In re Old Carco LLC
538 B.R. 674
Bankr. S.D.N.Y.2015Background
- In 2009 the bankruptcy court approved a Sale Order authorizing Old Chrysler to sell substantially all assets to New Chrysler "free and clear" of "Claims," a defined term that expressly included "interests" and barred successor liability except for Assumed Liabilities.
- New Chrysler registered as an employer in multiple states (including Indiana and Illinois) and the states treated New Chrysler as a successor, using Old Chrysler’s Experience Rating to set New Chrysler’s unemployment insurance tax rates; New Chrysler paid under protest and later sued to enforce the Sale Order.
- The Bankruptcy Court initially found it lacked jurisdiction under the Tax Injunction Act; the district court reversed and remanded, directing this court to interpret whether the Sale Order barred states from using Old Chrysler’s Experience Rating.
- The core legal question is whether an employer’s Experience Rating is an “interest in property” cut off by a § 363(f) free-and-clear sale and whether paragraph 23’s "police and regulatory" exception to the Sale Order permits the States’ use of that rating.
- The court concluded (1) under prevailing Second Circuit and other post-Leckie/TWA authority an Experience Rating is an “interest in property,” (2) the Sale Order unambiguously barred states from using Old Chrysler’s Experience Rating unless paragraph 23’s police-and-regulatory exception applies, and (3) paragraph 23 is ambiguous as to scope, so an evidentiary hearing on its meaning is required.
Issues
| Issue | Plaintiff's Argument (New Chrysler) | Defendant's Argument (States — Indiana, Illinois) | Held |
|---|---|---|---|
| Whether Old Chrysler’s Experience Rating is an “interest in property” under § 363(f) and thus cut off by the Sale Order | Experience Rating is an interest tied to the operations/assets sold and therefore should be cut off by the Sale Order | Experience Rating is not an "interest in property" (relying on Wolverine) and thus not extinguished | Court: Experience Rating is an interest in property under § 363(f) (following Leckie, TWA, Second Circuit Chrysler and related authorities) |
| Whether the Sale Order unambiguously prohibits states from using Old Chrysler’s Experience Rating to compute New Chrysler’s unemployment tax | Sale Order’s definitions and repeated "free and clear" and anti-successor provisions unambiguously bar application of the Experience Rating | States initially argued Sale Order did not preclude their tax computations | Court: Sale Order unambiguously extinguishes the States’ right to apply Old Chrysler’s Experience Rating (States conceded this under current law) |
| Whether paragraph 23’s "police and regulatory" exception preserves the States’ use of the Experience Rating | Paragraph 23 should be read narrowly (limited to environmental liabilities) and does not preserve the States’ use | Paragraph 23 covers governmental police/regulatory powers such as unemployment insurance and thus preserves states’ tax enforcement | Court: Paragraph 23 is ambiguous; extrinsic evidence may clarify intent — court will hold a trial on paragraph 23’s meaning |
| Whether post-sale case law construing § 363(f) should be applied retroactively to deny States’ claims | Courts construing § 363(f) (Leckie/TWA/Chrysler) state what the statute meant all along; retroactivity is not an obstacle | States relied on Wolverine and urge nonretroactive application of newer rulings | Court: Retroactivity argument fails; these decisions declare the statute’s meaning and do not bar application here |
Key Cases Cited
- Michigan Emp’t Sec. Comm’n v. Wolverine Radio Co., 930 F.2d 1132 (6th Cir. 1991) (held employer experience rating was not an "interest in property" under § 363(f))
- United Mine Workers of Am. 1992 Benefit Plan v. Leckie Smokeless Coal Co., 99 F.3d 573 (4th Cir. 1996) (adopted expansive § 363(f) test: interests include obligations arising from use of assets)
- In re Trans World Airlines, Inc., 322 F.3d 283 (3d Cir. 2003) (applied Leckie to hold employee-related claims were interests cut off by § 363(f) sale)
- Indiana State Police Pension Trust v. Chrysler LLC (In re Chrysler LLC), 576 F.3d 108 (2d Cir. 2009) (adopted Leckie/TWA approach; § 363(f) covers claims arising from assets sold)
- Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) (framework for retroactivity of judicial decisions)
- James B. Beam Distilling Co. v. Georgia, 501 U.S. 529 (1991) (limits on Chevron Oil retrospective analysis; rules of law apply broadly once announced)