Case: 10-3933 Document: 66 Page: 1 01/24/2011 193437 14

10-3933
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United States Court of Appeals

FOR THE SECOND CIRCUIT

Docket No. 10-3933

___________________

Scotia Motors Incorporated, Golden Motors, Pen Motors Incorporated, Mauro

Motors Incorporated, Bollinger's Incorporated, Brother's Motors
Incorporated/Diamond Dodge, St. Pete Jeep Chrysler, Rallye Auto Plaza
Incorporated, Neil Huffman Incorporated, Bill Spurlock Dodge, Incorporated,
Rock of Texas Automotive Incorporated, South Holland Dodge, Pride Chrysler
Jeep, Thomas Dodge Corporation, Taylor-Parker Motor Company, Evansville
Chrysler Incorporated, Alley's of Kingsport, Incorporated, Augusta Dodge,
Incorporated, M&M Dodge, Incorporated, Scholtes Auto World, Axelrod Chrysler,
Incorporated, Fiore Chrysler Jeep/Jim Fiore Motors, Faws Garage, Lakes Chrysler
Jeep Limited, Van Burkleo Motors Incorporated, Fisher Motors Incorporated,
Courtesy Nissan Incorporated, Key Buick-Pont-AMC Incorporated, Southeast
Automotive, Extreme Jeep Incorporated, Bob Taylor Jeep Incorporated,
Ambassador Auto Service, Incorporated, Mueller Chrysler, Incorporated, Wilson
Dodge Nissan, Preston Chrysler Jeep, Fort Morgan Auto Center Incorporated,
Superior Motors Incorporated, WACO Dodge Sales Incorporated, Archer Chrysler
Jeep, D Patrick Incorporated, Brehm Group Incorporated, Birmingham Chrysler
Plymouth Incorporated, Clarkston Motors Incorporated, Berlin Chrysler
Incorporated, El Dorado Motors, Russo Group Enterprises Incorporated, Fox Hills
Chrysler Jeep Incorporated, Orleans Dodge Chrysler Jeep Incorporated, Walker
Motors Incorporated, Monicatti Chrysler Jeep Sales, Shoemaker's Jeep
Incorporated, Snow, LLC/Champion Chrysler, Ray's Ford-Mercury
Incorported/Ray's CDJ, Barber Bros Motor Company Incorporated, Van Lieshout
& Simon Dodge, Drake Chrysler, Tenafly Chrysler Jeep Incorporated, Wycoff
Chrysler Incorporated, Terry Chrysler Jeep Incorporated, Sowell Automotive
Incorporated, Shout Shore Chrysler, Cimino Brothers Ford Incorporated, Wilson
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Dodge Incorporated, Kalmar Motor Sales, Reuther Investment Company,

Continental Chrysler Jeep Incorporated, MT Clemens Dodge Incorporated, Golick
Chrysler Jeep Incorporated, Bruce Campbell Dodge Incorporated, Clayton
Amerman Incorporated, Island Jeep Incorporated, Auffenberg Chrysler
Incorporated, Duvall Chrysler Dodge Jeep Incorporated,

Movants - Appellants

v.

Old Carco LLC, FKA Chrysler LLC, AKA Chrysler Aspen, AKA Chrysler Town
& Country, AKA Chrysler 300, AKA Chrysler Sebring, AKA Chrysler PT Cruiser,
AKA Dodge, AKA Dodge Avenger, AKA Dodge Caliber, AKA Dodge
Challenger, AKA Dodge Dakota, AKA Dodge Durango, AKA Dodge Grand
Caravan, AKA Dodge Journey, AKA Dodge Nitro, AKA Dodge Ram, AKA
Dodge Sprinter, AKA Dodge Viper, AKA Jeep, AKA Jeep Commander, AKA
Jeep Compass, AKA Jeep Grand Cherokee, AKA Jeep Liberty, AKA Jeep Patriot,
AKA Jeep Wrangler, AKA Mopar, AKA Plymouth, AKA Dodge Charger,

Debtor - Appellee.
_____________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------
REPLY OF THE
REJECTED CHRYSLER DEALERS
----------------------------------------------
Stephen Pidgeon, Attorney
Leo C. Donofrio, Attorney

PIDGEON & DONOFRIO GP

Old Federal Building
3002 Colby Avenue, Suite 306
Everett, Washington 98201
(425)605-4774 telephone
(425)818-5371 facsimile
Attorneys for the Rejected Dealers
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TABLE OF AUTHORITIES

PURSUANT TO “BLUE BOOK” RULE 10.7, APPELLANT’S CITATION OF CASES DOES NOT INCLUDE “CERTIORARI
DENIED” DISPOSITIONS THAT ARE MORE THAN TWO YEARS OLD.

