Exxon Mobil Corp. and its oil tanker subsidiary notified lawyers for fishermen and others harmed by the massive Alaska oil spill 20 years ago that on Wednesday it will pay them $470,268,908, but returned to a federal court to continue a fight over another $54.5 million.

The larger payment represents interest back to September 1996 on the punitive damages award that the company had already paid; the smaller figure represents 90 percent of what Exxon Mobil still owes to cover the $60.6 million it still owes in premiums on a “letter of credit” it obtained while it pursued appeals in the federal courts, up to and including the Supreme Court over the punitive damages award.  The Court ruled that the company could be assessed punitive damages for the incident involving the grounding of the supertanker Exxon Valdez, but said the punitive award could be no higher than the compensatory damages award of $507.5 million.

Two weeks ago, a three-judge panel of the Ninth Circuit Court ruled unanimously that Exxon Mobil must pay more than 12 years of interest on the punitive award — an issue the Supreme Court did not decide. But the panel divided, 2-1, in ruling that each side in the prolonged court battle must pay its own costs.

In a petition for en banc rehearing, filed Monday (available here), the company asked for reconsideration of the panel majority’s refusal to award Exxon any part of its court costs.

It made an argument based on simple arithmetic and on law. Its numbers argument said that the Supreme Court had reduced the punitive damages award from $5 billion to about $500 million — thus cutting it by 90 percent — so the fishermen and others who sued should have to pay 90 percent of Exxon’s credit premium costs of $60.6 million, or $54.5 million.

Its legal argument was that there is a “centuries-old principle that a successful litigating party should be compensated for the costs incurred to achieve its success.”  The company said it had to obtain a letter of credit to serve as financial security while it contested the punitive damages award in appeals, and that the premiums on that instrument “eventually exceeded $60.6 million.”  It asks that the full Circuit Court require it to pay only $6.1 million of that, as the amount spent to win a reduction of punitives, with the challengers required to pay the other $54.5 million.

Its filing made only one mention of the interest obligation, noting that it plans to pay that amount — minus enough to cover its court costs — on Wednesday.

UPDATE: The Maloney petition has now been docketed as 08-1592.

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A Port Washington, N.Y., lawyer and martial arts enthusiast asked the Supreme Court on Friday to use his case to expand the coverage of the Second Amendment’s “right to keep and bear arms” so that it applies to restrict or bar state and local laws, as well as those at the federal level.

James M. Maloney’s petition in Maloney v. Rice is the third case on that point to reach the Court in recent weeks.  This one, however, seeks to challenge a ruling that has gained a special prominence because one of the judges on the Second Circuit Court panel deciding against Maloney’s claim was Circuit Judge Sonia Sotomayor, President Obama’s choice for a soon-to-be-open Supreme Court vacancy.

The Maloney petition and the appendix (a lengthy file) are available for downloads. (It has not yet been assigned a docket number.) The already pending cases on the issue are National Rifle Association v. City of Chicago (08-1497) and McDoanld v. City of Chicago (08-1521).

Another novel feature of the Maloney case is that it is not a challenge to the constitutionality of a gun control law; rather, it targets a New York state law on weapons control, so far as that law applies to a “chuka stick” (or “nunchaku”).

That is a weapon often used in martial arts training, but also in increasing use as a police weapon to subdue and control suspects.  James Maloney wants the right to have the weapon in his home for self-defense, just as others might do with a handgun.  (The chuka weapon consists of two lengths of wood or other rigid material joined by a short strand of rope.)

Even so, the questions posed by the new position raise the constitutional issue in broad form, so that the outcome would apply to guns and other persoonal weapons, too. 

Read the rest of this entry »

Hours after President Obama signed into law a new set of restrictions on release of Guantanamo Bay detainees, lawyers for a group of prisoners told the Supreme Court Thursday that the law appears to violate the Constitution. That raises the stakes on the case of Kiyemba, et al., v. Obama, et al. (08-1234) — a petition that the Court was scheduled to consider at today’s private Conference.  The lawyers’ letter is available here.

