Indpls – (Oct 2). The campaign of U.S.
Senate candidate Richard Mourdock released the following statement in
response to a new television ad, paid for by Harry Reid’s Majority PAC,
AFSCME and other Donnelly allies:
“The Indiana way is to do your duty and to stand by your neighbor.
In this case, I was bound by my oath and by principle to stand up for
retired teachers and police officers, and for Hoosier taxpayers,” said
Mourdock.
“The Obama administration was prepared to take these folks’
life savings,” said Mourdock,
“and I wasn’t going to stand by and let
that happen, without a fight."
Eric Holcomb, Chairman of the Indiana Republican Party commented,
“This was about standing up for the rule of law and having the character
to do so. As Governor Daniels has said in interviews and in his book,
Richard Mourdock showed us what real leadership looks like. It is
typical form for Senator Harry Reid and Congressman Joe Donnelly to
mislead voters, as they are desperate to run from their own failed
bailouts.”
Cathy Caldwell, a retired teacher from
Noblesville, was thankful for Mourdock’s leadership and commented, "It's
very alarming to see bankruptcy law reversed so that secured
bondholders are no longer protected. It was very refreshing that our
Treasurer, Richard Mourdock, would stand up for us."
As
State Treasurer, Mourdock was responsible for management of the
Indiana State Police Pension Trust, established to hold and manage State
Police officers’ pension funds. And, when he decided to file a
successful suit against the federal government’s actions, his case was
joined by the pension funds for retired teachers and for “Major Moves”
as co-plaintiffs. The ruling of the Supreme Court in favor of
Mourdock’s position can be found at:
http://www.in.gov/tos/files/SupremeCourtDecision01152010.pdf
In order to protect Hoosier tax dollars, Mourdock negotiated a $2
million cap on legal fees, saving the State over $1 million in
expenses.
Mourdock’s actions were the subject of comments by Governor Mitch Daniels, who in an interview with the
Evansville Courier Press,
dated June 11, 2009, said
"I think it was one of the most principled
and gutsy things I've seen an elected official do in a long time." In
that interview, Daniels, whose administration had responsibility over
the other two pension funds involved in the case, went further by
saying,
“I don’t know how anyone could disagree with the principle of
what he was doing.”
See the entire story at
http://www.courierpress.com/news/2009/jun/11/chrysler-challenge-stirs-storm/
Mourdock argued that the federal government’s use of so-called “TARP”
funds was clearly illegal and that this action overturned 150 years of
bankruptcy law practices. And, while the Court ultimately sided with
Mourdock and vacated a lower court opinion, they were silent on critical
aspects of the argument.
Governor Daniels commented on the opinion.
“The courts ducked,”
Daniels said.
“Not a one of them said a word about the Indiana position
being wrong. They couldn’t. He was in the right.”
Fact Sheet on Chrysler Case
How did Indiana become involved in the Chrysler bankruptcy case?
Three state funds (two pension funds and a transportation fund)
invested a combined total of $42.5 million in First Lien Debt of
Chrysler LLC in 2008. Indiana bought this debt at a discount of around
44 cents on the dollar. At the time, Indiana’s portfolio managers
estimated that at this price and lien position, the move would afford
Indiana a good likelihood of recovering its investment if Chrysler was
forced to enter bankruptcy.
An excellent summary of the facts of the case can be found on pages 3-16 of Indiana’s Petition for a
Writ of Certiorari to the U.S. Supreme Court:
http://www.in.gov/tos/files/In_re_Chrysler_LLC_Cert__Petition.pdf
Why did Indiana object to the Obama Administration’s Chrysler bankruptcy plan?
Instead of following established bankruptcy law and practice, the
Obama Administration sought to use its financial and political clout to
circumvent the right of first lien debt-holders to be paid first before
other classes of creditors. When the Obama White House succeeded in
bullying the large TARP-recipient banks and other lenders to drop their
objections, Indiana filed an objection to preserve its rights.
What were the main legal principles involved in the case?
The main objections Indiana raised at the bankruptcy court level were:
1) The proposed plan misused the Section 363 sale provisions, which
are only allowed for liquidation, to accomplish a sham reorganization in
order to provide more value to unsecured creditors (such as the UAW
VEBA) than were provided to secured creditors like Indiana.
2) The use of billions of dollars in TARP funds to facilitate the
363 “sale” to the federal government was illegal as the TARP statute
passed by Congress was very clear that TARP funds were appropriated only
for the purpose of assisting “financial institutions.” Chrysler LLC
did not fit the definition of a financial institution, therefore, the
use of this money violated the Appropriations Clause of the U.S.
Constitution.
If the law was violated, why did the courts allow the “sale” of Chrysler to proceed?
The lower courts conveniently side-stepped the substantive issues
raised by Indiana and defeated its claims mostly based on a lack of
standing. This lack of standing was predicated on the bankruptcy
court’s finding that Indiana would have received less value for its debt
via liquidation than it would under the proffered plan. This
conclusion was a legal fiction, however, for the following reasons:
1) A bankruptcy process that normally would have taken months or
years was rammed through the courts in a matter of weeks. This
intentionally compromised Indiana’s ability to establish its own case,
call expert witnesses, or present its own evidence of Chrysler’s true
value. Indiana’s attorneys were given a mere 6 days to review over
385,000 pages of documents and only 4 days to conduct 23 separate
depositions, most within 48 hours of the sale hearing.
2) Chrysler’s “expert,” Robert Manzo, was paid for his liquidation
analysis on a contingent fee basis which provided that he would
personally receive $10 million if the 363 sale occurred. In his
testimony, he attributed value to only two of Chrysler’s then-40 current
and projected product lines, relied exclusively on 2008 performance
numbers (the worst year in history for the U.S. auto industry), and
utilized low valuation multiples for which he could point to no
precedent. Despite Indiana’s objections, the bankruptcy court fully
credited his testimony and adopted his low-ball valuations.
What was the ultimate outcome of Indiana’s appeal and why does it matter for future cases?
Although the finality of the “sale” of Chrysler’s assets rendered
much of Indiana’s claims moot, Indiana did petition the U.S. Supreme
Court for certiorari on September 3, 2009. In an unusual move, the
Supreme Court granted the cert petition, but instead of scheduling the
case for oral argument, the Court immediately vacated the decision of
the lower court and awarded court costs to Indiana. While the mootness
of the claims post-sale had left Indiana without a monetary remedy,
Indiana did “win” the case in the sense that the lower court’s opinions
were rendered null and void as future precedent. This was an important
victory for the rule of law and the rights of secured creditors.
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