The Bankruptcy Weekly July 15, 2009 Brought to you by the National - - PDF document

The Bankruptcy Weekly

July 15, 2009

Brought to you by the National Association of Dealer Counsel We are grateful to Venable for providing the topical mateiral for our weekly manufacturers' bankruptcy update. Follow the link at the end of the "Industry Wire Chatter" column, and you will find all of the articles summarized. Sincerely, Rob Cohen President National Association of Dealer Counsel

In This Issue

• Chrysler and GM Post Sale...Bankruptcy Proceedings
• Retroactive Help from Congress
• The Week At A Glance
• Industry Wire Chatter.

Chrysler and GM Post Sale Bankruptcy Proceedings - What's Left?

by Larry Katz, Esq.

On June 11, 2009 the New York Times reported: "With the touch of pen to paper and a simple wire transfer, Chrysler completed its alliance with Fiat on Wednesday morning, largely ending its quick trip through bankruptcy." A similar report appeared in the Washington Post on July 10, 2009 with respect to GM: "CEO vows better performance as GM exits bankruptcy." In the minds of the general public, the Chrysler and GM bankruptcy cases are over, and in record time. The sale orders have been entered by the Bankruptcy Court and the asset sales have proceeded to closing. To most people, the only aspect of the bankruptcy proceedings that mattered -the transfer of assets from the "old" owner to the "new"

• wner - is indeed over. However, to the tens of thousands of

creditors who are owed money, to the dealers who were left behind, and to the plaintiffs with pending products liability claims, the cleanup process is just beginning and it is likely to drag on for many months, if not years. The bankruptcy proceedings of Old Carco, LLC (the company formerly known as Chrysler LLC) and Motors Liquidation Company (the company formerly known as General Motors Corporation) have

This edition of The Bankruptcy Weekly was co-edited by: Lawrence A. Katz

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.

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a long way to go before the end is in sight. Most significantly, neither case has gotten to the point where a chapter 11 plan of reorganization or liquidation has been filed. In the various

• ppositions to the GM plan, it was vigorously asserted that the

asset sale to New GM was itself a "sub rosa plan," meaning a reorganization disguised as an asset sale without any of the creditor protections that are built into the plan confirmation process. The Bankruptcy Court disagreed, finding that the sale was nothing more than a transfer of assets and liabilities, with a determination of the rights of creditors reserved for later proceedings. Those proceedings are now on the horizon. But before any plan can be implemented, the claims of creditors must be determined. For every proof of claim filed by a prepetition creditor, there lies a potential objection, which then gives rise to a contested matter that is, in many respects, like a mini-lawsuit that must be litigated to determine the amount of the creditor's allowed claim and how it is to be classified under a plan. Cure amounts must likewise be determined. Dealers, together with other providers of goods and services, whose contracts were assumed by New Chrysler and New GM must either reach an agreement as to the amounts that were owed under their contracts at the time of assumption or litigate their claims. For those dealers and other providers of goods and services whose contracts were rejected, rejection claims must be resolved. These claims, which arose when the debtors sought to reject the contracts through either immediate or deferred terminations, are grounded in state contract law and are likely to engender complicated and protracted litigation. Finally, there is the confirmation of the plan itself, the roadmap by which the remaining assets of the debtors will be divided up and distributed among the legions of creditors. While drafting of the plan is probably already in the works, it may be months before the plan is filed, along with a disclosure statement describing its contents, and many more months before some later version of the plan is ultimately confirmed by the Bankruptcy Court. It would not come as any great surprise if, at the end of the day, the cost of all this legal wrangling leads to a plan that pays essentially nothing to unsecured creditors.

Retroactive Help from Congress

by Aaron Jacoby, Esq.

