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In re Old Carco LLC

United States District Court, Second Circuit

September 9, 2013

In re: OLD CARCO LLC (f/k/a Chrysler LLC), et al., Debtors.
v.
OLD CARCO LIQUIDATION TRUST as the successor in interest to Old Carco LLC f/k/a Chrysler LLC, Appellee. GARY HENSON, Appellant,

OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge.

Creditor Gary Henson appeals from a decision of the United States Bankruptcy Court (Bernstein, J.) denying the Debtors' proposed limited assumption and assignment of the Supplemental Executive Retirement Plan. For the reasons discussed below, the Bankruptcy Court's decision is affirmed.

I. BACKGROUND

A. Relevant Facts

On April 30, 2009, Old Carco LLC f/k/a Chrysler LLC ("Chrysler") and 24 of its affiliated debtors and debtors in possession (collectively, the "Debtors") commenced bankruptcy proceedings by filing voluntary petitions under Chapter 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York. Appellee Old Carco Liquidation Trust is the successor in interest to each of the Debtors.

On May 3, 2009, the Debtors filed a motion ("Sale Motion") seeking authority to sell substantially all of their assets to Chrysler Group LLC f/k/a New CarCo Acquisition LLC ("New Chrysler"). On May 8, 2009, the Bankruptcy Court entered an order establishing certain procedures for the Debtors to designate executory contracts and unexpired leases for assumption and assignment to New Chrysler pursuant to Section 365 of the Bankruptcy Code. According to the order, the Debtors were permitted to file and serve notices identifying executory contracts for assumption and assignment, and counterparties to those contracts were permitted to file objections within ten days.

On May 22, 2009, the Debtors filed a notice ("Designation Notice") designating the Supplemental Executive Retirement Plan ("SRP") for partial assumption as an executory contract and assignment to New Chrysler, pursuant to Section 365 of the Bankruptcy Code, subject to certain terms and conditions. The SRP established the terms of supplemental benefits payable to certain retired executives in connection with their former employment by Chrysler. The Designation Notice indicated that the Debtors sought to assume and assign the SRP only as to the actively employed plan participants and retired plan participants under the age of 62, and in effect reject the SRP as to all remaining plan participants. The Addendum to Annex B of the Designation Notice stated that the Debtors were designating the SRP for assumption by and assignment to New Chrysler (a) to the extent the SRP was an executory contract and (b) subject to any other limitations set forth in Annex B.

On May 31, 2009, the Court issued an opinion granting the Debtors' Sale Motion and overruling all pending objections to the Sale Motion except for certain objections relating to Chrysler's proposed assumption and assignment of executory contracts and associated proposed cure amounts, preserving those objections for a later date. On June 1, 2009, the Bankruptcy Court entered an order approving the sale to New Chrysler. The Debtors closed the sale on June 10, 2009. On June 11, 2009, New Chrysler filed a notice ("Confirmation Notice") stating that it accepted assignment of the SRP on the same terms and subject to the same conditions and limitations set forth in the Designation Notice.

On June 1, 2009, Appellant Gary Henson filed an objection to the Debtors' proposed partial assumption of the SRP and sought determinations as to the appropriate cure amounts. Mr. Henson is a former Chrysler executive and participant in the SRP who retired before the filing of Chrysler's bankruptcy petition, and who was 67 years old in 2009 when he filed the objection.

On January 30, 2013, Old Carco Liquidation Trust filed an Omnibus Reply to Objections to the Assumption and Assignment of SRP. On February 1, 2013, Appellant Henson and three other creditors jointly filed a Sur-Reply.

B. The Bankruptcy Court's Decision

On February 5, 2013, the Bankruptcy Court held a hearing on the objections to the Debtors' partial assumption and assignment of the SRP. At the hearing, Judge Stuart M. Bernstein noted as an initial matter that the SRP was never assumed, because the Debtors designated the SRP as an executory contract subject to objection, which the objectors exercised. Judge Bernstein then concluded that the SRP was not an executory contract and, therefore, could not be assumed by the Debtors. Judge Bernstein found that the SRP did not contain anything in the nature of a restrictive covenant or other obligations that required performance by Henson or any other beneficiary under the SRP; rather, the provisions put forth by Henson were conditions to payment or receiving benefits. In his oral opinion, Judge Bernstein (a) denied the Debtors' motion to assume and assign the SRP on the terms set forth in the Designation Notice and the Confirmation Notice; (b) sustained in part and overruled in part the creditors' objections; and (c) struck the SRP from the Debtors' Designation Notice and Confirmation Notice. Judge Bernstein further found that even if the SRP were an executory contract, it could not be partially assumed in the manner proposed by the Debtors, because a debtor may not partially assume the obligations of an executory contract. On February 19, 2013, Judge Bernstein issued an Order reflecting these rulings.

On March 5, 2013, Appellant filed a timely notice of appeal. On appeal, Appellant seeks review of the Bankruptcy Court's order only with respect to its conclusion ...


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