 - 00:38:49.770

claim got plus debt of new Chrysler. Again, our argument was you didn't just sell the assets, you treated these claims. Now why is that a problem? Both of those groups forgive their claims against old Chrysler. Technically testimony was UAW technically maintains some claim against old. Yeah,

00:38:49.889 - 00:39:04.570

no, they gave, they basically gave it up. The government did not give up the dip. No, that, but not, but the prepetition loan. Went away. And that was our argument that, you know, and what's important about the cases, I mean, some people said as

00:39:04.580 - 00:39:16.469

has the law changed, I don't know that the law has changed. I think it's harder to prove a sub rosa plan, but Judge Gonzalez in Chrysler didn't say, well, this is a sub rosa plan, but because of the magnitude of Chrysler and the so-called melting ice

00:39:16.469 - 00:39:29.820

cube, and if I don't approve the sale, I'm going to liquidate Chrysler. He actually found, and I, he's an excellent judge, and, I've worked with him a lot, but I don't understand how he made the factual finding. That the ownership interest in new Chrysler was

00:39:29.820 - 00:39:42.739

not in respect of the pre-petition plan. Let me ask you a question. If your clients or the Indiana Pension Fund got more money out of that so-called sub rosa plan, would it still have been a sub rosa plan? It would have been fine with you. You wouldn't

00:39:42.739 - 00:39:54.739

have objected, right? The Indiana Pension Fund got another 2 or $3 billion. They would have had no objection to the whole process. Hold on. That wasn't a minute. That wasn't. That was not our. I didn't represent the United pension. But if you got more money, if

00:39:54.739 - 00:40:09.419

you got more money, it would have been fine. No problem with the 363 sale if you got more money, right? Please let me just, can I ask you a question? And, and by the way, by the way, who is gonna finance? This case going on for

00:40:09.419 - 00:40:23.489

a year to get to a Chapter 11 plan. Were your clients going to finance it? Here's the answer yes or no? Of course not. OK, so how is it going to get to a plan? We've all done plans that can be consummated, not in, not in

00:40:23.489 - 00:40:39.909

60 days. Well, I haven't. Maybe you have. Here's the, here's the trouble I have. The US government, who put in $50 billion to General Motors and $10 billion to Chrysler. To save the industry, to save 50,000 jobs, says I'm gonna do all that. I'm

00:40:39.909 - 00:40:53.629

gonna put that amount of money in, and I'm going to save the industry, but if you don't do it in 30 days, I'm gonna. You know, turn it all into dust. Exactly the argument the bondholders made in it. Why is that different than any other,

00:40:53.889 - 00:41:09.919

case where either the buyer or the DIP lender says you have 30 days that, that and you even alluded to it earlier. There's no, you, you said. I'm not going to agree with this. You said there's no more chapter 11. It's

00:41:09.919 - 00:41:21.629

all sales, and the sales are all in the 1st 6 months of a case, right? So, but here, but here's the difference again, then I'll yield to Tom, who hopefully will agree with me. In which case I won't. Here's the difference

00:41:21.629 - 00:41:37.459

and I made this point on Saturday at our other session. What's happening today is the boards of directors are waiting until the ice cube is melting, and they're putting judges, up to the point of a gun, and I can't imagine being in

00:41:37.459 - 00:41:48.659

the shoes of either Judge Gerber and, General Motors, or Gonzalez in, Chrysler and being faced with the situation that if I try to give more time and I call the US government's bluff that I'm not going to liquidate. So I understand that, but I'm,

00:41:48.739 - 00:42:02.330

I am waiting for the day when somebody goes after directors on. the issue of why didn't you act sooner? Why did you wait until the point where there was no choice and therefore you could put a gun to a judge's head. By the way, just to

00:42:02.330 - 00:42:20.360

be clear, and I mean, I'll say it up front, you make some very good points about, whether or not this is sub rosa. And I think it takes a lot more discussion. My own view is it doesn't really matter, basically, because

00:42:20.370 - 00:42:37.919

sub rosa is sort of a creation of an old case in Texas, that to me has no application to this situation. And, the role of a bankruptcy court is to basically apply the laws it has at it at it's available

00:42:37.919 - 00:42:55.439

to it to get the best result for the creditors and to maximize the value of the estate. This is Steve's point. There's absolutely no question. In your mind, in Tom's mind, in anybody else's mind, that this thing would have gone kablooey and everybody would have lost

00:42:55.439 - 00:43:13.540

zillions of dollars if the gov, if the court, forget about the government, that's a political issue they dictated it, that's a political issue, but, that's what we had to deal with. Everything would have melted into nothingness if this didn't happen.

