Lemon Law Claims Survive Chrysler Bankruptcy

On April 30, 2009, one time automotive giant, Chrysler LLC filed a voluntary petition for Chapter 11 bankruptcy protection. Chrysler's filing, with 39.3 billion in assets, is the seventh-largest bankruptcy in U. S. History.

At the time of filing, there were some 1,350 consumer lawsuits pending nation wide against Chrysler for violations of so called Federal and State "Lemon Laws." The filing of bankruptcy, along with the automatic stay imposed by the Bankruptcy Code, brought these "Lemon Law" claims to a screeching halt. Consumers could take no further action of any kind against Chrysler.

In general, Lemon Laws give rights and remedies to consumers with problematic vehicles. They require manufacturers, or manufacturers' authorized dealers, to repair defective vehicles within a reasonable time. If repairs are not made within a reasonable time, then Lemon Laws require the manufacturer to replace the vehicle, refund the purchase price, or pay damages to the consumer. Most Lemon Laws also require the manufacture to pay the consumer's attorney fees.

As part of the Chrysler reorganization plan, a proposal to sell the majority of its assets to Italian Auto Manufacturer, Fiat, and then join Fiat in forming a new, stronger, more efficient Chrysler Company was submitted to the Court. Objections, motions and arguments were heard. On June 1, 2009, the Bankruptcy Court entered an Order approving and authorizing the Fiat Transaction. As a result, a "New Chrysler" automotive manufacturer was born.

According to documents filed with the Court on June 30, 2009, the "New Chrysler" agreed to assume certain liabilities of the bankrupt Chrysler. These liabilities include pending and future Lemon Law claims. This means that the 1,350 consumers who were stopped from pursuing their lawsuits because of the bankruptcy, are now able to resume litigation in courtrooms across America.

Through a process outlined in court documents, the "New Chrysler" will assume the liability of bankrupt Chrysler and be substituted as the defendant in pending Lemon Law litigation. Future Lemon Law claims will be brought directly against the "New Chrysler." Consumers will have the same rights and remedies against the "New Chrysler" as they had prior to the Chapter 11 filing. The Bankruptcy Court is expected to approve and order the "New Chrysler" assumption of "Lemon Law" liability as early as July 16, 2009.

Article provided by Aiken & Scoptur

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Prepackaged Bankruptcy Wouldn't Help Big Three Automakers, Says Bankruptcy Expert

If the Big Three automakers can't come up with a plan for Congress by Dec. 2 on how they'll use $25 billion in federal funds, one proposed alternative is for the companies to undergo a so-called "prepackaged" bankruptcy. But bankruptcy expert Frederick Tung of Emory University School of Law says he finds it hard to see how a prepackaged bankruptcy could help.

"With a prepackaged bankruptcy, the management of the company has already worked out details of the restructuring with constituencies, which includes bondholders, banks, suppliers, unions and employees, and other interested parties" says Tung. "But it doesn’t look like automakers have worked out anything with anyone; all they've done is gone to Capitol Hill and asked for $25 billion."

Under a prepackaged bankruptcy, says Tung, the automakers would have two questions to work out before they file for bankruptcy: What operational fixes will they make, if any? How will they reduce their debts?

"The latter process is simply a negotiation among all the debt holders to try to get them to take less than full payment," Tung says. "On the operational side, it doesn't sound like the management of these companies think they need to make any changes to the path they're on. It doesn't seem like they've talked to any of their creditors to make any adjustments on their debt. So if they don't have a deal beforehand, they can't do a prepackaged bankruptcy."

The other major question, says Tung, is how are automakers going to get the cash to run the business going forward? "Without that piece, bankruptcy is not only not helpful, but in my opinion would likely put the company into a free fall."

Are they playing chicken?

“I would have thought that automakers would have taken a more constructive tone with Congress," says Tung. In his blog entry on theconglomerate.org, Tung says automakers "seem to be playing chicken with Congress, on the 'too-big-to-fail' theory." Congress apparently didn't buy it.

"Needless to say, that's a dangerous game," Tung writes. "Especially during the interregnum, the specter of political gridlock looms large."

Tung teaches and writes in the areas of corporate and securities law and bankruptcy, both domestic and international. Professor Tung has served as a lecturer in law at Peking University. He also practiced corporate and bankruptcy law with Gibson, Dunn & Crutcher in Los Angeles and San Francisco.

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