Little Too Late? business experience enable him to counsel clients - - PDF document

pursuant to the Master Sale and Purchase Agreement with Vehicle Acquisitions Holdings LLC on June 2nd. Among other things, the Order provides that GM will provide notice of the assumption and assignment of executory contracts and the proposed cure amounts in connection therewith. Rather than filing a publicly- available list of such contracts with the Court, as Chrysler did, GM instead elected to send notice directly and privately to each dealer. In addition to mailing these Notices, the order states that GM will establish a limited access website with current information, including setting forth the cure amounts, for affected

• contracts. The order contemplates that the Notices will

be sent via first class mail to affected parties on or before June 5. Based on objections that have been filed with the Court, however, it appears as though some Notices were sent as late as June 8. Because the list is not publicly available, dealer bankruptcy counsel do not know which parties received

• Notice. Therefore, counsel will need to consult with

their clients to determine if timely Notice was received. It appears that while some dealers received timely Notice, others did not, and some received no Notice at

• all. Access to the cure amount schedule has also been

an issue. Of those dealers receiving Notice, not all were able to obtain access and there are instances where the cure amount was not posted. Of course, the problem is that dealers may not agree with GM's indication of the cure amount and a dealer has only ten days from the date of the Notice to file an

• bjection with the Court if the cure amount is disputed.

Because that deadline might be as early as today, counsel may elect to file protective responses on behalf

• f their clients in order to preserve any objection to the

cure amount scheduled by GM. The objection would set forth the dealer's cure amount and objection in the event that it differs from what is ultimately posted on the website by GM.

Recent Legislation and Hearings/Too Little Too Late?

by Aaron Jacoby, Esq. Recent hearings and pending legislation regarding dealer terminations and reinstatement may have given dealers some hope. However, while Congress may be finally listening to its dealer constituents, passage of any dealer reinstatement provision into law is unlikely. H.R. 2743 contains a section regarding the restoration of dealers' rights that is exemplary of political efforts to support dealers. As readers may be aware, Section 3 of the Bill would provide for the restoration of dealers'

Larry Katz is a senior partner in Venable's Bankruptcy and Creditors' Rights Group, where he concentrates his practice on complex Chapter 11 proceedings, workouts, business restructurings, and commercial litigation. lakatz@Venable.com Washington, DC Office t 703.760.1921 f 703.821.8949

This edition of The Bankruptcy Weekly was co-authored by: Aaron H. Jacoby

Aaron Jacoby is Chair of Venable's Automotive Industry

• Group. He focuses his practice
• n class actions and consumer

litigation, unfair competition, federal and state regulatory matters and government investigations affecting the automotive industry. Mr. Jacoby's industry focus and broad-based litigation and business experience enable him to counsel clients

• n a wide variety of
• perational, regulatory and

litigation avoidance issues and to offer pragmatic solutions to the legal challenges they face. ajacoby@Venable.com Los Angeles Office t 310.229.9940 f 310.229.9901

This edition of the Bankruptcy Weekly is sponsored by:

Page 2 of 10 6/22/2009

economic rights as follows: "(a) In order to protect assets of the Federal Government and better assure the viability of automobile manufacturers in which the Federal Government has an ownership interest, or to which it is a lender, an automobile manufacturer in which the Federal Government has an

• wnership interest, or which receives loans from

the Federal Government, may not deprive an automobile dealer of its economic rights and shall honor those rights as they existed, for Chrysler LLC dealers, prior to the commencement of the bankruptcy case by Chrysler LLC on April 30, 2009, and for General Motors Corp. dealers, prior to the commencement of the bankruptcy case by General Motors Corp. on June 1, 2009, including the dealer's rights to recourse under state law. (b) In order to preserve economic rights pursuant to subsection (a), at the request of an automobile dealer, an automobile manufacturer covered under this Act shall restore the franchise agreement between that automobile dealer and Chrysler LLC or General Motors Corp. that was in effect prior to the commencement of their respective bankruptcy cases and take assignment

• f such agreements."