The U.S. House of Representatives is trying to reverse the rejection

• f nearly 3,200 dealerships by General Motors Co. and Chrysler

Group LLC, setting up a clash with President Barack Obama's administration, Dow Jones Daily Bankruptcy Review reported

• yesterday. The U.S. House Appropriations Committee approved

legislation seeking to restore dealer franchise agreements that were rejected by GM and Chrysler. A full House vote could come as early as this week. The legislation could force the automakers to increase severance payments to rejected dealers, significantly raising the costs of their restructurings. The initiative has widespread support among House lawmakers, including Majority Leader Steny Hoyer (D-Md.) (A similar bill has been introduced in the Senate.) Steven LaTourette, R-Ohio, who sponsored the amendment, told reporters, "I think the closing of these dealerships was punitive and secretive, and it's the most un-American thing for the government to help force you out of business and deprive you of the American dream." As one would expect, the legislation is opposed by GM and Chrysler, who contend that the proposal would upset the complicated deals they made to move quickly through bankruptcy. They argue that the dealer cuts are a key element of survival, saving the companies billions every year. As quoted in multiple news sources, GM spokesman Greg Martin said, "This legislation, if passed, would put our long-term viability at risk." lakatz@Venable.com Washington, DC Office t 703.760.1921 f 703.821.8949

This edition of The Bankruptcy Weekly was co-edited 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: 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

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As Larry Katz wrote in a prior issue, "Section 363 of the Bankruptcy Code reigns supreme." The Court already ruled and approved the sales of GM and Chrysler free and clear of obligations that existed pursuant to the rejected dealer agreements. Assuming that the House passes the bill, that the Senate passes something similar, that the bills are harmonized prior to the summer recess and that the President elects to sign rather than veto the Bill-which is diametrically opposed to the plan envisioned by the President's Auto Task Force-will such a Bill succeed in reversing what has already occurred in the bankruptcy court? The key question is whether a new law can retroactively redress harm caused to dealers as the result of an otherwise lawful ruling- namely, the Court's Order permitting the sale of assets free and clear of prior obligations pursuant to Section 363 of the Bankruptcy

• Code. Perhaps money could be offered to offset damages suffered

by rejected dealers in the form of a "Dealer Bailout", but to retroactively change the result in the bankruptcy court and restore franchises ex post facto is unlikely. "Ex post facto" is most typically used to refer to a law that applies retroactively, thereby criminalizing conduct that was legal when originally performed. Article I, section 10, clause 1 of the United States Constitution provides that no state shall pass any ex post facto law; Article I, section 9, clause 3 imposes the same prohibition upon the federal government. The prohibition on ex post facto laws applies in the criminal context, but retroactive laws in the civil area may under certain circumstances violate the Contract or Due Process Clauses of the Constitution. While there is no blanket prohibition against civil ex post facto laws, the Supreme Court has recognized that retroactive laws do present real problems of fairness. General Motors Corp. v. Romein, 503 U.S. 181 (1992) involved the constitutionality of a law passed by the Michigan legislature that required automobile companies to pay certain worker benefits retroactively. That law was passed to undo a Michigan Supreme Court decision (interpreting a previous Michigan worker's compensation statute) that said benefits were not to be paid retroactively. General Motors and Ford sued on the grounds that requiring new benefits to be paid retroactively violated the contracts clause. The Court held that the parties never explicitly bargained for the required benefits. Hence, the Court held that there was no violation of the contracts clause and that the ex post facto law that required new benefits to be paid retroactively was constitutional. Justice Sandra Day O'Connor identified the unfairness of retroactive legislation (General Motors: 320): "Retroactive legislation presents problems of unfairness that are more serious than those posed by prospective legislation, because it can deprive citizens of legitimate expectations and upset settled transactions. For this reason, "the retroactive aspects of economic legislation must meet the test of due process''--a legitimate legislative purpose furthered by rational means." Would the proposed legislation pass Justice O'Connor's "due process" test in the face of a bankruptcy court's ruling? Not likely. The issues involved merit a full scale law review article debating application of the contracts clause, due process, conflicts of laws, balance of power, etc. The short version is that dealers' franchise contract rights were rejected under well settled principles of bankruptcy law that have deprived many a creditor from many different industries suffering the same fate that our dealer clients suffer here. Therefore, in the unlikely event that the proposed legislation sees the ink of the President's pen before the summer recess, it does not seem likely that Congress can succeed in rewriting the closing chapter in these bankruptcy proceedings. This is a steep, uphill battle. Nevertheless, the Congressional process continues and seems to have growing support. In fact, Automotive News is reporting that GM is looking to cut a deal to stop the legislative momentum. "We're interested in a non-legislative solution," GM spokesman Greg Martin said in an e-mail today. "We want to move forward, and we're trying to address congressional concerns." On the other hand, the President's Auto Industry Task Force concluded in its March issues and mitigating risks involved for dealers, suppliers and