Lawyers for the 13 prisoners involved — members of a Chinese Muslim sect known as Uighurs — said that the Court should go ahead and grant review of their case, and consider as part of that review “the impact of the new law.” But, they added, the statute “appears to be an unlawful suspension” — that is, a violation of the Constitution’s strict limit on suspension of the writ of habeas corpus.  A year ago, in Boumediene v. Bush, the Court struck down earlier legislation limiting detainees’ legal rights, finding that to be an unlawful suspension of the writ.

While U.S. Solicitor General Elena Kagan advised the Court Thursday morning of the new legislation, she did not make any comments on it.  Earlier, she had urged the Court not to hear the case, leaving the development of detainee policy to the White House and Congress.  Her letter and the full text of the new law are available here.  The new law is a supplemental appropriations measure that covers many subjects other than the detainee provisions, such as funding current military war operations.  The detainee clauses are in Section 14103, found on pages 62 and 63 of the bill text.  The measure also imposes new duties on the President to send reports to Congress on what is being done with each of the 229 detainees remaining at Guantanamo.  That provision is Sec. 319, found on pages 16 and 17 of the bill text.

The detainees’ counsel said that, “in another case,” the Court might want to send the lawsuit back to lower courts to examine the effect of the new legislation.  But, they went on, the D.C. Circuit Court has ruled for the government already, so such a remand might not illuminate the issues in the case.

Passage of the new law, their letter added, is an argument for Supreme Court review, not against it. “At the heart of this case is the question whether habeas corpus represents a real check on the political branches. The new legislation sharpens that question.”

District judges have been applying the Circuit Court ruling, the letter noted, and as a result may only request, not order, the release of any Guantanamo prisoner.

In earlier opposing review of the Kiyemba petition, the Solicitor General supported the Circuit Court ruling, and said that diplomatic efforts to resettle the Uighurs were continuing. (Four of the 17 previously involved in the case before the Justices have now been released, and are living in Bermuda. The other 13 remain at Guantanamo, and their lawyer, in a letter to the Court a week ago, said that “no solution has been found” for those 13.)

All of the new filings are being considered by the Justices as they consider whether to hear the case, according to entries on the Court’s electronic docket.

Today, we filed this reply brief in IMS Health, Inc. and Verispan, LLC v. Kelly A. Ayotte (No. 08-1202).  The petition and the twelve amicus briefs filed in support of a grant can be accessed here.

In Level 3 Communications, LLC v. City of St. Louis, Missouri (No. 08-626), we submitted this supplemental brief to address points raised in the invitation brief filed by the United States.  Our previous filings can be accessed here.

 UPDATE Thursday a.m.  The new petition discussed here has been docketed as 08-1521.

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Alan Gura, the Alexandria, Va., attorney who won the historic Supreme Court ruling last year establishing a personal right to have a gun for self-defense at home, started a new challenge in the Supreme Court Tuesday.  It seeks to have the Second Amendment right enforced against state, county and city gun control laws. The petition in McDonald, et al., v. City of Chicago, can be downloaded here. (A docket number has not yet been assigned.)

Last week, the National Rifle Association filed a separate appeal raising the same issue (NRA, et al., v. City of Chicago, docket 08-1497). It is doubtful that the Court will consider the two new cases before recessing for the summer, probably late this month.

The McDonald petition involves four Chicago residents, the Second Amendment Foundation and the Illinois State Rifle Association, all challenging a handgun ban in Chicago.  Their petition said the ban is identical to one struck down by the Supreme Court in its Second Amendment ruling last June in District of Columbia v. Heller (07-290).

The Heller decision, however, applied only to laws enacted by Congress or for the federal capital in Washington.  The Court expressly left open the question of whether individuals would have the same right against state and local government gun restrictions.