00:43:13.800 - 00:43:28.679

And I don't find, you know, to to to talk about sub rosa is a, you know, you know, a dead end. It doesn't take you anywhere. What we need to talk about is whether the bankruptcy laws. Support what happened and I think clearly they did

00:43:28.679 - 00:43:50.439

but I want to make one technical point just so it's clear to the audience that Judge Gonzalez who in my mind gave the best performance I've ever seen by a judge in any, any level. He was fantastic. Right, yeah, but

00:43:50.439 - 00:44:09.250

you won too. I've won other cases, not the, not the first win, Steve. But, but I want to make this point so it's clear, at least if you read the opinion, if you haven't read the opinion, Judge Gonzalez basically said the estate, the debtors did not

00:44:09.250 - 00:44:26.645

contribute one penny of anything to any of the people that were taking out of NewCo. And you contest that maybe, but that's his finding that the UAW is getting their value from NewCo. Didn't matter where that money came from, whether it came from the government or

00:44:26.645 - 00:44:43.489

Citibank, that's where they were getting their money or their recovery. The same is true of the first lien creditors, etc. And that's what the decision rests on and I think it's solid. I think that's an important point. The question that I like to pose

00:44:43.489 - 00:44:57.320

to people, especially those who read the Wall Street Journal and are terribly upset about what happened to the secured banks, which I think is ridiculous. The question is, if Wilbur Ross had done this deal instead of the government, what would have been different? I'll tell you

00:44:57.320 - 00:45:16.270

what would have been different. One, the banks would have gotten less. The liquidation value of their collateral was 1.6 billion in Chrysler, they got 2. So the banks didn't get hurt. Number 2, the same dealers, maybe a slightly different population, would have gotten rejected. Number 3, the

00:45:16.270 - 00:45:34.780

unions would have gotten less. Who would have gotten that value? Not the banks, not the dealers, not the asbestos creditors. Wilbur Ross would have put it in his pocket. So whatever the unions got, they didn't get out of someone else's pocket they got out of our

00:45:34.780 - 00:45:55.409

pockets. They got it out of the the government made a decision union retirees will get a chance to have some health insurance. Now you can criticize that on political grounds. There's a legitimate political debate over whether the United States Treasury should get involved in a bankruptcy

00:45:55.409 - 00:46:13.600

case in order to allocate taxpayer value. To union retirees, that's a legitimate political debate, but it didn't come out of anyone else's pockets in the bankruptcy case, and people who natter on about how this is a violation of senior secured creditors' rights and it's distortion of

00:46:13.600 - 00:46:26.860

the bankruptcy law and this and that, that's just wrong. Steve is right that procedurally, Steve Lerner is right that procedurally. This pushed the outer edge of the envelope on should this have been a plan, should it not have been a plan, but Steve Karotkin is also

00:46:26.860 - 00:46:43.560

right that the basic complaint here is that I just didn't get enough, and if I'd gotten more than all these procedural complaints would have gone away in the Second Circuit. Tom Lauria, the counsel for the dissenting banks, was asked by one of the Second Circuit judges,

00:46:44.000 - 00:47:00.580

Wait a second, Mr. Lauria, I don't get this. At 29 cents, this is completely invalid, but if you got 40 cents, then everything would be fine. Can you please explain to me. How you justify the legal positions you were taking and Mr. Laurier really had no

00:47:00.580 - 00:47:16.820

answer to that question. David made a comment in our panel over the weekend that that he thinks that business drives the law and not the law drives business. Would you explain your thought and, and how you think it has a merit when yo

00:47:16.820 - 00:47:39.439

tell your next client that because it's brilliant, you better pay me something. No, I, one of the great things about bankruptcy is that there's a, you know, a, definitive set of statutory law and case law. Case law,