• ther 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 associates Kristen Burgers and Melanie Joo. Disclaimer. This newsletter is published by the National Association of 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.

Industry Wire Chatter

Compiled by Melanie Joo, Esq.

July 9, 2009

• 1. "GM, Chrysler Lobby House to Ax

Dealers" - GM and Chrysler claim that potential reversal of dealership cuts and negotiated participation with remaining dealers jeopardizes survival after bankruptcy. [Detroit Free Press, July 9, 2009]

• 2. "Whirlwind Auto Deals Raise

Conflict Questions" - The debate over the government's conflicted roles as creditor, investor, regulator and

• referee. [Reuters, July 9, 2009]

July 10, 2009

• 1. "GM, Chrysler Bankruptcies Make

Targets of Dealers, Suppliers" - Products liability plaintiffs skip over insolvent auto manufacturers in favor

• f auto suppliers and dealers as
• defendants. [Bloomberg, July 10,

2009]

• 2. "SBA Expecting 'Ramp-up Period'

for Automobile Dealer Loans" - SBA's pilot stimulus program guarantees 75 percent of floor plan credit lines ranging from $500,000 to $2 million and will run through September 30,

• 2010. [Austin Business Journal, July

10, 2009] July 11, 2009

• 1. "It's the End of the Road for Many

GM and Chrysler Lawsuits" - The "new" GM and Chrysler will shed products liability for most claims

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30th report that, "These underperforming dealers create a drag on the overall brand equity of GM and hurt the prospects of the many stronger dealers." We'll soon see where this road leads.

The Week At A Glance

Summaries Compiled by Kristen Burgers, Esq.

Chrysler *Motion to Lift the Automatic Stay - Of special interest this week is the motion for relief from stay by Wilmington Trust Company ("WTC") on July 8, 2009 [Docket No. 4548]. The factual basis for WTC's motion for relief from stay is similar to that filed by Manufacturers and Traders Trust Company ("M&T"), in the GM bankruptcy case [GM Docket No. 2083]. WTC provided flooring financing for new Chrysler, Jeep, and Dodge vehicles to a dealership in Delaware. Prepetition, the dealership and Chrysler entered into an agreement which contemplated the termination of the dealership. Chrysler agreed to repurchase the 2009 model year vehicles owned by the dealership, all of which were subject to WTC's purchase money security interest. The vehicles are currently stored at an auto auction. WTC is requesting relief from the stay to take all actions necessary to exercise its rights as a secured creditor in the vehicles, including (i) foreclosing on its security interest in the vehicles, (ii) causing the vehicles to be sold by the auto auction, and (iii) applying the proceeds of the sale of the vehicles to the dealership's debt to WTC. Objections are due by July 21, 2009, and a hearing on the motion has been scheduled for July 30, 2009, at 10:00 a.m. Assumption of Executory Contracts and Unexpired Leases of Real Property - The Chrysler Debtors continue to file notices of certain executory contracts and unexpired leases of real property they plan to assume and the proposed cure amounts for each such