Arguing that the Second Amendment right is a “fundamental” one, the new petition said that means that the Fourteenth Amendment guarantees that such rights “may not be violated by any form of government throughout the United States.  Accordingly, Chicago’s handgun ban must meet the same fate as that which befell the District of Columbia’s former law.”

Part of their argument is that the Justices should step in now to resolve a dispute among federal appeals courts and state supreme courts on whether the Second Amendment is absorbed (technically, “incorporated”) into the Fourteenth Amendment — a part of the Constitution that operates against state and local government.

The question posed to the Court is whether the incorporation is accomplished under either the “privileges or immunities” clause of the Fourteenth Amendment, or under its “due process” clause.  The petition urges the Court to use this case as an opportunity to reexamine the meaning of the “privileges and immunities” provision, which it noted was given an “almost meaningless construction” by the Court’s controversial decision in the Slaughter- House Cases in 1873. 

The split of authority in lower courts “warrants speedy resolution, as it perpetuates the deprivation of fundamental rights among a large portion of the population,” it said. It would serve no purpose to let this conflict go on, the petition contended.

In a flurry of new legal briefs, key players in the increasingly tense drama over the fate of troubled automaker Chrysler vied on Tuesday to shape the Supreme Court’s understanding of a June 15 deadline.  The key challengers to the sale of Chrysler started with a brief in the morning (see this post), and now, the Justice Department, Chrysler and the would-be business spouse of a “new” Chrysler — Italian automaker Fiat — have joined in the debate. (Their new briefs are here and here and here, respectively.)

Meanwhile, Justice Ruth Bader Ginsburg, who is considering pleas for delay of the Chrysler sale from three applicants, including the Indiana benefit funds that are mounting the most sweeping challenge, has taken no action Tuesday, leaving undisturbed her Monday order putting a temporary hold on the Chrysler-Fiat corporate unification.  There was no word from within the Court when something new might emerge, from Ginsburg or the full Court.  But it seemed clear that Ginsburg — and perhaps the full Court — were awaiting the new round of briefing on what a widely disputed June 15 “deadline” means.

It is not clear how central this dispute is to the Justices’ ultimate view of the legal and financial situation, but there was no doubt of the vigor with which all sides were debating that question.

Read the rest of this entry »

Indiana benefit funds trying to scuttle the sale of troubled automaker Chrysler tried on Tuesday to persuade the Supreme Court not to be rushed into allowing the deal to go ahead.  In a short new filing (found here), the challengers cited new information that they said proved there was no real risk that the deal would collapse if not implemented by next Monday. Talk of such a risk “no longer provides a basis for driving the timing of these proceedings,” the new filing said.

The new information cited was a Bloomberg News story quoting an executive of Italian auto company Fiat — the spouse-to-be of Chrysler in the new transaction — that Fiat “would never walk away” from the deal.  The filing contains a link to Bloomberg’s story.

The story describes a telephone exchange on Monday with Sergio Marchionne, chief executive officer of Fiat.  Here is the key paragraph, cited in the new filing:

” ‘We would never walk away,’ Marchionne said in response to a question about whether Fiat would pull out of the deal if it isn’t completed by the June 15 deadline. ‘Never.’  Rather, Marchionne said that ‘We should just be patient and let the system work.’ ”

The funds told Justice Ruth Bader Ginsburg, who is currently considering their plea for delay of the transaction, that they were responding to claims by the U.S. government and Chrysler that the deal had to be closed by June 15 or, as the new filing put it, “Fiat would exercise its right to withdraw and the entire transaction would collapse.”