Many dealers and their counsel will agree with the sentiment behind Section 3 of the Bill and behind the hearings held in recent days. However, to expect such a provision to pass both houses and to be signed by President Obama is a stretch. The reinstatement of dealers en masse would fly directly in the face of the Auto Task Force's, and therefore GM and Chrysler's stated goals of dealer reduction. Nevertheless, political efforts and action are to be applauded and may begin to correct the public perception of the facts behind dealer reduction.

Thoughts for the Road Ahead

by Ken Murphy, Esq. We are well on our way on this journey to a new day in the auto industry. The government intervention has occurred. The manufacturer bankruptcy proceedings became reality. Dealer consolidation has gone from attrition as a consequence of market forces to rejection as a purported solution to the crisis. There is more drama in the auto industry and its bankruptcy proceedings than in the daytime

Dedication to the automotive industry during difficult times. With Chrysler and General Motors in bankruptcy, the need for competent bankruptcy and litigation counsel - with a focus on the auto industry - is

• increasing. Venable's

national team has worked in the automotive industry for many years and is providing insight in identifying issues and mitigating risks involved for dealers, suppliers and other creditors in the auto manufacturers' business reorganization and

• restructuring. Venable's

auto industry bankruptcy team is led by Larry Katz and Aaron Jacoby, with additional contributions to this week's newsletter by partners Michael Volpe and Ken Murphy, Senior Legislative Advisor Jake Seher and associates Kristen Burgers and Melanie Joo. Disclaimer. This newsletter is published by the National Association

• f Dealer Counsel with

content provided by the law firm of Venable LLP. It is intended to provide timely summaries of recent events that may impact dealers and should not be construed as providing legal advice or legal opinions. You should consult an attorney for any specific legal questions or to address dealer-specific fact situations.

Dealer Agreement Assumptions:

Page 3 of 10 6/22/2009

television courtrooms. NADC and Pacer e- mail is up; the mythical factory-dealer partnership is down. The rest of the trip will be full of uncertain twists, turns and hazards, with many questions for dealers and their counsel to consider. Are rejected dealers really dead? Is a participating dealer a survivor or just waiting to be attacked again when the factory moves ahead with its developing market strategy and structure? Is the Congressional response a Potemkin village presenting an illusion in order to say "we care"

• r is it a true means to provide for mitigation
• f misguided assumptions?

NADC communications have been focused in terms of rights and remedies. This is correct and appropriate for the journey to this point as courts and legislatures attempt to deal with very real economic and financial considerations and state adjudicatory and administrative agencies consider what they will be confronted with from the results of the franchise activity. But as each day passes, more attention will need to be focused on the costly pain inflicted by this process and the path to the future. How much money has been spent in preparing for and participating in the bankruptcy proceedings to date? How much more remains to be spent as the contests diverge and move into state proceedings post- bankruptcy? What will be the magnitude of the losses of dealer investments in fixed assets and facilities? What will the extent of the decreased land value be for abandoned or converted new vehicle dealership premises? What other residual effects will be suffered due to the redirection and redistribution of cash from employee wages, sales taxes, local vendors' products and services, community support? Where do we go from here? The media has publicized the substantial commitment of taxpayer funds to the auto industry, the bankruptcies and dealer

• rejections. However, there are other things

Two Bites at the Apple

by Larry Katz, Esq. In every contract assumption/ assignment situation in bankruptcy, there are two active players - the debtor-assignor, who assumed the contract and then assigns it to a third party, and the non-debtor assignee. A third player, the other original party to the contract with the debtor, is more of a passive player, with only a right to

• bject. What the passive player

caught up in these bankruptcy transactions sometimes does not realize is that both the assignor and the assignee often have a say in whether the contract assignment will be consummated. This led to a painful realization for many dealers in the Chrysler bankruptcy, following the Supreme Court's decision to lift its temporary stay and allow the sale approved by the bankruptcy court to go to

• closing. As is true in many

asset purchase agreements blessed in chapter 11 proceedings, both the debtor and the purchaser may retain the right to choose which executory contracts will be subject to assignment. After the debtor/seller designates which contracts it wishes to assume and assign, the purchaser is often given an

• pportunity to say no, that it

does not want to assume the

• bligations
• f

a particular contract, in which case the contract is not assigned to it at closing. Such was the case for certain Chrysler dealers whose agreements were listed by Old Chrysler as subject to assumption and assignment, but

• nly, the purchase agreement

said, if New Chrysler agreed.