00:47:39.489 - 00:47:59.629

I would say is far less than definitive, but there's so much flexibility that the courts have, and they need it because, there's. every situation is different and it takes some common sense, some business sense, and so forth. So, for me to say that it's,

00:47:59.699 - 00:48:18.739

it's a luxury perhaps that maybe other, practitioners in other areas don't have, but I really believe it, that when you go in to see a client, and, this is true in Federated, I'll just give you, an example, in a second. And

00:48:18.750 - 00:48:35.040

these are strong managers who know their business, and know what's best for their business. That's an assumption, but, a lot of times it's actually true, believe it or not. If that's the case, and they come to you and you say, this is

00:48:35.040 - 00:48:47.919

what we want to do, and you say, well, let me think, is it immoral? Is it unreasonable? Oh, we have this statute in the bankruptcy code that says, hm, maybe you can't reject that contract or whatever. Then should you say to the client,

00:48:48.020 - 00:49:04.679

I don't think so. No, I don't believe so. I think one of the great things about bankruptcy is you're supposed to do what's best for the business. I'm chapter 11 at least. So. It's, it's a great system and I believe that the business, what's best

00:49:04.679 - 00:49:20.679

for the business should drive. The legal analysis, and you should find ways, and obviously there are exceptions to this, but you should try to find ways to fit the law into what's best for the business. I'll just give you one extreme example quickly, and this

00:49:20.679 - 00:49:37.389

is in Federated early on in the case, our guys came to me and said we needed a financial advisor, OK. So, they interviewed everybody, Goldman, Lazard, whomever, and they came up with Shearson Lehman. And I said Shearson Lehman, they had done

00:49:37.389 - 00:49:55.830

the underwriting of the debt. And, as you may recall before the statute changed last year, I think, if you had done, an underwriting as an investment banker within 3 years prior to the filing, you were automatically disqualified basically. I don't remember the

00:49:55.830 - 00:50:09.919

specific language, but I said you are, you are not disinterested, I think was the language. And so, they came to me and they said, this is who they want. And I said, hm, yeah, well, OK. I explained to them that we have a problem. They

00:50:09.919 - 00:50:26.570

said they'd still like to make a stab at it. And you know, this is extreme, but I said because you believe in this so strongly, we'll take, we'll take a shot at it. I mean, it was directly contrary to the statute and we went to

00:50:26.570 - 00:50:41.659

court and basically it was overturned excuse me, I'm not. We know the punch line, David. Yeah, you get, you get the punch line, Steve. We'll, we'll come back to you. I just wanna make sure I had time. I just, I'm just giving you an

00:50:41.659 - 00:50:58.020

example, you know. So, Steve wants to, I'll take the punch line away. He said well, the court obviously accepted Shearson Lehman, and based on our arguments said, look, we know what the statute says, We're, we're not going to,

00:50:58.030 - 00:51:12.870

try to tell you anything other than what the statute says, but the overriding policy of bankruptcy, blah, blah, blah, blah, you know, it was really pulling it out of thin air. And and the judge accepted it. And so we went with Shearson

00:51:12.870 - 00:51:29.719

Lehman, and the, the client was happy, the creditors were happy. Everybody was happy, but the US Trustee who appealed it up to the Sixth Circuit, and, that's a well-known case right now where he reversed it. The client got what they wanted.

00:51:29.800 - 00:51:49.520

They got Shearson Lehman for the duration of the for free, for free. It's even better. See, yeah, Steve Karotkin, Jim got to watch Chrysler's case for about a month before they filed themselves. How did you go to school on what you saw taking place

00:51:49.520 - 00:52:04.080

and what kind of adjustments did you make in your, your plans as a result of what you saw happen in Chrysler? We had someone at the, at every single Chrysler hearing, we got copies of all their pleadings as they were filed. And, and obviously, we

00:52:04.080 - 00:52:19.750

were pleased with what was happening because they were proceeding about 30 days ahead of us. There are different issues. We didn't have the issues with the secured creditors that they had in Chrysler. But certainly watching what happened with Judge Gonzalez and the

00:52:19.750 - 00:52:36.149

precedent that he was establishing with Chrysler, made it much easier for us when the General Motors case came up and we were certainly appreciative for all the hard work that David, I don't want to swell your head more, David, but David and his colleagues