This is what the government, in Monday’s filing by U.S. Solicitor General Elena Kagan said: “Granting a stay beyond Monday, June 15, jeopardizes the sale — the only remaining alternative to the outright liquidation of Chrysler.  The Master Transaction Agreement sets June 15 as the deadline for the proposed sale to close.  After that date, Fiat has the right to walk away….In earlier stay proceedings brought in the district court, Fiat explained that it was already concerned about the depreciating value of Chrysler’s assets and that further delay would create a direct risk that the transaction would unravel…Against the bankruptcy court’s findings and Fiat’s own explanation, applicants [the funds] offer no basis for optimism that Fiat will remain at the table, while Chrysler’s assets depreciate and further rounds of litigation continue, if a stay is granted and the sale is not consummated by the current deadline.”

Chrysler, in its response filed Sunday, said that the billions put up by the U.S. and Canadian governments to facilitate the sale “is expressly conditioned on the Fiat Sale proceeding promptly, with Fiat, as a matter of business judgment, setting the date for closing as no later than June 15, 2009.”

The Obama Administration argued Monday that no court, including the Supreme Court, has the authority to hear a challenge by Indiana benefit plans to the role the U.S. Treasury played in the Chrysler rescue, including the use of “bailout” (TARP) funds. The Indiana debt holders, U.S. Solicitor General Elena Kagan wrote, simply have no right to raise that issue, thus putting it out of the reach of the courts.

The government’s brief opposing a plea to delay the Chrysler sale can be downloaded here.  The main case at the Court is Indiana State Police Pension Trust, et al., v. Chrysler LLC (application 08A1096).  (The other filings in the Chrysler proceeding before the Court, and this blog’s weekend coverage, can be found at this link.)

All of the legal filings expected in the Chrysler case are now before Justice Ruth Bader Ginsburg, as Circuit Justice, and thus she or the full Court could now act on the three applications to postpone the sale of most of the auto company’s assets to a new company representing a combination with Fiat, the Italian auto company. 

Ginsburg or the full Court probably will act by mid-afternoon, since there is a 4 p.m. deadline set by the Second Circuit Court.  After that, the plan can go forward, unless the Supreme Court decides otherwise.  A federal bankruptcy judge and the Second Circuit have approved the deal.  The Circuit Court is expected to issue one or more opinions Monday explaining its decision.  The Supreme Court, however, does not have to wait for that in order to act.

Although arguing that the courts may not rule on the validity of Treasury’s decision to shore up a new Chrysler company with funds from the Troubled Assets Relief Program, the Solicitor General did argue that those funds may go to a troubled auto company, and not just to banks or other regular financial institutions, and the Indiana benefit funds had contended.

“The Treasury has determined that TARP funds may be used to purchase assets from automobile companies when necesssary to prevent those companies’ failure or major disruption from disrupting the stability of the Nation’s economy and financial markets.”

Chrysler had received $4 billion in TARP funds before filing for bankruptcy.  The new company will receive more and, in return, the U.S. government will become a part owner of NewChrysler, the surviving company.

Read the rest of this entry »

NOTE TO READERS: The defenders of the Chrysler rescue plan have been filing their responses to the pleas to halt the sale while the Supreme Court reviews its legality.  This post, with links to all of the coverage, will remain at the top of the blog through Sunday evening.  One new post has been added, discussing ”key points made by the plan’s defenders.” It will incorporate the responses as they come in, and thus will be updated as needed.

The actual filings from the defenders will be linked in this post, rather than below.  The first response is from the United Auto Workers union, and other members of a committee of creditors whose claims are not secured.  It can be downloaded here.  The second response is from Chrysler, and it can be found here.  The Treasury is expected to file its own response; the time for that is uncertain.

An earlier update, with the third stay application, is just below, followed by the array of links to the various posts.

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UPDATED 6:05 p.m.  A third application to delay the Chrysler sale has been filed at the Supreme Court, on behalf of a woman who is suing Chrysler for damages, claiming that her husband died from lung cancer due to exposure to asbestos while working on auto brakes. Her lawsuit in state court in California will be scuttled if the sale occurs, she argued. Her application can be found here.

Following are links to this blog’s discussions of the developments of Saturday night and Sunday, with access to the documents involved:

* The lower court’s actions (found here).