CASES

In re Minges, 602 F.2d 38 (2d Cir. 1979) .................................. 5

Workman v. Bell, 245 F.3d 849, 851-52 (6th Cir. 2001). . . . . . . . . . . . . . . . . . . . . . . . . 12

Hazel-Atlas Glass v. Hartford Empire Co., 322 U.S. 238 (1944) . . . . . . . . . . . . . . . . . 13

Standard Oil of Cal. v. United States, 429 U.S. 17 (1976). . . . . . . . . . . . . . . . . . . . . . . 13

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REPLY

Appellants's Desired Remedies Do Not Concern New Chrysler.

On page 12 of the response brief of the Liquidation Trust, on page 12, states an

unequivocal falsehood before this court, which lends further credence to Appellants' (hereafter,

the “Rejected Dealers”) allegation that a pattern of fraud on the court continues to be perpetrated:

"The Appellants essentially seek to modify the Fiat Transaction and force their dealer

agreements upon New Chrysler despite its business decision not to purchase those agreements."

The record demonstrates that the Rejected Dealers, in their Motion to Reconsider and

their appeals that followed, have never requested anything from New Chrysler, nor have the

Rejected Dealers even named New Chrysler in the pleadings. Appellees' counsel's assumption is

a symptom of the disrespect they continue to show The Rejected Dealers and the Courts. The

Rejected Dealers request nothing from New Chrysler. Instead, the Rejected Dealers seek to have

the approval of the rejection of their contracts by the Bankruptcy Court reversed. While the

Rejected Dealers have not formally briefed the issue of damages, the nature of any possible

remedy should approval of the rejections be reversed, will relate to the Rejected Dealers being

entitled to administrative claim status for the breach of their contracts rather than unsecured

creditor status.

Appellees (hereafter, “Old Chrysler”) have correctly surmised on page 9, footnote 12, of

their brief, that, had the Rejected Dealers’ contracts been assumed prior to May 31, 2009, when

the sale was authorized, the Rejected Dealers would have been entitled to administrative claim

status if New Chrysler later sought to exclude the Rejected Dealers’ contracts on June 2, 2009, as

was the case. Old Chrysler’s response brief states:

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"Among other things, rejecting the Appellants' Excluded Contracts would allow the

Debtors to avoid the potential administrative liabilities that might have accrued had the

contractual relationships continued. The Debtors would have been required to pay these

administrative liabilities in full, unlike claims subject to compromise in bankruptcy. Any such

liabilities could have been prohibitive to the Debtors' efforts to complete the chapter 11 process

and would have adversely impacted other creditors."

This is a correct statement of the rights of the Rejected Dealers had their contracts been

assumed by the Debtor and later excluded by New Chrysler. And that is exactly what should

have happened. But, as is admitted by Old Chrysler’s counsel in the above passage, the Debtor

was concerned with favoring certain creditors and therefore decisions were not based upon sound

business judgment but rather a form of cronyism. Indeed, their argument above pertains to the

rights of creditors, not the rights of New Chrysler, and there is no legal basis for Old Chrysler as

the Debtor in Possession to be playing favorites with the creditor class. This issue was discussed

in the concurring opinion of Judge Mansfield by the 2d Circuit Court's opinion from In re

Minges, 602 F.2d 38 (2d Cir. 1979):

"As a representative of the bankruptcy court, which is a court of equity, the trustee should

not play favorites between the lessee and secured creditors by manipulating the obligations

affecting them, absent some significant benefit to the creditors generally. To do so would be

inequitable."

Old Chrysler was required to preserve the assets of the estate by assuming the entire

dealership network prior to any specific request for dealers to be cut. While prior term sheets

between Old Chrysler and Fiat discussed dealer restructuring, those term sheets anticipated such

restructuring would happen after the two companies merged, and that such restructuring would

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be taken on by the new company. Those term sheets were abandoned along with the attempt to

merge the companies. They have no legal effect on anything as that deal died and was later

supplanted by the Master Transaction Agreement ("MTA") which does not list Appellants

contracts as being singled out for exclusion. While the MTA does specifically request exclusion

of some dealerships, not one of the Rejected Dealers was listed for exclusion in the MTA.

