David Skeel, a professor of corporate law at the University of Pennsylvania, said he was "stunned" that the Supreme Court had acted to delay the sale, although he said he believed there were legitimate problems with the Chrysler bankruptcy.
"I'm very encouraged that they did decide to at least take a closer look, because the one thing that nobody has really done yet is that. Everything has been so rushed from the minute the sale was proposed," he said.
Skeel said Chrysler's bondholders had a legitimate complaint that their claims were treated worse than those of other creditors, particularly the United Auto Workers.
"Although the senior lenders are getting less than a third of what they're owed, the employees and the retirees are getting a big chunk of what they're owed," he said. "It sure looks like the sale promises (the union) a fair amount more than they would get in a normal bankruptcy."
The challenges to the deal involve a comparatively small amount of money, but they raise large legal and ideological issues.
Those holding 92 percent of the $6.9 billion in secured debt already approved a deal that would give bondholders $2 billion. Together, Indiana pension funds said they had $42 million invested in Chrysler, less than 1 percent of its secured debt. They paid about 43 cents on the dollar to acquire their share and, under Chrysler's plan, would get back 29 cents on the dollar.
The bankruptcy judge said, in effect, that these small players should not stand in the way of a deal that could save Chrysler and keep the company in business making cars and trucks.
But Indiana's state lawyers, speaking for the pension funds, said the hastily arranged deal, pressed by the Obama administration, threatened the rule of law. They said it would allow government-favored unions to gain at the expense of bondholders and in defiance of traditional rules of bankruptcy.
"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," Indiana's lawyers said in their emergency appeal filed Saturday.
The head of Fiat said Monday that the company "would never walk away" from the Chrysler deal, even if it were not completed by the June 15 deadline.