* The applications to delay the Chrysler deal (here).

* The key points in the challenges (here).  UPDATED

* The key points of the plan’s defenders (here).      NEW and UPDATED

* The problem of “standing” to challenge Treasury’s role (here).

* The ban on future auto accident lawsuits (here).  UPDATED

The key points of Chrysler LLC in defense of the sale plan are:

* The company is in a “fragile state,” its value eroding daily, and a delay ordered by the Supreme Court “will kill the sale” with “a calamitous impact.”  The loss to Chrysler alone will be more than $1.2 billion.

* If just one of the Big Three automakers goes under, the cascading effect would lead to the loss of more than 2.5 million jobs, all told.

* The harsh consequences will also fall on the Indiana funds leading the challenge.  If the plan goes through, however, they will get $12.2 million on a “distressed investment” that they bought for $17 million.

* The Indiana creditors have not offered to put up a bond as a condition for getting the plan delayed by the Supreme Court. Such a bond would have to be at least $1.2 billion to protect Chrysler, and that figure does not include damages from lost jobs and losses to suppliers and other industries affected.

* The funds have had all of the process to which they are due; the lower court went out of its way to accommodate the funds’ challenge, and decide the case in less than a week.

* If the funds think the manager of the collateral standing behind the top-priority debt did not act properly in agreeing to the sale, they could sue for breach of contract.

* The funds have not even filed their formal appeal to the Court yet, so there is little prospect the case could be decided within a week — pushing the matter right up against the June 15 cutoff date set by the new company’s partner, Fiat, the Italian automaker.

* Because the bankruptcy court ruling approving the sale was largely based on the specific facts, there is little reason to expect the Supreme Court to agree to rule on it.  Moreover, the funds have not shown that there was anything illegal about the way the sale was put together and won court approval.

* Even if the Supreme Court were inclined to rule on the funds’ challenge to the role that the U.S. Treasury played, this case is a poor vehicle for examining that question.  The funds’ real complaint is that the Treasury should put up even more money so that they would get more when the sale goes through.

* In any event, the Indiana creditors do not have “standing” to challenge the Treasury’s part in the deal, because they cannot show any harm that can be traced to the Treasury’s actions.  Moreover, they did not file any complaint with Treasury, as they would have had to do to make such a challenge.

* The law giving the government authority to hand out “bailout” funds is not restricted to “financial institutions,” but extends to all institutions.

* The consumer groups and individuals with lawsuits pending against Chrysler are not in any worse position than they would be if Chrysler collapsed, so they cannot show they are harmed.  Federal law clearly allows a bankruptcy court to order a sale of all assets free and clear of obligations.

(Chrysler did not respond directly to the plea for delay by the woman seeking to protect her lawsuit based on claims that Chrysler is reponsible for her husband’s death due to lung cancer, from exposure to asbestos products in repairing Chrysler-made cars.)

The continuation of this post will cover the key points of the autoworkers’ union and other unsecured creditors.

Read the rest of this entry »

UPDATED 6:10 p.m.  A related plea to the Court, also challenging the Chrysler sale deal’s elimination of future claims against the automaker, has been filed.  It involves a wrongful death lawsuit pending in state court in California. It can be downloaded here.

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If the Chrysler sale goes through soon, and a Chrysler-made vehicle is in a crash — perhaps during holiday traffic over July Fourth — is it unconstitutional to deny someone injured in that accident a right to sue?  That, in essence, is the question that five consumer groups, a Chrysler consumers’ committee, and three men who already have accident lawsuits pending against Chrysler are asking the Supreme Court to answer.

 They are seeking a chance for themselves and others to pursue existing and future accident claims against NewChrysler — the auto company that is to rise out of the government-managed rescue plan.  Their application for a delay of the plan can be read here.

Under the terms of the rescue, NewChrysler would be freed of current and future lawsuits seeking money damages for injury (or death) caused by cars or trucks that were sold by “old” Chrysler before the sale deal took effect.  Millions of those cars, oif course, are still on the road.