00:52:36.149 - 00:52:51.939

had done. And if you read Judge Gerber's opinion, in approving the sale in General Motors, he does cite to Judge Gonzalez with respect to virtually every single issue that was contested, so we were, as I said, we monitored it day

00:52:51.939 - 00:53:04.139

to day and got in fact, got all the transcripts as they were coming out as well. In, in Chrysler, David at least was able to say that he had a titular buyer, and, Fiat, although as we heard, they didn't actually put any money

00:53:04.139 - 00:53:19.219

in the deal. In GM there wasn't even a titular buyer, was there? Sure, new General Motors, which, which was created in order to become the acquirer, right? One of the sort of funny ha ha moments of the GM case was when at the beginning of the

00:53:19.219 - 00:53:37.949

case we realized that the buyer was a limited liability company, which meant the Treasury as holders of 55% of the equity would pay taxes to itself. That changed, but it was a fun observation. But again, I'm not sure that's different from any secured creditor credit bidding

00:53:37.949 - 00:53:53.879

for the assets. I know Steve Lerner would disagree with that. It's no different. The other fun observation, the funny line will be funnier to some of you than others, is why the United States government didn't take 80% of the equity of General

00:53:53.879 - 00:54:15.790

Motors. Because then it would have been liable for the pension plan. What conclusions, and this is for everyone, what conclusions do we draw from these two cases? Are these Just a large example of common principles. Is there something unique about them? What does this mean

00:54:16.209 - 00:54:31.050

in Cleveland, Ohio when somebody comes in and wants to sell the business on the 35th day of a Chapter 11 case? Are we going to be able to use the same precedents and have the same outcome as what you had in GM and Chrysler when we

00:54:31.050 - 00:54:45.689

don't have the government standing there saying do it or I'll shoot you. I'll be, look, I started out on this subject. It is no different than any other chapter 11 case where the secured creditors say, I'm not funding this thing unless you sell it in

00:54:45.689 - 00:55:02.100

30 days. The standard for rejection of contracts was the same. All, as I said earlier, the only difference was the numbers were huge. That's all. I, I would say that. The things that I would point to as being unique about these cases will render

00:55:02.100 - 00:55:16.219

it sui generis, as David said. I don't think we're going to see the combination of facts and circumstances here, whether you think it was a remarkable set of circumstances or not, we're not gonna see it. I think it's going to be difficult for people to stand

00:55:16.219 - 00:55:31.750

up and say that Chrysler or General Motors holds a lot of precedential value for those reasons. There, there are a couple of things about these cases that make them different, and they're around the edges, but they may prove to be important. First, in another case,

00:55:31.879 - 00:55:47.649

a bankruptcy judge may very well ask, well, what happens next? Am I left with nothing and a bunch of creditors that I have to deal with and no estate at all? And in Chrysler there was, I would say, an implicit promise by the government to see

00:55:47.649 - 00:56:05.330

that there was in fact a plan and whether or not that promise is fulfilled. We will know in probably 3 days, there's a hearing. We're going to get it done. Side, side comment for those of you dealing with the government. It's very different, very

00:56:05.330 - 00:56:28.510

different from dealing with a private party. You sign almost nothing. There are almost no agreements to enforce. There's almost no negotiation. The concept of estoppel virtually doesn't exist. The issue of authority is fascinating. One of the things that never really got litigated by estoppel do

00:56:28.510 - 00:56:47.969

you mean that a promise is not always a promise, or what? Well, you know what you want me to tell my story. Sure, go ahead, I think it's important. Really? All right. One of the odd things about Chrysler was that there was very

00:56:47.969 - 00:57:07.010

little investigation done of the parties that brought you this mess, namely its private equity owner Cerberus and its preceding owner Daimler. Unsecured creditors Committee sought the ability to investigate both of these parties and was told by the government in no uncertain terms that it would not

00:57:07.010 - 00:57:25.320

be allowed to investigate Cerberus. Why not? Well, Cerberus needed to give a release to Daimler, whom it was accusing effectively having defrauded into buying Chrysler in the first place, and it needed to give a release to Daimler because Daimler wouldn't fund the pension plan of Chrysler