It was not until June 2, 2009, two days after the sale had already been authorized by the

Bankruptcy Court, and the Court had overruled all dealer objections, that New Chrysler first

singled the Rejected Dealers out for exclusion. Therefore, at all times before June 2, 2009, Old

Chrysler should not have rejected the contracts. Old Chrysler had not received any request to cut

even one dealer other than the ones listed in the MTA. Without knowing for certain which

dealers Fiat would seek to exclude, the proper course of action for Old Chrysler was to take on

the entire dealership network by assuming all contracts and then later, if Fiat requested certain

dealers be rejected, that would be the time to do it. The proper decision should have been to

preserve that assets of the estate, all dealerships. Of course, if all were assumed, and 800 were

later excluded, those 800 would be entitled to administrative claims. But that does not concern

Fiat or New Chrysler at all.

The Rejected Dealers argue that their contracts should not have been singled out for

rejection until June 2, 2009. Had that been the case, New Chrysler would still have received the

benefit of their bargain by exercising the right to exclude dealers they did not want to work with,

but those excluded dealers would then have been eligible to receive their full claim as is admitted

by Old Chrysler as referenced above. On May 31, 2009, the approval of the assumption of the

other dealers was put in full effect by the sale authorization. Had all of the dealers been

assumed, which was the only proper course of action available to Old Chrysler, the Rejected

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Dealers would have been properly compensated from the sale price. The decision to reject the

dealers had nothing to do with a request by the purchaser and had everything to do with

protecting favored creditors.

Old Chrysler’s argument that it would not be in the business of selling cars going forward

is irrelevant here since the Debtor was perfectly capable of assuming the rest of the dealers

before the sale was authorized on May 31, 2009, two days before New Chrysler singled out any

of the Appellants for exclusion on June 2, 2009. The Debtor was required to preserve the assets

of the estate. Until Old Chrysler received specific notice from the purchaser that any of the

Appellants had been singled out for exclusion, or, in the alternative, that the purchaser required a

certain number of dealers to be cut, Old Chrysler had no business rejecting 800 dealership

contracts which, until they were informed otherwise, should have been treated as any other asset

of the estate.

Fiat executive Alfredo Altavilla, testified on May 27, 2009, that the Chrysler dealership

network was an asset Fiat viewed as having real value. (See Hr'g Tr., May 27, 2009 at page

300):

"Chrysler is strong in V6 gasoline engines, which we don't have, and in automatic

transmissions. Fiat has a very widespread dealer network in Europe, Latin America and Russia,

where Chrysler is pretty weak at this time, and Chrysler could provide access to its dealer

network in NAFTA to Fiat where today we sell only Ferrari, Maserati which are not really high

volume cars."

It should also be noted that on pg 10, footnote 13 of Old Chrysler’s response brief, they

state that the decision to reject the Rejected Dealers’ contracts was taken on exclusively by the

Old Chrysler. In this, the Rejected Dealers concur.

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The Fraud On The Court Continues As Appellees Make Further Fraudulent Statements

Regarding Witness Testimony.

On pages 21-22 of Old Chrysler’s response brief, counsel again makes fraudulent

statements regarding the testimony of Peter Grady, Old Chrysler’s Director of Dealer

Operations: “He also testified that the Debtors had shared this analysis with Fiat, and that Fiat

expected a reduction of the dealer network as part of the Fiat Transaction. See Hr'g Tr., May 28,

2009, at 539 [SA32] (stating his understanding that Fiat would not have proceeded with the Fiat

Transaction absent rejection of the Appellants' Excluded Contracts and the other excluded dealer

agreements); id. at 476-77...”

Grady's testimony at page 539 concerns the general right of Fiat, contained in the MTA,

to set aside certain contracts for assumption and rejection. Appellants have never disputed that

the purchaser had the right to assume and exclude contracts. The ability to designate which

contracts it sought to keep intact was a major part of the deal. Grady's testimony on page 539

indicates that Fiat would not have gone through with the deal without having that general power

of assumption and rejection, but neither the question asked, nor Grady's answer, discuss the

specific issue of dealership contracts on page 539 of the transcript. Nobody is disputing that the

purchaser could exclude certain contracts. But Old Chrysler has taken this general testimony and

put it before this court as if Grady stated therein that Fiat required the debtor to exclude a certain

amount of contracts as part of the Fiat Transaction. That is a fraudulent attack on the record.