If that provision remained intact, there is almost no doubt that it would be repeated in any deal to spare bankrupt General Motors Corp. from existing and future accident claims, thus affecting millions more cars and trucks now in use.

Keeping the victims from suing, their lawyers argue, is not only beyond the power of a bankruptcy court, but raises “an important constitutional issue” about cutting off legal rights of people who, as of now, have no idea that they may someday be hurt in an auto crash.

Read the rest of this entry »

(NOTE: The documents filed in the Supreme Court to challenge the Chrysler sale are linked in this post, below.)

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Analysis

With Justice Antonin Scalia leading the way, the Supreme Court has grown increasingly unwilling to leave the federal courthouse door open wide to legal challengers.  (The most recent example: the 5-4 ruling three months ago in Summers v. Earth Island Institute, 07-463, found here. Scalis’s most significant opinion on the issue remains Lujan v. Defenders of Wildlife, decided in 1992.)  This skepticism poses the most significant obstacle to the newly-filed challenge by lenders opposing the bankruptcy rescue plan for the automaker, Chrysler.

The part of the challenge that raises the issue with the highest visibility and the broadest impact – the legality of the U.S. Treasury’s use of economic recovery “bailout” funds to finance the deal — depends upon a group of Indiana worker benefit plans having a right to raise that question in court.  No court has yet ruled on whether the Treasury broke the law, because none has found it had jurisdiction to do so.

While the Indiana lenders were allowed to contest the plan for other reasons, they were denied “standing” by a bankruptcy court to object to Treasury’s decisive role.  They would not be hurt by the plan, the judge found, or at least not as much as they would be if Chrysler simply collapsed and went out of business.

In the formal appeal that the lenders will file shortly in the Supreme Court, following up their application for a postponement of the deal, a fundamental issue will be this one of “standing.” Because the Constitution’s Article III limits the federal courts to ruling on actual “Cases or Controversies,” a would-be court challengers must be able to show that there is a live dispute — that is, show that they would be hurt, that the other side is responsible for that harm, and that a court ruling in their favor would cure it. If they can’t make those points decisively, the court has no authority to hear their complaint.

The Indiana lenders’ pleas to the Supreme Court, filed just before midnight Saturday, are attempts to set the stage for the Supreme Court ro rule on two bankruptcy court rulings (both upheld Friday by the Second Circuit Court).  One of those decisions, of course, approved the Chrysler rescue plan.  The other was the decision that the Indiana funds had no “standing” to contest Treasury’s role, but only to challenge the parts of the plan that might affect them directly.  (The “standing” decision can be read here.)

Read the rest of this entry »

(NOTE: The documents filed in the Supreme Court to challenge the Chrysler sale are linked in this post, below.)

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The case of In re Chrysler LLC, Debtor has the potential to produce the most significant Supreme Court ruling on the government’s power to deal with economic crisis since the Court struck down major parts of President Franklin Roosevelt’s New Deal, in Schechter Poultry Corp. v. U.S. in 1935 and U.S. v. Butler in 1936.  But the Supreme Court will not actually rule on any of the basic legal challenges unless it first puts the Chrysler sale on hold, and then agrees to hear and decide the case itself.  It has no legal obligation to do either. Two challenges have now been filed. (UPDATE: A third challenge has been filed. Its claims are discussed at the close of this post.)

The key points of the Indiana benefit funds’ objection to the Chrysler sale are:

* Without a court-ordered stay, the Chrysler sale will close promptly, leaving no one to challenge its illegality.

* Without a court-ordered stay and without Supreme Court review, the legality of the Treasury’s role will never have been decided by any court.

* The Chrysler sale plan — “the fastest reorganization on record” — is flatly illegal under federal bankruptcy law.  Its approval by courts raises issues “of immediate and enduring national significance.”