00:57:25.320 - 00:57:43.780

without a release from Cerberus. And you won't find that dynamic in any other case. So as a result, Cerberus walks. Incidentally, it is my firm belief, confirmed by a subsequent investigation, that the only thing Cerberus ever wanted out of Chrysler was its financing subsidiary, which Cerberus

00:57:43.780 - 00:57:58.699

now owns free and clear of any entanglements with Chrysler, and whose debt is now trading close to par. There's an interesting story here. Go forward a year and see if the press covers it. It'll be interesting to see whether Cerberus declares an enormous victory

00:57:58.699 - 00:58:12.659

out of the Chrysler process. The process that David is referring to and which shows you the difficulties of dealing with the government after the government told me I couldn't investigate Cerberus, they gave me the right to investigate Daimler for 45

00:58:12.659 - 00:58:27.090

days. That was specifically negotiated. The government was thoroughly involved in all of those negotiations. And I went off and I investigated Daimler and determined that there were in fact causes of action to bring against Daimler, at which point the government came in and said, we're reserving

00:58:27.090 - 00:58:42.840

our rights to grab those claims against Daimler, and we're going to object to the fees that you incurred in investigating and conducting the investigation of the dip loan. So, if you were dealing with a private party, a bankruptcy court would not allow that to happen.

00:58:43.050 - 00:59:00.570

It might still not allow it to happen, but when you're dealing with the government. The government has rights and statuses that a private party doesn't have. And it's very scary. Hobbes called it Leviathan for a reason. The last thing I'd like to talk about Stephen, did

00:59:00.570 - 00:59:15.429

you just one other outcome, and I know most people around the table here today say that the secured creditors weren't mistreated and there was no change in the priority scheme in the bankruptcy code, and I think you can make that argument, but as a practical matter.

00:59:15.929 - 00:59:30.260

If you talk to hedge fund managers and distressed debt buyers and pension fund managers around the country, they have a perception, which sometimes is more important than reality that the rules have in fact changed and I've talked to people at conferences who say that they think

00:59:30.260 - 00:59:46.409

twice now about their investment strategy and companies that are unionized or companies that have underfunded pensions for fear that what happened in Chrysler in their view again you can argue that nothing untoward happened in the. Priority scheme was observed, but there are a lot of people

00:59:46.409 - 01:00:03.689

out there investing a lot of money whose views have changed on that score. We heard the same thing when we, uh, busted the LTV special purpose vehicle. Oh my God, they'll never be financing to those again. And they say, whoa, they'll think twice. Yeah,

01:00:03.810 - 01:00:19.959

they'll think once and they'll think twice, and when the credit lines open up, they'll do the same thing they always have. I'm not the least bit worried about it and I especially, don't I'm not very sympathetic to the hedge funds who

01:00:19.959 - 01:00:37.729

think it's a problem. I mostly represent hedge funds. These people are not paying attention, OK? How many cases have we seen? LTV, the assets got sold for a song and a couple of years later. Wilbur Ross gives the union and its retirees of a retiree

01:00:37.729 - 01:00:55.899

medical benefit plan on account of what were prepetition claims. Same thing happens in Bethlehem Steel Republic Technologies, two different bankruptcies. The last one, a liquidation in which the banks got less than their borrowing base for their current assets. And the union gets a retiree medical benefit

01:00:55.899 - 01:01:14.340

plan. It happens. Unionized labor and pensioners do better than other unsecured creditors, and they're supposed to do better than other unsecured creditors. That's what the bankruptcy code says. That's why we have 1113 and 1114. I'm sorry, I represent a lot of hedge funds and people who

01:01:14.340 - 01:01:30.550

think that investing in a unionized company or a company with a big pension plan is a, is not subject to the dangers of those instruments. They just haven't been paying attention. One final topic Tom mentioned it earlier in the discussion about product liability claimants.

