Indiana Funds May Not Be Done with Chrysler

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Mourdock says that if the sale wasn't rushed, another buyer could have emerged and paid more. Or at the least the secured creditors could have gotten more and the government and UAW would have been paid less. But that, too, would have been tough to come by. Treasury officials said that there were no other buyers. In court documents, Chrysler said the company talked with several other carmakers, including General Motors (GM) and Renault-Nissan, about a sale or partnership but could not find a deal. Fiat was the only carmaker willing to join up with Chrysler.

No Smoking Gun

In this case, the vast majority of secured creditors agreed to accept 29¢ on the dollar. When that happens, bankruptcy court can make all of the creditors take that deal, which is commonly referred to as a "cram down."

Lauria and Mourdock both complained that the big banks that accepted the deal—namely JPMorgan Chase (JPM), Citigroup (C), and Goldman Sachs (GS)—had also received money from the Treasury Dept.'s Troubled Asset Relief Program (TARP), just like Chrysler did. So they were willing to help out Treasury with Chrysler. "Why did the TARP banks go from 100% to 29%?" asks Mourdock. "The U.S. government told those banks that they would be taken care of in other ways."

Treasury denies the claim. Mourdock admits he has no smoking gun that proves such collusion. And so far, judges in federal bankruptcy court, appeals court, and Justice Ginsberg all have denied Indiana's efforts to stop the sale.

Lack of Congressional Consultation

Lauria says Justice Ginsberg denied the review without ruling on the merits of the case. So he wants to get a review. He plans to push the issue on three points. His first point is that the UAW and federal government are two of the purchasers of Chrysler, but they have conflicts of interest because they were also creditors before the bankruptcy started. So the sale could be overturned on those grounds. His second complaint is that if the court believes they are still legitimate buyers, then he wants the court to revisit how much every creditor got paid.

And last, Lauria still wants the Supreme Court to rule on whether the Treasury Dept. could loan to carmakers using TARP without consent from Congress. TARP was originally set up for banks. If not, then the government couldn't own a piece of Chrysler and the whole deal would have to be reconstructed.

Given the repeated rejections in court, experts say it is unlikely that the Indiana pension funds would get any more than the $12.3 million on the $42 million in debt that they hold. Chrysler is supposed to pay $2 billion, which will be distributed among the secured creditors in exchange for their debt. Even if the Supreme Court agrees with Lauria, the court order cannot take any assets away from the new company now that the sale is completed, says Lynn Lopucki, professor of law at the University of California at Los Angeles. "If they win, it does not affect the sale," Lopucki says. "The court can take the case and rule on it. But the sale has gone through. They can't get any more value."

Wants a Supreme Hearing

Having lost every round so far, Mourdock has to decide whether he has a shot at winning and if his constituents want him to keep fighting. Lauria says that if the Supreme Court will just listen, he will win, based on a fair interpretation of the law. "I would not expect any funds affected by this ripoff to pay additional sums to make a point of law that would not yield potential benefit to those funds," he wrote in an e-mail. "I'm still obligated to do the best I can for the people I represent."

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Welch is BusinessWeek's Detroit bureau chief.