* The Treasury had no authority to use “bailout” funds to rescue an auto company.  Doing so violated both the Constitution and federal economic recovery law.

* An automobile manufacturer is not a “financial institution” and thus was not eligible for “bailout” funds.

* The benefit funds as “absolute priority” lenders had “standing” to challenge Treasury’s maneuver because of the impairment of their collateral.

* The Treasury rebuffed all efforts by Chrysler to save itself, preferring and stubbornly insisting upon the Treasury’s own plan.  There were alternatives that would better protect lenders and other stakeholders.

* Priority lenders’ interests were sacrificed to those of favored stakeholders whose claims had no security behind them (such as the autoworkers’ union).

* The Treasury violated bankruptcy law by devising a “de facto” reorganization without following the proper procedures for such a legal restructuring.

* The bankruptcy judge wrongly cut short the timetable for the court case testing the validity of the Chrysler sale.

* The $2 billion cash payment to be divided among first-tier lenders is far short of the value of their collateral, which is being wiped out.

* The investment banks that helped develop the Chrysler plan had a conflict of interest because they themselves had received federal “bailout” funds.  Thus, their analysis of the value of the lenders’ collateral was not to be trusted.

* A court-ordered delay is justified because there is a fair chance the Supreme Court will grant review, the Indiana lenders will be seriously harmed if the deal goes through, and the balance of fairness is on their side.

The key points of the consumer organizations’ challenge to the sale terms are:

* The plan illegally wipes out future claims for individuals who will be injured or killed in accidents involving cars and trucks designed and sold by the “old” Chrysler.

* The deal wipes out those claims because the sale would go through free and clear of any of “old” Chrysler’s past or future obligations.

* Such individuals had no notice that the deal for Chrysler would would wipe out their future claims, and no real chance to protest it in court.  Due process does not allow binding people whose injuries and claims have yet to develop.

The key points of a widow’s challenge to the sale terms are:

* The deal illegally wipes out existing and future claims by those claiming injury or death from exposure to asbestos while working on auto brakes with asbestos components.  The scuttling of product liability claims includes a widow’s lawsuit for wrongful death of her husband from lung cancer.

* A special bankruptcy law passed by Congress in 1994 controls the fate of asbestos claims; its provisions were not followed in the Chrysler transaction.

* The decision of the bankruptcy court and the Second Circuit in this case conflict with a 2005 ruling of the Third Circuit Court holding that the special provisions for asbestos claims control asbestos claims.

UPDATE 6:15 a.m. Sunday

A group of consumer organizations early Sunday joined the Indiana benefit funds in urging the Court to block the Chrysler sale. The application can be found here.   The groups, led by the Center for Auto Safety, said they would file a petition for review by Tuesday.  Meanwhile, the Second Circuit Court has indicated it expects to issue on Monday one or more opinions explaining its approval of the sale.

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The historic legal and financial struggle over the survival of one of America’s Big Three automakers — Chrysler — reached the Supreme Court just minutes before midnight Saturday.  It is the first government rescue effort since last fall’s onset of a deep economic crisis to reach the Justices. For all of its legal complexity, this first challenge is at its core a simple complaint that the federal government has gone too far to manipulate the private marketplace, using powers not given to it by Congress.

Three Indiana public employee funds that provide benefits for teachers, police officers and others asked for a delay of the Chrysler deal in this application. (UPDATE: The 95-page appendix can be downloaded here.)

Their lawyers said an appeal will follow shortly, to be handled “on as expedited a schedule as the Court finds necessary.”

The funds protested to the Court that the Treasury has acted unconstitutionally in using “bailout” funds in a rescue of Chrysler, and that the deal robs small investors’ and debt holders to reward the government’s favorites — especially the autoworkers’ union — as well as the Treasury itself.

With a Monday afternoon deadline looming for the deal to close, the funds urged the Court to temporarily block the sale of nearly all of the Detroit automaker’s assets to a new company that will be a partnership between Chrysler and the Italian auto company, Fiat.  The Treasury and a Canadian government agency are putting up the money to pay for the transaction, in return for some of “New Chrysler” stock.

