Skip to content
Link copied to clipboard

Despite Phila. law firm's efforts, Chrysler claimants barred from suing

After months of work, and more than a few all-nighters, lawyers for Schnader Harrison Segal & Lewis L.L.P. had hit a dead end.

After months of work, and more than a few all-nighters, lawyers for Schnader Harrison Segal & Lewis L.L.P. had hit a dead end.

The U.S. Supreme Court issued an order late Tuesday permitting the sale of Chrysler to go forward under terms that barred hundreds of Chrysler accident victims and other claimants from suing the company. Persons injured in defective Chrysler cars, along with other aggrieved interests, now would no longer be able to hold Chrysler accountable.

Or maybe not.

Within hours of the Supreme Court decision, Schnader lawyers began with other lawyers in the case to map out alternative strategies that called for, among other things, going after Chrysler affiliates that were not part of the bankruptcy filing.

For the lawyers of the Center City Schnader firm, the month-long Chrysler bankruptcy proceeding was a roller-coaster ride.

The case touched on areas of bankruptcy law that remain in some important respects undeveloped and unclear. And it was unprecedented in that the government never before had taken such a big role in a commercial bankruptcy. It soon became clear that the government's outsize and central role would pose significant problems for Schnader's clients, and that many of the traditional protections afforded creditors in a bankruptcy proceeding would not be available.

In short, the government had the money to make the deal work and thus was able to dictate terms.

And for the accident victims, the terms were not good.

"The government is not only the 800-pound gorilla in the room, it is everything," said Barry Bressler, chair of the creditors' rights real estate practice at Schnader. "Because it is the only entity with any money."

Bressler and his bankruptcy colleague, Richard Barkasy, got involved several months ago after a group of plaintiffs' attorneys whose clients have hundreds of millions of dollars in claims against Chrysler contacted them for help. The head of the firm's appellate practice, Nancy Winkelman, joined the team at the end of May, when it became clear that Chrysler would be released from past lawsuits as part of the bankruptcy deal. Schnader lawyers knew they would want to appeal that deal.

Long before the filing, the plaintiffs lawyers that had engaged Schnader anticipated that there would be a bankruptcy filing, and they feared that their clients' claims would be tossed overboard as the government, the company, unions, and others struggled to save the company.

They were right.

Unlike the typical bankruptcy process, the Chrysler filing was subject to an accelerated procedure known in the law as a 363 asset sale. Under such bankruptcies, the aim is to quickly find a buyer and dispose of the assets of the company. In this case, the quick sale also was aimed at preserving as much of the company and as many jobs as possible.

As a consequence, most of the key players had worked out arrangements with the government in advance of the filing. The auto workers union, for example, had made contract concessions while the government agreed to shore up its pension fund.

At the same time, the government had agreed to loan the successor company billions, and Fiat had agreed to take it over.

Fearing that their clients' claims could be drowned out by other interests, Bressler and Barkasy pressed the bankruptcy court in New York to set up a separate committee for the accident victims and others with pending lawsuits against the company.

But the court grouped the accident victims with other unsecured creditors including the auto workers union and the pension benefit guaranty corporation, two entities that were in favor of a quick sale. That effectively diluted the influence of the tort claimants.

At a grueling three-day hearing on the sale that began May 27, Bressler cross-examined Chrysler CEO Robert Nardelli, getting him to acknowledge that under the terms of the sale of Chrysler to Fiat, there would be nothing left for the accident victims.

The Schnader lawyers learned one other thing at the hearing: An investment banking firm hired by Chrysler to help engineer the sale had been promised a $17 million success fee, in addition to its normal charges, if the deal went through. Barkasy said he found that galling in light of the fact that the transaction practically was a fait accompli and that the accident victims wouldn't be compensated for their losses.

By the time of the hearings, it had become increasingly clear that the accident victims would have no possibility of recovery under the Chrysler bankruptcy plan.

On May 29th, Bressler sent Winkelman an e-mail asking her whether she knew her "way around the 2nd Circuit," the federal appeals court in Manhattan.

When the the bankruptcy court gave its final approval to the sale on June 2, , Winkelman was ready to go. She asked the Second Circuit to set aside the bankruptcy court ruling allowing the sale to go forward without any provision for the accident victims, which she said the law effectively mandated.

Arguments in the appeal began June 5 at 2 p.m. After they were concluded, Dennis Jacobs, chief judge of the Second Circuit, called a brief recess. When he came back, he read an order from the bench denying the appeal. The team worked through the weekend readying a request to the Supreme Court for a stay.

On Monday, just before the 4 p.m. deadline, Justice Ruth Bader Ginsburg granted a stay until further notice.

"It buoyed everyone's hopes a little bit," said Winkelman. "In this type of situation, every little bit of good news is very good news."

But the elation was brief.

The next day, the entire court rejected Winkelman's request without explanation. Chrysler and Fiat closed their transaction on Wednesday.

For 170 accident victims seeking $600 million in damages, chances of recovery are now slim.

Coming Monday

Check out the Business section for a Q-and-A with Center City lawyer Shari Shapiro, who specializes in the green building sector. And, that afternoon at 3, go to for a live online chat with Shapiro. EndText