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In re Old Carco LLC

United States District Court, S.D. New York

December 1, 2014

IN RE: OLD CARCO LLC (f/k/a CHRYSLER LLC), et al

For Chrysler Group LLC, Appellant: Brian D. Glueckstein, Sullivan & Cromwell, LLP, New York, NY.

For Michigan Unemployment Insurance Agency, Appellee: Dennis Jay Raterink, PRO HAC VICE, Assistant Attorney General, Lansing, MI; Peter T. Kotula, PRO HAC VICE, Michigan Department of Attorney General, Detroit, MI.

For Indiana Department of Workforce Development, Appellee: Heather M Crockett, LEAD ATTORNEY PRO HAC VICE, Indiana Attorney General's Office, Indianapolis, IN; Maricel Elaine Skiles, LEAD ATTORNEY PRO HAC VICE, Office of The Indiana Attorney General, Indianapolis, IN; Jennifer E. Gauger, Office of The Indiana Attorney General, Indianapolis, IN.

For Illinois Department of Employment Security, Appellee: James Douglas Newbold, Office of the Illinois Attorney General, Chicago, IL; Lisa Madigan, Illinois Office of Attorney General (Chicago, IL), Chicago, IL.

MEMORANDUM OPINION AND ORDER

JESSE M. FURMAN, United States District Judge.

In this appeal, Chrysler Group LLC (" New Chrysler") appeals from an order of the United States Bankruptcy Court for the Southern District of New York (Stuart M. Bernstein, B.J.), dated February 21, 2014, denying its motion to enforce the terms of a 2009 sale order entered in connection with the bankruptcy of the automaker Old Carco LLC, formerly known as Chrysler LLC. The Bankruptcy Court concluded that, in light of the Tax Injunction Act, 28 U.S.C. § 1341, it lacked subject-matter jurisdiction to consider New Chrysler's motion. On appeal, New Chrysler argues that, in doing so, the Bankruptcy Court erroneously entertained a collateral attack on the 2009 sale order insofar as that order is res judicata even as to subject-matter jurisdiction. In light of controlling Supreme Court precedent, this Court agrees. Accordingly, the Bankruptcy Court's order is vacated, and the case is remanded to the Bankruptcy Court for further proceedings consistent with this Memorandum Opinion and Order.

BACKGROUND

On April 30, 2009, Chrysler LLC and several of its subsidiaries (together, " Old Chrysler") filed a Chapter 11 bankruptcy petition. (Voluntary Pet. (Bankr. Docket No. 1)).[1] On June 1, 2009, the Honorable Arthur J. Gonzalez, the United States Bankruptcy Judge then assigned to the case, entered an order (the " Sale Order") approving the sale of Old Chrysler's assets to New Chrysler (then named " New CarCo LLC") pursuant to Section 363 of the Bankruptcy Code. (Bankr. Docket No. 3232). To the extent relevant here, the Sale Order authorized the transfer of Old Chrysler's assets " free and clear of all Claims" not otherwise assumed under the agreement (Sale Order ¶ W), and acknowledged that New Chrysler " would not consummate the Sale Transaction . . . if the sale of the purchased assets was not clear of all Claims other than Assumed Liabilities, or if [New Chrysler] would, or in the future could, be liable for any such Claims." (Id. ¶ AA). It further enjoined entities including " governmental, tax and regulatory authorities" from " asserting against [New Chrysler] . . . any Claim arising from, related to or in connection with the ownership, sale or operation" of Old Chrysler assets. (Sale Order ¶ 12). The sale closed on June 10, 2009. (Mem. Decision Denying Mot. To Enforce Sale Order Without Prejudice (Bankr. Docket No. 8282) (" Mem. Op.") 3).

On October 18, 2013, New Chrysler filed a motion seeking enforcement of the Sale Order. (Mot. for Enforcement of the Court's Order (Bankr. Docket No. 8218) (" Mot. for Enforcement")). New Chrysler alleged that the Michigan Unemployment Insurance Agency (" Michigan UIA"), the Indiana Department of Workforce Development (" Indiana DWD"), and the Illinois Department of Employment Security (" Illinois DES") (collectively, the " Agencies") had violated the Sale Order by deeming New Chrysler a successor to Old Chrysler for purposes of calculating New Chrysler's unemployment insurance tax rates -- a decision that, according to New Chrysler, had resulted in millions of dollars in overcharged unemployment insurance taxes. (Mot. for Enforcement ¶ ¶ 5-6). Specifically, New Chrysler contended that, by approving the sale of Old Chrysler's assets " free and clear of any interest in such property" pursuant to Section 363(f) of the Bankruptcy Code, 11 U.S.C. § 363(f) (Sale Order ¶ ¶ W-BB), the Bankruptcy Court had prohibited the Agencies from transferring Old Chrysler's " experience ratings" -- variables used in calculating unemployment insurance taxes that are based on the extent to which former employees have received unemployment insurance benefits -- to New Chrysler. (Mot for Enforcement ¶ ¶ 30-31, 40-41). In response, the Agencies took issue with both New Chrysler's interpretation of the Sale Order and the Bankruptcy Court's jurisdiction to opine on the issue, arguing, among other things, that the Bankruptcy Court was barred from reaching the merits of the motion due to the Tax Injunction Act, 28 U.S.C. § 1341. (Bankr. Docket Nos. 8239, 8242, 8244, 8270; Dec. 12, 2013 Hr'g Tr. (Bankr. Docket No. 8273) 39:17-22).

In an opinion dated February 19, 2014, Judge Bernstein -- to whom the case had been reassigned (Bankr. Docket No. 8058) --ruled in favor of the Agencies on jurisdictional grounds. (Mem. Op. 3). That is, the Bankruptcy Court declined to reach the merits of New Chrysler's motion, instead agreeing with the Agencies that the Tax Injunction Act deprived the Court of subject-matter jurisdiction to hear the motion. (Id.). The Court did not dispute that it had " bankruptcy jurisdiction to interpret and enforce the Sale Order" (Id. at 17), but nonetheless concluded that the Tax Injunction Act imposed a separate jurisdictional hurdle, one that prevented the Court from addressing the merits of New Chrysler's motion. (Id. at 17-18). The Court acknowledged New Chrysler's argument that the Agencies' invocation of the Tax 3 Injunction Act was a collateral attack on the Sale Order itself, but -- without citing Travelers Indemnity Co. v. Bailey, 557 U.S. 137, 152, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009), the principal case upon which New Chrysler relied -- nonetheless ruled that " the merits of [New] Chrysler's argument [did] not affect the Court's conclusion that it lack[ed] jurisdiction to entertain it." (Mem. Op. 17-18).

This appeal followed. (Bankr. Docket No. 8286).

DISCUSSION

On appeal, New Chrysler argues that the Bankruptcy Court erred in ruling that it lacked jurisdiction to entertain its motion because, in doing so, the Bankruptcy Court failed to accord proper res judicata effect to the Sale Order. (Opening Br. Appellant Chrysler Group LLC (Docket No. 5) (" Chrysler Br.") 9-13; Reply Br. Appellant Chrysler Group LLC (Docket No. 29) 2-4). As that argument raises a pure issue of law, this Court reviews the Bankruptcy Court's decision de novo. See, e.g., In re United States Lines, Inc., 318 F.3d 432, 435 (2d Cir. 2003); see also, e.g., United States v. Vazquez-Alvarez, 760 F.3d 193, 196 (2d Cir. 2014) (per curiam) (reviewing de novo the lower court's failure to consider appellant's motion to dismiss for lack of ...


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