• contract. The notices filed this week include: Notice of Filing of

Schedule of Certain Designated Global Electric Motorcar Agreements and Cure Costs Related Thereto [Docket No. 4564, filed July 9, 2009]; Notice of Filing of Schedule of Certain Designated Agreements Involving International Counterparties and Cure Costs Related Thereto [Docket No. 4593, filed July 10, 2009]; Notice of (I) Assumption by Debtors and Assignment to Purchaser

• f Certain Executory Contracts and Unexpired Leases and (II) Cure

Costs Related Thereto [Docket No. 4596, filed July 10, 2009]; Notice of Filing of Certain Designated General Agreements and Cure Costs Related Thereto [Docket No. 4609, filed July 13, 2009]; Notice of (I) Assumption by Debtors and Assignment to Purchaser

• f Certain Executory Contracts and Unexpired Leases and (II) Cure

Costs Related Thereto [Docket No. 4630, filed July 13, 2009]; and Notice of Filing of Schedule of Certain Designated General Agreements and Cure Costs Related Thereto [Docket No. 4643, filed on July 14, 2009]. Hearing on July 16, 2009 - An omnibus hearing is scheduled for July 16, 2009. Among the contested matters to be heard are the following: · Motion of Debtors and Debtors in Possession, Pursuant to Sections 105 and 362 of the Bankruptcy Code, for an Order Approving Procedures to Implement Lemon Law Provisions of 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, together with the Notice of Hearing Thereto [Docket No. 4414]; · Motion to Authorize /Motion of Debtors and Debtors in Possession for Entry of an Order (A) Authorizing the Debtors to Implement Post Closing Modifications to Chrysler LLCs Governance Structure, (B) Approving the leaving personal injury plaintiffs with little chance of collecting from the auto

• companies. [Los Angeles Times, July

11, 2009]

• 2. "General Motors to Try Selling New

Cars on eBay" - GM in talks with eBay to expand existing online marketplace sales of certified used vehicles to include new vehicles distributed by

• dealers. [The Associated Press, July

11, 2009] July 12, 2009

• 1. "New GM in Line for Billions in Tax

Breaks" - Unusual size and scope of anticipated tax breaks are expected to significantly improve value of the new "GM" for investors. [Detroit Free Press, July 12, 2009] July 13, 2009

• 1. "Ford, GM Object to Visteon's $80

Million Bonus Plan" - Ford and GM, who have agreed to provide bankruptcy financing to supplier Visteon, oppose its proposed employee bonus plan allowing for $30.1 million for top 100 managers and individual bonuses ranging 90 percent to 375 percent of base

• salaries. [Reuters, July 13, 2009]
• 2. "RHJ Says in Advanced Talks with

GM on Opel Stake" - RHJ and Beijing Automotive Industry Holding Co. Ltd. remain contenders for the purchase of Opel; Magna deal is reportedly not likely to close this week. [Wall Street Journal, July 13, 2009]

• 3. "Dealers Await Cash for Clunkers

Fine Print" - Most dealers are waiting to see finalized program rules, but some dealers have already sold cars under the program in expectation of federal reimbursement while Hyundai Motor Company is advancing funds to its dealers to immediately sell cars to consumers wanting to take advantage

• f the program. [The Miami Herald,

July 13, 2009"] July 14, 2009

• 1. "Rattner Departs as Head of U.S.

Panel Overseeing GM, Chrysler" - Federal and state probes of Quandrangle pension fund kickbacks in New York steps up as co-founder, Steven Rattner, leaves U.S. panel set up to oversee auto industry bailout. [Bloomberg, July 14, 2009]

• 2. "Obama Says Lost Auto Jobs are

Gone" - Auto jobs are casualties of a changing economy and it is time to prepare for new industries. [Automotive News, July 14, 2009]