In fact, Grady testified to exactly the opposite wherein he states on pages 476-477, that

Fiat never requested any dealerships be cut. Old Chrysler’s reliance upon pages 476-477 for

their second fraudulent statement above is unconscionable considering the actual testimony by

Grady, which states:

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Q. But Fiat did not require the rejection of the 789 agreements, did it?

A. No. But Fiat did encourage and buys into a restructuring of the dealer network which

includes rationalization.

Q. And this was not done at their insistence, though, was it?

A. It was not done at their insistence but it was part of what we looked at as an

opportunity --

A clear pattern has developed since Judge Gonzalez issued his June 19, 2009, Rejection

Opinion. His behavior has clearly inspired Old Chrysler’s counsel to continue to perpetrate

fraud by entering false witness statements in their pleadings. It's one thing to characterize a

witness's testimony as long as the pleadings (and in the case of the Court, the opinion) make note

that a characterization has been offered. However, it's fraud when a party or the court enters in

official court documents statements which are offered as if they were made under oath. When

Judge Gonzalez stated in Footnote 21 of the rejection Opinion, that Altavilla testified in the

affirmative to a question regarding whether the dealership network had to be restructured for the

deal to close, he committed fraud. Altavilla testified to the exact opposite when he said, on page

352 of the May 27, 2009, Hearing Transcript, that “... Whether it occurs before or after the

closing of the deal is not a material difference.”

On page 42 of Appellees’ brief, they address prior fraudulent statements contained in

their earlier pleadings by indicating that their statements were characterizations, but their original

pleadings did not state that they were making a characterization:

“The Appellants complain that Debtors' counsel described Mr. Altavilla as having

testified that Fiat expected a dealer network restructuring „as part of the sale transaction.‟ Br. at

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24. As shown in Part I above, there is ample, uncontroverted record support for this

characterization.”

We dispute that there is anything at all in the record to support the challenged statement,

but more important is the fact that when Old Chrysler’s counsel made the statement, they did not

indicate in any way that it was a characterization. They simply offered it to the court as if the

witness testified with those words coming out of his mouth. The offer was false. The witness

never said anything of the sort.

Old Chrysler’s counsel now seeks to clarify that it was a characterization and not actual

testimony, but as is documented above, they have undertaken the exact same fraudulent behavior

with regard to Peter Grady, who testified specifically that Fiat did not require the rejection of the

789 dealers, and that Fiat did not insist upon those rejections at the time Grady testified.

There Was No Consideration Given by The Purchaser

For The Two Hundred Million Dollar Restructuring.

On page 30, Footnote 22, of Old Chrysler’s response brief, they again make a false

statement by alleging there were “...negotiated procedures to reduce the dealership network.”

This is false. Multiple instances of testimony prove that the purchaser gave no consideration for

the restructuring. This was candidly admitted by Old Co's Chairman and CEO, Robert Nardelli

(see May 28, 2009 Hearing Transcript at 390-391):

Q. What did Chrysler get in return for the acceleration of this rationalization?

A. Chrysler didn't. It was really the value will be realized in NewCo.

Q. But isn't your obligation to the debtors' estate?

A. Yes.

On the issue of whether Fiat ever requested dealership rejections, Mark Manzo, Chief

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Financial Advisor for the Debtor - who was in line to receive a ten million dollar fee if the sale

closed - testified as follows (see May 27, 2009 Hearing Transcript at 267):

Q. But as far as you know, Fiat never made it a condition to its transaction with Chrysler

that the dealer network be reduced?

A. Not that I recall.

Q. Do you know of any party-in-interest that has made it a requirement for the sale

transaction that the dealer network be reduced?

A. Not that I'm aware of.

The purchaser did not give any consideration for the dealer restructuring because they

never requested it. As Altavilla candidly told the Court, it made no material difference to Fiat

whether restructuring took place before or after the sale closed.

Appellants have never disputed that New Chrysler would restructure the dealership

network - once they took control - but the fact remains that the purchaser did not require the

Debtor to do the restructuring for them. This makes sense when one considers that the prior

management had run down Chrysler to the sad state it was in where it couldn't be trusted to

operate the company any longer.

On page 32 of Appellees' brief, they state:

“The Appellants have not even tried to explain how Mr. Altavilla's statements on Fiat's

behalf and Grady's related testimony could coexist with their theory that Fiat did not want a

dealer network restructuring and would have proceeded without one.”