01:01:30.810 - 01:01:47.949

The Chrysler sale order purported to deal not only with people who had existing claims pending against Chrysler, but also people who might develop a claim in the future by virtue of an accident with a car that they bought 2 years before or whatever. The

01:01:47.949 - 01:02:06.469

Second Circuit didn't really rule on that and said they'd wait and see. Can a bankruptcy court deal constitutionally with the claim of a creditor who doesn't yet exist? I mean, on a claim that doesn't yet exist. Let me first ask you the question,

01:02:06.590 - 01:02:28.129

would you, when, when you address the sale order, if you were standing in front of Judge Gonzalez, would you use the word purportedly? No, I can answer that one easily. First of all, I take my learning more from, the USG case that I was

01:02:28.129 - 01:02:51.570

involved in, which was a large asbestos case. And I'll just say, let me drop back. The, section involved is 363F, which, or the argument that people use is 363F, which refers to a sale that is free and clear of interest and

01:02:51.570 - 01:03:11.310

it doesn't use the word claim, which as you know, is a defined term in the bankruptcy code. Whereas under 1141, uh, for the discharge, or the free and clear order there. The word, the term is claims and interests. So people have gotten all excited

01:03:11.310 - 01:03:29.739

about whether it was intended by Congress under 363F that you can eliminate a claim or not eliminate, but to transfer assets free and clear of the claim. See, I'm not really focusing on the statute. I'm focusing on the idea that you've got somebody who hasn't had

01:03:29.739 - 01:03:54.550

an accident. I was just doing a little, backdrop there, Chris. Give me a break. OK, so. So I take my learning, frankly, from the asbestos cases. There's a reason why 524G exists, right? It's because the Supreme Court said anyone who doesn't have

01:03:54.550 - 01:04:14.310

an existing claim today, and we're all in this category, potentially, unfortunately, because, everybody's been exposed to asbestos, but the disease hopefully for all of us here today has not been manifested in our systems. So, the Supreme Court said in the 90s, it,

01:04:14.469 - 01:04:36.760

it, in effect, refused to accept a, a countrywide or international global settlement for the disposition of all asbestos claims. Or most asbestos claims there were opt-outs and so forth. The Supreme Court said you can't do that because everybody

01:04:36.760 - 01:04:57.979

gets their day in court and not everybody is alive or has manifested a disease, so in my mind. Notwithstanding whatever confusion there is in Chrysler, I don't, I think the Supreme Court has spoken to that and that you cannot

01:04:58.399 - 01:05:14.719

eliminate a future unknown claim. And this was a piece of judicial brinksmanship by Fiat. They had no business trying to put this in the order. There was a case called Piper Aircraft in the 11th Circuit about a decade, two decades ago in which, the

01:05:14.719 - 01:05:33.959

bankruptcy court tried to appoint a representative for future claimants. And the 11th Circuit said, oh no, a baby not yet born who ends up in a Piper aircraft which crashes 10 years after the bankruptcy case due to a design defect in that Piper aircraft, you cannot

01:05:34.120 - 01:05:50.879

in this court enter an order that binds that baby. That goes too far. That's what Fiat tried to do in its form of order and it had the usual arguments. Judge, if we don't get this order entered in exactly the form that it states we're

01:05:50.879 - 01:06:01.570

not going to close this deal and the company is going to disappear in a pile of ash and so the Second Circuit punts. The Second Circuit says we've looked at this and we're not going to rule on it, by the way, for somebody to come around

01:06:01.570 - 01:06:18.729

with a future claimant, and then we'll rule. Fiat did post sale agree to pick up all claims that had not yet arisen for, for automobiles that were sold pre and why did they do that, Dave? I think they did it because they felt it was

01:06:18.729 - 01:06:38.800

good for business. Let me translate that the state's attorneys general showed up and said we're going to force you to sticker every used car. So that people who buy it know that they have no claim if they get into an accident and faced with that

01:06:38.800 - 01:06:53.959

damage to all the brands that they had acquired, end quote, Chrysler decided to do the right thing and in due deference to Mr. Karotkin, the major change in the GM order was this change. Right, that's the basic change you made in order to get the committee

01:06:53.959 - 01:07:09.760

on board. OK, we have wound past our appointed time. The panel had agreed that we would entertain questions if there are questions from the audience. I have a, a little handheld mic that I can give if you are willing to spend a bit more

01:07:09.760 - 01:07:39.800

time with us. There you go. On the last point, why is it? Why would the unsecured Payments have a claim that they made while the people with pending losses at this full discharge. Once I think that's. No, no, the question is, the future claimants, can