• 3. "US Rep Hoyer: Supports Car

Makers Renegotiating Dealer

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Release of Officers and Directors and (C) Authorizing the Debtors to Obtain Replacement Directors and Officers Liability Insurance, together with the Notice of Hearing Thereto [Docket No. 1116]; · Tenth Omnibus Motion of Debtors and Debtors in Possession, Pursuant to Section 365 of the Bankruptcy Code and Bankruptcy Rule 6006, for an Order Authorizing Rejection of Certain Executory Contracts [Docket No. 4134]; · Twelfth Omnibus Motion of Debtors and Debtors in Possession, Pursuant to Section 365 of the Bankruptcy Code and Bankruptcy Rule 6006, for an Order Authorizing Rejection of Certain Executory Contracts [Docket No. 4136]; and · Various motions for relief from the automatic stay [Docket

• Nos. 3326, 3334, and 4195].

General Motors Sale of Assets Pursuant to Master Sale and Purchase Agreement - On July 10, 2009, the IUE-CWA filed a Notice of Appeal of the July 5, 2009, order approving the GM Debtors' Motion Pursuant to 11 U.S.C. §§ 105, 363(b), (f), (k), and (m), and 365 and

• Fed. R. Bankr. P. 2002, 6004, and 6006, to (I) Approve (A) the Sale

Pursuant to the Master Sale and Purchase Agreement with Vehicle Acquisition Holdings LLC, a U.S. Treasury-Sponsored Purchaser, Free and Clear of Liens, Claims, Encumbrances, and Other Interests; (B) the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; and (C) Other Relief; and (II) Schedule Sale Approval Hearing [Docket No. 2968]. Two informal groups - individual accident litigants and asbestos claimants - have also filed notices of appeal [Docket Nos. 2970 and 2988, respectively]. The appeals will be heard by the U.S. District Court for the Southern District of New York. Rejection of Unexpired Leases and Executory Contracts - The GM Debtors continue to file motions to reject executory contracts and unexpired leases, including the Debtors' Third Omnibus Motion Pursuant to 11 U.S.C. § 365 to Reject Certain Executory Contracts [Docket No. 3044, filed July 7, 2009] Debtors' Fourth Omnibus Motion Pursuant to 11 U.S.C. § 365 to Reject Certain Executory Contracts [Docket No. 3107, filed July 10, 2009]. The deadline to respond to the motions is July 17 and July 28, respectively. Rejection of Unexpired Leases and Executory Contracts with Certain Domestic Dealers - Thus far, only one dealership, Terry Gage Chevrolet-Oldsmobile, Inc., has filed a response [Docket No. 3094] to the GM Debtors' Motion Pursuant to 11 U.S.C. §365 Authorizing (A) the Rejection of Executory Contracts and Unexpired Leases with Certain Domestic Dealers and (B) Granting Certain Related Relief [Docket No. 2995]. In the motion, the GM Debtors request (1) authorization to reject Dealer Franchise Agreements and ancillary related agreements with dealers who did not accept Wind-Down or Participation Agreements, effective as of July 10, 2009 and (2) a determination that the Bankruptcy Code pre-empts state dealer laws. Objections to the Motion are due by 4:00 p.m. on July 28, 2009. Contracts" - Legislation requiring auto makers to return to the negotiating table to negotiate fairer settlement with dealers is slated to go to House floor for debate and vote this week. [CNNMoney.com, July 14, 2009]

• 4. "Judge Approves Plan for GM to

Buy Delphi Out of Bankruptcy" - GM bankruptcy court approves plan for GM to buy its former parts unit out of bankruptcy, but plan still needs approval of Delphi bankruptcy court. [The Wall Street Journal, July 14, 2009] For additional information go to the manufacturer bankruptcy page on the NADC website.

About NADC

The National Association of Dealer Counsel (NADC) is a professional

• rganization 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. NADC members find common ground at meetings and in on-line

• communication. With the proliferation
• f legislation and uncertain futures of

manufacturers, questions and challenges multiply. Members can rely

• n 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 National Association of Dealer Counsel | 7250 Parkway Drive, Suite 510 | Hanover | MD | 21076-1343

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