This contains another false statement. Appellants have never stated in any pleading a

theory alleging that Fiat did not anticipate restructuring the dealership network. It is obvious that

Fiat was more than happy to go through with the deal and do their restructuring down the road

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after the sale closed. That understanding is completely consistent with Altavilla's testimony that

it made no material difference to Fiat whether restructuring took place after the sale closed.

The US Government Did Not Require Dealership Restructuring.

Appellees brief also erroneously indicates that restructuring of the dealership network

was required by the US Government, but the US Government demanded dealership restructuring

for the GM bankruptcy, but failed to demand similar restructuring for Chrysler. (See “Factors

Effecting The Decision of General Motors and Chrysler To Reduce Their Dealership Networks”:

“GM was given 60 days to submit a „more aggressive plan‟ overall, including planning for their

dealership terminations, and was provided an additional $ 6 billion of TARP funds…Treasury

also listed five challenges for Chrysler in a separate viability determination…The Viability

Determination for Chrysler did not address dealership terminations.”)

http://www.sigtarp.gov/reports/audit/2010/Factors%20Affecting%20the%20Decisions%20of%2

0General%20Motors%20and%20Chrysler%20to%20Reduce%20Their%20Dealership%20Netw

orks%207_19_2010.pdf.

The Elements of Fraud On The Court Have Been Met.

While Appellees agree that Workman v. Bell, 245 F.3d 849, 851-52 (6th Cir. 2001), is the

primary authority regarding fraud on the court, they fail to understand the elements listed therein

when they state, on page 36 of their brief, that the Bankruptcy Court made "no positive

averment..." Again, this is obviously false. An “averment” is defined as a “declaration of

facts.” (http://law.yourdictionary.com/averment); Footnote 21 of the Rejection Opinion contains

a declaration of facts and is therefore a positive averment. Furthermore, “the Court” goes

beyond Judge Gonzalez. We find it hard to believe that Appellees would argue that a fraudulent

act by a Judge would not equal fraud on the court because that particular Judge can't defraud

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himself. Appellees seem to be saying that a Judge may enter fraudulent facts on the record since

by doing so he himself would not be defrauded. That is patently absurd. The Court record

continues for appeal and beyond. Any fraudulence entered by a Judge at any stage is equal to

fraud on the court.

Fraud On The Court Is Not Time Barred.

If the Court finds that Judge Gonzalez committed fraud on the court, then, according to

the United States Supreme Court’s opinion in Hazel-Atlas Glass v. Hartford Empire Co., 322

U.S. 238 (1944), overruled on other grounds by Standard Oil of Cal. v. United States, 429 U.S.

17 (1976), the Courts are not impotent against such fraud regardless of the time the fraud was

found and brought to attention. It is not clear to Appellants whether Appellees are now arguing

that even if there was fraud on the court perpetrated by Judge Gonzalez, such fraud should be

ignored by this honorable court. But if that is the argument contained in their brief on pgs. 38-

39, then we obviously disagree and rely on Hazel-Atlas in doing so.

CONCLUSION

For the above reasons, the court should grant the appeal.

Respectfully submitted this 21st day of January, 2011.

// Stephen Pidgeon //
// Leo C. Donofrio //
PIDGEON & DONOFRIO GP
Old Federal Building
3002 Colby Avenue, Suite 306
Everett, Washington 98201
(425)605-4774 telephone
(425)818-5371 facsimile
Attorneys for the Rejected Dealers

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Certification pursuant to Fed.R.App.P. 32(a)(7)(C)

1. This brief complies with the type-volume limitation of Fed.R.App.P

32(a)(7)(B) because:

a. This brief contains 3,636 words, without excluding the parts of the brief

that are exempted pursuant to Fed.R.App.P. 32(a)(7)(B)(iii); and

b. This brief uses a monospaced typeface and contains 341 lines of text,

without excluding the parts of the brief that are exempted pursuant to Fed.R.App.P.

32(a)(7)(B)(iii);

2. This brief complies with the typeface requirements of Fed.R.App.P.

32(a)(5) and the type size requirements of Fed.R.App.P 32(a)(6) because:

a. This brief has been prepared in a proportionally spaced typeface using

Word 2003 and Adobe Acrobat (.pdf) in Times New Roman, using a 12 point font.

// Stephen Pidgeon //
Attorney for the Movants Appellants
Dated this 8th day of November, 2011

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