## Facts

- Chrysler LLC filed a prepackaged Chapter 11 case in the Southern District of New York on April 30, 2009.
- Chrysler sought approval under 11 U.S.C. § 363(b) and (f) to sell substantially all operating assets to New CarCo Acquisition LLC, a Fiat-allied purchaser, as a going-concern transaction.
- The transaction provided $2 billion in cash to the estate and assumed specified liabilities (including certain warranties, dealer obligations, and employee-related obligations).
- New Chrysler’s ownership was allocated largely to a UAW-related retiree health trust (VEBA), the U.S. Treasury and Export Development Canada, and Fiat (which contributed management, platforms, and distribution access).
- The bankruptcy court found no feasible alternative purchaser and found that liquidation would yield materially less for first-lien lenders than the sale.
- The bankruptcy court entered a sale order on June 1, 2009 authorizing the transaction.
- Dissenting first-lien secured lenders (the Indiana Pensioners) and other objectors appealed directly to the Second Circuit; the court temporarily stayed the sale and expedited the appeal.
- The Second Circuit affirmed from the bench and later issued an opinion affirming the sale order; the Supreme Court initially stayed, then lifted the stay, allowing the sale to close.
- The Supreme Court later granted certiorari, vacated the Second Circuit’s judgment, and remanded with instructions to dismiss the appeal as moot; the Second Circuit dismissed accordingly.

## Issues

1. Whether a sale of substantially all assets under 11 U.S.C. § 363(b) was an impermissible “sub rosa” reorganization plan that bypassed Chapter 11 plan-confirmation requirements.
2. Whether the sale could be approved “free and clear” of claims and interests under 11 U.S.C. § 363(f), including successor-liability and product-liability claims.
3. Whether the transaction violated priority principles by effectively transferring value from first-lien secured lenders to junior stakeholders (including the VEBA and other constituencies).

## Decision

- The Second Circuit affirmed the bankruptcy court’s sale order on the merits, concluding the transaction satisfied the governing standard for a § 363(b) sale and was supported by the debtor’s business judgment.
- The court held the transaction was not an impermissible sub rosa plan because it was justified by a good business reason and the record supported the finding that immediate liquidation was the only realistic alternative.
- The court rejected the secured lenders’ priority objections, reasoning that the secured lenders received the $2 billion cash purchase price and that consideration flowing to other parties reflected third-party contributions rather than a distribution of estate value.
- The court upheld approval of a “free and clear” sale under § 363(f), including by relying on consent mechanisms for lienholders and a broad understanding of “interest in such property” sufficient to reach certain successor-liability claims.
- The Supreme Court later vacated the judgment and directed dismissal as moot; the Second Circuit dismissed the appeal on remand.

## Legal Principles

- A debtor may sell assets outside the ordinary course under 11 U.S.C. § 363(b) when there is a good business reason and the bankruptcy court’s findings support the sale under the applicable circuit standard.
- The fact that a transaction involves all or substantially all assets does not, by itself, render it a prohibited sub rosa plan; courts assess the full record, including necessity, alternatives, and value effects.
- Bankruptcy priority rules govern distributions of estate property; consideration supplied by third parties to a purchaser (including equity allocations tied to third-party contributions) is not necessarily treated as an estate distribution to which absolute-priority constraints apply.
- A “free and clear” sale under 11 U.S.C. § 363(f) may be approved when statutory conditions are met, including where relevant lienholders consent through authorized agency arrangements accepted by the bankruptcy court.
- Appellate vacatur and dismissal as moot eliminate the precedential effect of the vacated merits judgment, even if the underlying analysis remains influential in later litigation and practice.

## Conclusion

The Second Circuit approved Chrysler’s rapid § 363 going-concern sale as a valid, court-supervised exercise of business judgment that was not a sub rosa plan, permitted a free-and-clear transfer under § 363(f), and did not improperly divert secured-creditor value to junior stakeholders; the Supreme Court later vacated the judgment and required dismissal as moot, removing its binding effect.


In re Chrysler LLC, 576 F.3d 108 (2d Cir. 2009)