Chrysler Rejection Opinion by Judge Gonzo Docket 4145 Hidden From The Public

UNITED STATES BANKRUPTCY COURT

FOR PUBLICATION

SOUTHERN DISTRICT OF NEW YORK

-------------------------------------------------------xIn reOld Carco LLC(f/k/a Chrysler LLC),

et al

.,Debtors.:::::::Chapter 11Case No. 09-50002 (AJG)(Jointly Administered)

-------------------------------------------------------x

OPINION REGARDING AUTHORIZATION OF REJECTION OF ALL EXECUTORYCONTRACTS AND UNEXPIRED LEASES WITH CERTAIN DOMESTIC DEALERSAND GRANTING CERTAIN RELATED RELIEF

In an order (the “Order”)

1

dated June 9, 2009, the Bankruptcy Court granted the omnibusmotion of Chrysler LLC, now known as Old Carco LLC, (“Chrysler”) and certain of its affiliates,as debtors and debtors in possession (collectively with Chrysler, the “Debtors”), for an Order,Pursuant to Sections 105, 365 and 525

2

of the Bankruptcy Code and Bankruptcy Rule 6006, (A)Authorizing the Rejection of All Executory Contracts and Unexpired Leases With CertainDomestic Dealers and (B) Granting Certain Related Relief (the “Motion”),

3

filed on May 14,2009.An evidentiary hearing was held before the Court on June 4, 2009, at which 15 witnessestestified at the hearing and an additional approximately 66 witnesses presented testimony byproferred declaration. At the close of the presentation of evidence on that date, the hearing wascontinued to June 9, 2009, at which legal arguments were presented. Several of the Debtors’employees, including Peter M. Grady (“Grady”), Director of Dealer Operations for Chrysler

1

In the Order, the Court stated that it would issue an opinion (the “Opinion”) regarding the Motion (as defined

infra

), addressing, among other things, the Objections (as defined

infra

) raised by the various parties.

2

The request that relief under § 525 of the Bankruptcy Code be granted in the Order was no longer sought inconnection therewith.

3

Capitalized terms not otherwise defined herein have the meanings given to them in the Motion.

2Motors, LLC, have made declarations to the Court, participated in depositions, and offered livetestimony in various hearings regarding the Motion and its subject matter. The Debtorsdesignated certain of this evidence into the record.

4

Over two hundred objections, statements,correspondence, and other responses (collectively with all supplements, amendments, and joinders thereto, the “Objections,” or in the singular, the “Objection”) were filed in response tothe Motion. The Committee of Chrysler Affected Dealers (the “CCAD”) and other parties alsodesignated certain evidence into the record. Additionally, the Debtors filed a consolidated reply(the “Reply”) in response to the Objections.The facts and circumstances of the Debtors’ bankruptcy case have been extensively setforth in

In re Chrysler LLC

, 405 B.R. 84 (Bankr. S.D.N.Y. 2009) and are incorporated, as furtherexpanded upon by additional findings of fact relevant to the Motion, herein.

DISCUSSIONBusiness Judgment Standard

The Supreme Court has observed that the “fundamental purpose of reorganization is toprevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuseof economic resources. . . . [T]he authority to reject an executory contract is vital to the basicpurpose to a Chapter 11 reorganization, because rejection can release the debtor’s estate fromburdensome obligations that can impede a successful reorganization.”

NLRB v. Bildisco and Bildisco

, 465 U.S. 513, 528, 104 S. Ct. 1188, 1197 (1984). In this case, substantially all of the

4

An objection by an Affected Dealer was raised at the June 9, 2009 hearing regarding the admission of evidencefrom prior hearings. The testimony and deposition designations (and counter-designations) were filed by theDebtors and certain Affected Dealers (as defined

infra

) prior to the June 9, 2009, hearing. Debtor also moved intoevidence declarations that had been moved into evidence at prior hearings as well. The Affected Dealer making theobjection argued in substance that such evidence was not susceptible to judicial notice, citing

Global Network Communications v. City of New York

, 458 F.3d 150, 157 (2d Cir. 2006), but the Debtors did not ask the Court totake judicial notice of the testimony and deposition designations (and counter-designations) and declarations.Rather, the Debtors moved, without objection, the aforementioned into evidence, and it was admitted by the Court.Thereafter, Grady was available for cross-examination at the June 4, 2009 hearing, but no request was made tocross-examine him. Therefore, the evidence at issue is properly before the Court.

3Debtors’ assets were sold pursuant to § 363, which is to be followed by a plan of reorganizationsetting forth,

inter alia

, a distribution scheme for the Debtors’ estates, but that does not changethe relevant analysis herein.

See infra

citations to

In re G Survivor Corp.

, 171 B.R. 755, 759(Bankr. S.D.N.Y. 1994).The business judgment standard is employed by courts in determining whether to permita debtor to assume or reject a contract.

See In re Penn Traffic Co.

, 524 F.3d 373, 383 (2d Cir.2008) (citing

In re Orion Pictures Corp.

, 4 F.3d 1095, 1098 (2d Cir. 1993)). This standard“presupposes that the estate will . . . reject contracts whose performance would benefit thecounterparty at the expense of the estate.”

Penn Traffic

, 524 F.3d at 383;