Page 4 of 10 6/22/2009

going on in the industry behind the smoke of the legal and legislative battles. New vehicle production has dropped substantially and will recover much more slowly than it fell. Vehicle manufacturing competition will increase as nations riding the upswing of economic development want a place in the automotive

• market. "Build to order" did not explode upon

the marketplace as feared some years ago, but small fires have been lit (e.g., smart Car) and continue to burn and spread; e.g. Penske's building upon its experience as a distributor to expand its reach with Saturn, with which it can select the products and manufacturers of its choice and take advantage of geographic proximities, available capital, developing consumer demands and desirable labor resources. The role of the dealer attorney as litigator will remain critical in the rights and remedies world. But the current industry metamorphosis will place an even higher value

• n the attorney's role as counselor, helping

dealers navigate the road ahead. Dealers and their counselors should not become so consumed in the current struggles that they lose sight of the need to deal with the realities

• f tomorrow and to confront them with the

lessons so painfully being learned today.

The Week At A Glance

Summaries Compiled by Kristen Burgers, Esq. Chrysler Assumptions and Assignment of Unexpired Leases and Executory Contracts - Pursuant to the Order (I) Authorizing the Sale of Substantially All of the Debtors' Assets Free and Clear of All Liens, Claims, Interests, and Encumbrances, (II) Authorizing the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection Therewith and Related Procedures and (III) Granting Related Relief (the "Sale Order") [Docket No. 3232], the Chrysler Debtors filed notices "confirming" the assumption and assignment of certain executory contracts and leases and the proposed cure amounts in connection therewith [Docket Nos. 3809, 3811, 3874, 3920, 3956, 3957, 3960, and 3966]. The decision of New Chrysler to accept the assignment was conveyed in the form of a Confirmation Notice, and New Chrysler's right to this second bite of the apple was limited

• nly to the extent it had to be

exercised on or before June 12,

• 2009. Thus, a dealer who took

comfort in the fact that it was

• n Old Chrysler's "good list"

was actually still subject to rejection if it did not receive a Confirmation Notice by June 12. For those dealers who have found themselves in this disconcerting position, about all they can hope for is that New Chrysler changes its mind and issues a Confirmation Notice, something that it has the right to do for 30 days following the closing.

Main Dealer Issues

by Larry Katz, Esq. Although the Chrysler and GM bankruptcy cases have some differences, they have been proceeding in strikingly similar paths and the overarching issues for dealers have been essentially the same. If you begin with the recognition that dealer agreements are executory contracts, it becomes readily apparent that the most pressing issues facing dealers in either case will be (a) what happens if my agreement is rejected, (b) what happens if it is assumed and assigned, and (c) what happens before it is either rejected or assumed and Page 5 of 10 6/22/2009

These notices have generated another wave of

• bjections from non-debtor contract parties.

Appeal of the Sale Order - On June 11, 2009, a group

• f 32 dealers identified as the "Affected Dealers" filed a

Notice of Appeal of the Sale Order [Docket No. 3915]. Pursuant to bankruptcy Rule 8006, the Affected Dealers have 10 days from the date of filing the Notice of Appeal to file a designation of the record on appeal and a statement of issues on appeal. The appeal will be heard by the U.S. District Court for the Southern District of New York. General Motors Assumptions and Assignment of Unexpired Leases and Executory Contracts - The Order Pursuant to 11 U.S.C. §§ 105, 363, and 365 and Fed. R. Bankr. P. 2002, 6004, and 6006 (I) Approving Procedures for Sale

• f Debtors' Assets Pursuant to Master Sale and Purchase

Agreement with Vehicle Acquisition Holdings LLC, a U.S. Treasury-Sponsored Purchaser; (II) Scheduling Bid Deadline and Sale Hearing Date; (III) Establishing Assumption and Assignment Procedures; and (IV) Fixing Notice Procedures and Approving Form of Notice (the "Sale Order") [Docket No. 274] requires that the GM Debtors provide notice by first class mail on or before June 5, 2009, to non-debtor contract parties regarding assumption and assignment of unexpired leases and executory contracts and proposed cure amounts in connection therewith. The Order also states that the GM Debtors will provide non-debtor contract parties with password access to a website identifying proposed cure amounts. The deadline for objecting to the assumption and assignment and proposed cure amounts is 10 days after the date of mailing of the