In a plea that will go first to Justice Ruth Bader Ginsburg, the three funds not only challenged the legality of the deal, but also sought to portray the Obama Administration as a heavy-handed banker who forced Chrysler into a deal it did not want, using authority the government does not have.

The funds’ specific plea was for delay of a bankruptcy court ruling that cleared the sale; they argued that the transaction should be kept on hold until the Supreme Court can hear and decide the funds’ wide-ranging legal attack on the so-called “Fiat Transaction.” That deal was approved by a bankruptcy judge May 31, and was cleared by the Second Circuit Court on Friday afternoon (see the post just below).  The Circuit Court acted so swiftly that it has not yet written an opinion to explain its approval.

If the deal does not go through by June 15, Fiat has the option of backing out of it.  Since the bankruptcy judge concluded that “the Fiat Transaction is the only option that is currently viable,” Chrysler might simply have to be broken up with whatever is left of it used to pay off billions in outstanding debts.

Justice Ginsburg, as Circuit Justice, has the authority to act first, at least if she decides on a temporary hold until the Court can consider it further.  She also could share it from the start with her colleagues.  While she could deny it on her own, it would take five notes to grant the delay for any time beyond a short span pending a further order of the Court.

If the Court does not delay the deal, the Indiana funds argued, “the Court will be deprived of the opportunity to decide critical, nationally significant legal issues relating to management of the economy by the United States Government.”

The government plan for the auto industry “is a matter of incredibly high profile and importance,” the application said. “The public is watching and needs to see that, particularly, when the system is under stress, the rule of law will be honored and an independent judiciary will properly scrutinize the actions of the massively powerful executive branch.”

If the deal is allowed to go through, it said, that will make the legal challenge a dead letter.

The Treasury and Chrysler have the right to file responses to the application, and probably will do so swiftly.  The Circuit Court stopped the Chrysler plan from going forward until 4 p.m. Monday, or the Supreme Court rejected any delay, whichever came first.

UPDATE 3:55 p.m.  Neither Justice Stevens nor the full Court is expected to act on the bail issue until midweek next week at the earliest. Conrad Black’s attorneys asked and received permission from Stevens to file a reply to the government; it is due by noon Wednesday.

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The federal government urged the Supreme Court on Friday not to order the release from prison of media mogul Conrad M. Black, but suggested he might be allowed to try for bail from the federal judge who conduct his trial.  If Justice John Paul Stevens, who has the bail plea now, or the full Court rejects the application, that could be done with the understanding he could make the same plea in District Court, U.S. Solicitor General Elena Kagan suggested.  The opposition to the application (08A1063) can be found here.

Black, a Canadian who led a group of newspapers in the U.S. and elsewhere, was convicted of mail fraud for an alleged scheme to obtain illegal executive compensation. He was also convicted of obstructing justice for concealing documents that the Securities and Exchange Commission and federal prosecutors sought in an investigation.  He was sentenced to 60 months for the mail fraud counts and 78 months for obstruction of justice.  The sentences are to be served together, thus his term is for 78 months.

On May 18, the Supreme Court agreed to hear Black’s challenge to the mail fraud conviction.  His attorneys claim that he was prosecuted for fraud, based on the alleged denial of “honest services,” but that federal law does not make that a crime if the challenge scheme did not result in any harm to the supposed target of the fraud — in this case, the company that paid Black management fees. 

The Court will not rule on Black’s case until the Term that starts next Oct. 5, but Black’s lawyers sought his release in the meantime.  One of their key arguments is that, if the Court overturns the fraud conviction, that will also undercut the rest of his conviction, especially the one for obstruction of justice.  The result would be that he would be resentenced to a reduced term, shorter than the time it would take the Court to decide his case, so he should not remain imprisoned based on the longer sentence.

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