01:07:39.800 - 01:07:55.399

they, to the extent permitted under non-bankruptcy law, can they sue the new entity? No, I, but I think what he's saying, which I agree with and I always have is why should somebody who hasn't had the benefit or the detriment of, having a manifested

01:07:55.399 - 01:08:19.879

injury today have a claim against NewCo when, everybody else got zero on their injuries. I can come in on that I think I'll I'll volunteer as a fifth panel member. Bankruptcy commonly deals with all of the claims against the debtor, no matter whether they're

01:08:20.120 - 01:08:35.160

disputed, undisputed, fixed, contingent, and so on. So if you can identify a claim, it can be dealt with. The question in this instance is when you cannot identify the person that holds the claim and when the event that gives rise to the injury hasn't yet happened.

01:08:35.629 - 01:09:10.830

Can you bind that person with what you're doing in the bankruptcy today? And that's the way they get differentiated. OK. OK. I, I'm, I'm fully aware of that, Ricky. do about The church has to make a finding. not like. Right. No such finding. Oh. Well, first

01:09:10.830 - 01:09:29.709

David answer this one first, we know that the judges just signed those orders without any knowledge of whether they'll be back in bankruptcy again, but, because most of them, if you listen to Lynn LoPucki, most of them end up back in bankruptcy, right?

01:09:31.810 - 01:09:49.490

But if you're asking whether new Chrysler is going to end up in bankruptcy, I will, say first of all, I I don't, I'm not totally familiar with how they're doing, other than that, I think they have a huge mountain to

01:09:49.490 - 01:10:13.120

climb. Their business plan really is to introduce the new Fiat cars in 2012, I believe, or the fall of 2011. Meanwhile, they're burning cash, which is, you know, all of yours and my money because that's how they were able to stay

01:10:13.120 - 01:10:34.390

in business. They're now down to, I think, less than 8% of market share. And even though the, the auto business has come back a little bit, it's got a long way to go. So they seem confident in public, but

01:10:34.390 - 01:10:51.990

I think they're working really hard to figure out a way to make it work. So it's an unknown. I would not say, yeah, this is absolutely going to succeed. On the other hand, to just follow up with an editorial. Even if

01:10:51.990 - 01:11:12.169

it doesn't. I think the government did the right thing. And I always assumed that there was going to be a serious question of whether Chrysler restructured would be successful, just like the congressman who faced Nardelli said. There was no question, you cannot say that

01:11:12.169 - 01:11:34.609

they're going to be successful, but the results of a meltdown after Lehman filed, after there's no credit, after we're in the worst recession of our generation. You know, the risk of a depression as a result to me was, was clear and

01:11:34.609 - 01:11:51.040

present. So I think it was the right thing. Some of the figures are staggering because what some people have written that if one of the big three failed, the US economy would lose 2.5 million jobs. One in 10 people. I've been told 1 in

01:11:51.040 - 01:12:02.919

10 people in the United States is somewhat involved with the automobile industry. I don't know where it's 1 in 10, but the figure that the Center for Automotive Research came up with is if all 3 failed, it would be 3 million jobs, and that's probably

01:12:02.919 - 01:12:21.049

low because at no point in the CAR report is the word dealer even mentioned, and there were 6000 GM dealers at 50 people a pop and what, 4000 Chrysler dealers at 50 people a pop. You're talking about there are more dealer employees than there were OEM

01:12:21.049 - 01:12:56.350

employees. I mean, and to go back in 2007, 15.5 million automobiles were sold in North America. In 2009, there were 9.8 million. I mean, it's huge. I mean, that's got to come back. Yeah What was the question? Does Tom Laurier have a petition for cert pending

01:12:56.350 - 01:13:14.569

with the Supreme Court? He does. Yes, yes, he does. I think. 30 days on that. I suspect I don't, you know, the court will do whatever the court does. I don't believe it's argued that there's a split in the circuits. I don't think the Solicitor General

01:13:14.569 - 01:13:32.450

is asking them to take cert, and this is a petition filed by funds that held 40, about 40 million out of 7 billion with an with no argument that if ruled in their favor would increase their recoveries. By the way, one of the more interesting questions,

01:13:32.609 - 01:13:48.049

and I don't, I don't remember if they put this in their petition for cert, but it could be a question that would interest the Supreme Court is how do you issue TARP funds to an automobile manufacturer, and I mentioned earlier, I