• notice. This quick deadline prompted the filing of

hundreds of objections, some of which asserted that the

• bjecting party never received notice or that the website

did not list a cure amount for the contract. Debtor-in-Possession Financing

• Three

local governments have filed an objection to the GM Debtors' motion for final approval of the $33.3 billion debtor-in- possession and post-petition financing facility [Docket

• No. 971]. The city of Detroit, as well as the treasurers

for Wayne and Oakland Counties in Michigan, allege that the proposed financing grants the DIP lenders "super priority" liens which are superior to the statutory liens of the treasurers, contrary to state law. Michigan state law provides that amounts assessed for real and personal property taxes become a first lien, superior to all claims, encumbrances, and liens on December 1, the day an entity is billed for winter property tax. A hearing

• n the objection is scheduled for June 25, 2009.

assigned. If the dealer has been advised that its agreement is being terminated, it can try to stand its ground and fight the decision (a difficult position to maintain, and one that has not been successful to date in the Chrysler case, although appeals have been filed). In the case of GM, the decision to reject can be appealed directly to GM and some appeals have apparently been accepted. Alternatively, the dealer can attempt to deal with the consequences

• f
• rejection. Rejection leads

to rejection damages and the dealer must consider what its damages are, how they can be proven, and whether it is worth the effort for what will be designated as an unsecured prepetition claim against the bankruptcy estate. A dealer with a rejected agreement must also consider the pros and cons

• f

filing its

• wn

bankruptcy petition. A dealer with an assumed contract has issues of its

• wn to confront: whether

to accept the terms of GM's participation agreement, which leads to

• nerous modifications of

the dealer agreement (although the deadline to Page 6 of 10 6/22/2009

Retention of Professionals - The GM Debtors filed applications (the "Applications") to employ the following professionals in connection with the GM bankruptcy cases: Weil, Gotshal & Manges LLP as attorneys for the Debtors; AP Services, LLC as crisis managers and Albert A. Koch as Chief Restructuring Officer; Jenner & Block as attorneys for the Debtors; Honigman Miller Schwartz and Cohn LLP as special counsel for the Debtors; Garden City Group, Inc. as notice and claims agent; and Evercore Group L.L.C. as investment banker and financial advisor [Docket Nos. 949-954, respectively]. The Applications request that the Court authorize the employment

• f

these professionals nunc pro tunc to the Petition Date. The deadline for filing objections to the Applications is 4:00 p.m. on June 19, 2009. A hearing on the Applications is scheduled for June 25, 2009, at 9:45 a.m. Motion to Extend Time to File Reports of Financial Information - Pursuant to Bankruptcy Rule 2015.3, debtors-in-possession are required to file periodic financial reports for each entity (i) in which the debtor holds a substantial or controlling interest; (ii) which is not a publicly traded corporation; and (iii) which is not a debtor in a Chapter 11 bankruptcy. The GM Debtors have filed a motion seeking an extension of time through and including August 31, 2009, to file their initial financial reports [Docket No. 727]. The GM Debtors estimate that there are approximately 259 domestic entities and 271 foreign entities for which such financial reports must be filed. The deadline for filing

• bjections to the Motion is 4:00 p.m. on June 22, 2009.

A hearing on the Applications is scheduled for June 25, 2009, at 9:45 a.m. Appointment of Consumer Privacy Ombudsman - On June 10, 2009, the Office of the U.S. Trustee appointed Alan Chapell, CIPP, of Chapell & Associates LLC, to serve as Consumer Privacy Ombudsman pursuant to the Sale Order [Docket No. 565].

