Tuesday, May 19, 2009

Chrysler’s Rejected Dealers Seek to Delay Auction

A group of Chrysler LLC dealers wants to delay the sale of most of the automaker’s assets, saying those dealerships with contracts targeted for cancellation need more time to fight the rejections.

Attorneys from Squire Sanders Dempsey LLP in New York said they represent about 300 dealers from 45 states who were told by Chrysler they would no longer be selling the company’s cars. In a filing today in U.S. Bankruptcy Court in New York, the group said Chrysler was rushing the sale and that a delay is necessary so it can seek discovery from Chrysler to fight the contract rejections.

“The relief Chrysler seeks is unprecedented and improper,” Stephen Lerner, an attorney representing the dealer group, said in a statement. “The emotional and financial catastrophe that would be wrought by the relief requested in these motions need not happen and should not happen, and certainly not with only three business days notice.”

Lerner argued in the objection that Chrysler is manufacturing urgency and doesn’t suffer if dealers that don’t cost the company any money remain open. Also, Chrysler’s contract rejections violate state laws which may produce tort liabilities that could take precedence over other claims, he argued.

Chrysler spokesman Fred Spar didn’t immediately respond to a phone message.

Time Constraints

In a separate filing, another group of about 15 dealers represented by lawyers from Siller Wilk LLP and Bellavia Gentile & Associates asked that the deadline to object to the sale be extended until May 26 from today and that the hearing to approve the sale be pushed to June 3 from May 27.

“The time constraints thrust upon the affected dealers vitiates their ability to conduct discovery and protect their interests,” the motion to extend the deadlines said.

The dealer groups’ request follows one on May 16 from the Chrysler National Dealer Council, which asked Judge Arthur Gonzalez to let dealers claim legal protections under state law.

Chrysler, based in Auburn Hills, Michigan, asked Gonzalez on May 14 for permission to cancel 789 of its approximately 3,188 dealership agreements using the authority of a federal bankruptcy court to bypass protections that dealers have under state laws.

High Return

On May 5, Gonzalez approved Chrysler’s plan to auction most of its assets, with a $2 billion offer from a consortium of Italy’s Fiat SpA, a United Auto Workers union benefit trust and the U.S. and Canadian governments as the lead bid. The decision came over the objection of some Chrysler’s secured lenders who said it gave unsecured creditors too high a return.

Competing bids are due May 20 and a hearing is scheduled for May 27 in Manhattan to approve the winning bid. Fiat will get a $35 million breakup fee if its offer is topped at auction.

Chrysler, which idled its 22 U.S. plants on May 1, has said it needs to close the sale quickly to preserve the business’s value. The 25 percent of dealers Chrysler wants to drop account for 14 percent of sales, according to a court filing.

The automaker listed assets of $39.3 billion and liabilities of $55.2 billion in its April 30 bankruptcy filings, making it the fifth-largest bankruptcy in U.S. history, according to data compiled by Bloomberg.

The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)