01:13:48.049 - 01:14:07.479

mentioned earlier that the government, the government didn't like that point, shutting the lights off. I mentioned earlier that Paulson in October, November, I can't remember of '08 said no TARP funds, they're only for financial institutions. That's what it says. And then, and then the uh

01:14:07.479 - 01:14:21.870

govern, you know, then. Luria comes in and argues that and the government says, no, no, no, there's, there's precedent for this, and I don't remember the time. Do you remember what statute it was? The problem, it, it does say that TARP money is only

01:14:21.870 - 01:14:36.589

for financial institutions. It does say that. But then financial institutions defined in TARP to mean any company that's doing business in the United States. So there was then an argument over well I mean is does the label supposed to have any meaning? I think a lot

01:14:36.589 - 01:14:58.640

of people in that case, including myself thought that the Indiana pension funds actually on the merits were probably right and having said that their problem was standing problem was are they aggrieved. By the government pouring TARP money into the autos. And this comes back

01:14:58.640 - 01:15:15.600

to the Second Circuit's question, Mr. Lauria, if TARP doesn't authorize this money at 29 cents on the dollar, but you were getting 40 cents on the dollar, then TARP would be OK. He didn't have an answer to that. That's the problem. He didn't have standing. There's

01:15:15.600 - 01:15:31.310

another provision in TARP which goes to the standing issue was that the decision of the Secretary of the Treasury as to how to use TARP funds was not reviewable by any court. So Judge Gonzalez said, I have no power to even address the issue because

01:15:31.310 - 01:15:47.490

Congress has reserved that right for the Treasury Secretary. But the principal, ruling was that the matters before the court on a sale, and as Tom, you know, it didn't matter who was putting the money in the in, it was the same issue was, was it

01:15:47.490 - 01:16:20.729

a reasonable, was a reasonable justification for the sale. OK. One more time. It most surprised Council. A $50 billion dipplum. You know, I don't know if this is a surprise, but it makes me, you know, what do I take out of this case?

01:16:20.850 - 01:16:37.759

First of all, what a great country we live in, right? You can do anything. I mean, this is These cases were unimaginable, no matter, Lehman's unimaginable, and Steve's firm is carrying that, but I'm a little bit involved. It's just, it's mind

01:16:37.759 - 01:16:59.359

boggling what happens, and to me, the one of the great takeaways is what a strong position the bankruptcy laws have in our commerce and how important they are. And I would say, and how useful they are to get things done.

01:16:59.450 - 01:17:22.209

And, I would say the other thing that I take away is that where there's strong people. You can do almost anything. So here, we had, Nardelli, very strong CEO. We had Gonzalez, a very strong judge, and we had. Obama, etc. so I think it's,

01:17:22.250 - 01:17:35.529

you know, again it's one of those things where either the business carries the law or the people carry the law or what have you, but, those are things that I take from this. I would just say I think what we all thought that this

01:17:35.529 - 01:17:51.169

would happen quickly, I just think this. Speed with which the sales were accomplished was truly remarkable to sell businesses of this magnitude in that short period of time and from the dealer's perspective to find out that you're gonna be terminated and and be out of business

01:17:51.169 - 01:18:07.870

in 3 weeks and that's what it was that was stunning to a lot of people. I, I think there was an element of brute force here and to come back to the opening theme, Steve Karotkin is right. If you had a $50 billion dip loan, that

01:18:07.870 - 01:18:21.629

$50 billion dip lender is gonna tell everybody what to do. But the fact of the matter is you don't have $50 billion dip loans. Usually dip lenders lend in situations where they expect to get their money back, not situations where, as in Chrysler, they tear up

01:18:21.629 - 01:18:36.020

$4 billion of dip loan. And in that situation to have the government as a $4 billion dip blender who can say to you at any time you have only what I tell you you have, you have only the rights I allow you to have. That's very

01:18:36.020 - 01:18:48.759

disturbing. And there was an element of brute force here. I had an argument, a discussion with the lawyer for the government about a completely unrelated topic about it. Well, why can't the government just do what a private party can do? And he stopped and

01:18:48.759 - 01:18:58.919

he looked at me and he said, but Tom, we have tanks. And on that note, I think will be concluded.