About NADC

The National Association of Dealer Counsel (NADC) is a professional organization of attorneys who represent automobile and other vehicle dealers. The NADC provides a forum for members to share information, common experience, advice, help and answers to questions on manufacturer franchise issues, lemon laws, vehicle financing, regulatory complexities, insurance laws, tax laws, buy/sell agreements, employment laws, and the many other legal issues facing dealers and their counsel today.

accept GM's participation agreement has now passed, so it may be too late for those who did not act fast enough), whether, how and when to object to the proposed cure amount ($0 in the case of Chrysler dealers, a variety

• f

amounts, known

• r

unknown, for GM dealers), what to do with facilities that can only be used for discontinued lines

• r

competing

• brands. Dealers that make

it through the various procedural disputes with Old Chrysler or Old GM will then confront the daunting challenge

• f

dealing with New Chrysler or New GM, and with a consumer body that still may not be willing or able to buy a new car in the foreseeable future, let alone a post-bankruptcy Chrysler or GM. These dealers, just like the dealers with rejected agreements, must seriously consider whether it makes sense reorganize through their own chapter 11 proceedings.

Industry Wire Chatter

Compiled by Melanie Joo, Esq.

June 15, 2009

• 1. "Cooper-Standard

Automotive to Utilize 30- Day Grace Period for Note Payments" - Leading global automotive supplier Page 7 of 10 6/22/2009

NADC members find common ground at meetings and in on-line communication. With the proliferation of legislation and uncertain futures of manufacturers, questions and challenges multiply. Members can rely on thoughtful answers, creative strategies and solid advice from colleagues who face the same issues. Please visit www.dealercounsel.com for more information and to apply for membership.

National Association of Dealer Counsel 7250 Parkway Drive, Suite 510 Hanover, Maryland 21076-1343 National Association of Dealer Counsel (410) 782-2331

uses grace period to discuss lender options to increase liquidity and improve capital structure. [PR Newswire, June 15, 2009]

• 2. "U.S. Auto Industry

Sales Seen Slowly Improving" - Market bottom visible but marked with slow improvement and balancing by international economies. [Reuters, June 15, 2009] June 16, 2009

• 3. "Administration Rejects

Auto Supplier Aid Request" - The Obama Administration denied the $10 million federal aid request to help suppliers weather GM and Chrysler

• bankruptcies. [The

Associated Press, June 16, 2009]

• 4. "GM Reaches Deal to

Sell Saab" - GM to Sell Saab to 45-employee manufacturer, Koenigsegg, known for its high-performance and high priced sports cars. [The Washington Post, June 16, 2009]

• 5. "Delphi Gets OK to

Access $250 million from GM" - Bankruptcy Judge approves $250 million in funding for GM key

• supplier. [Automotive

News, June 16, 2009]

• 6. "Magna Working

Page 8 of 10 6/22/2009

Through Issues on Opel Deal: Co-CEO" - Key issues in Opel deal include firewall between parts and car companies and German pensions of Opel workers; GM still open to discussions with other interested parties such as Beijing Automotive Industry Holding Corp. [Reuters, June 16, 2009]

• 7. "Neb. AG Accusing

GM of Circumventing State Law" - Nebraska Attorney General's letter to all other states' attorney general objects to unconscionable new dealership agreements that GM dealers are forced to

• sign. [Forbes, June 16,

2009]

• 8. National Association of

Attorney Generals appoints Missouri's Attorney General, Chris Koster, to head investigation into possible antitrust violations associated with the GM bankruptcy filing. [Sam Barbee, President and CEO of Missouri Automobile Dealers Association, NADC Forum, June 16, 2009]

• 9. "Dealers Say They

Were Led Astray in Chrysler's Final Days" - Dealers claim that Chrysler's push to unload extra cars in its last months is a classic Page 9 of 10 6/22/2009

example of 'channel stuffing.' [The Washington Post, June 16, 2009]

• 10. "Which GM Brand Do

Consumers Want Saved?"

• Killing off consumers'

choice - Pontiac. [Automotive News, June 16, 2009]

• 11. "GM's Henderson

Says Brace for More Executive Shake-Ups" - Reduction of executive manpower by 34 percent from year-end 2008 through 2009; reversal of 49/846 requests from dealers appealing GM termination; 99% of 4,100 surviving dealerships have signed GM participation

• agreements. [Automotive

News, June 16, 2009]

• 12. "GM's Socia to Head

Up Purchasing" - Robert Socia is new head of global purchasing after Bo Andersson leaves GM for Russian Automobile Company OAO GAZ

• Group. [The Wall Street

Journal, June 16, 2009] For additional information go to the manufacturer bankruptcy page on the NADC website. Page 10 of 10 6/22/2009