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May 05, 2009

Lawless President Obama Attempts a Robbery; Violates Constitution on a Whim

Drew M. points me to the continuing dust-up between the Chrysler creditors and the Obama Administration and asks about the Fifth Amendment questions they've raised. I missed this story earlier in the day, so it may be old already, but it bears repeating.

Zombie-Chrysler has teamed up with the unions and the Obama Administration to deprive the individuals and institutions who hold Chrysler's debt of their due. They would like the Bankruptcy Court to reorganize the company (by means of bankruptcy sale) into what they're calling "New Chrysler" free and clear of their obligations to pay back the creditors. This type of thing is usually referred to as "debt restructuring", but in this case the more appropriate description would be "Chavez says this isn't your property anymore, puta."

So far the creditors have refused to be cowed by Obama's threats and very public scolding for their lack of patriotic sacrifice. This morning they really started to fight back with a brief eleven-page filing in the bankruptcy proceedings (PDF). Why is it so short? Because they had no more than 15 hours to assemble it.

On Sunday night the debtors (that would be Zombie-Chrysler with the Obama Administration pulling the strings) moved to proceed with the bankruptcy sale. They dropped a 290-page filing under cover of darkness, the object of which is to wipe out the creditor's secured liens. This was an attempt at robbery.

Some background (and this isn't my area of expertise, so this is just general stuff; DWL). Bankruptcy is set up to determine in what order individuals involved with a failed enterprise get paid out of what remains. This is called the "estate" and is usually real property, capital improvements, left over stuff like that. And the Bankruptcy Code is essentially a method of sorting the parties and determining who gets to stand at the front of the line. Secured creditors--like the creditors I've been referring to above--stand at the very front of the line.

That's where the Obama-directed, Chavez-inspired sale motion comes in. They want to move the secured creditors behind certain unsecured creditors (the unions) and thus deprive the creditors of their property. Because if there's one certainty here, it's that there isn't enough money left in Chrysler to pay everyone who's standing in line.

The creditor's motion is straightforward. Probably owing to the very short time they had to prepare it, it doesn't engage in legal analysis so much as simply throw objections at the bankruptcy judge with some caselaw cited so he can work it out himself. That doesn't mean they're wrong.

Ed concentrated on the constitutional claim--that the Obama plan is unconstitutional under the Takings Clause of the Fifth Amendment. Several people have asked if the 1935 case the creditors cite is still good law. It is. In fact, the holding is at the core of Takings jurisprudence. In the words of Justice Brandeis:

"[T]he Fifth Amendment commands that, however great the Nation's need, private property shall not be thus taken even for a wholly public use without just compensation. If the public interest requires, and permits, the taking of property of individual mortgagees in order to relieve the necessities of individual mortgagors, resort must be had to proceedings by eminent domain; so that, through taxation, the burden of the relief afforded in the public interest may be borne by the public."

To the extent the President suggests that he can simply ignore property rights--even if the TARP says he can (which is unclear)--he is incorrect.

Like I said, this isn't my area so I don't know if this is a slam-dunk. Takings law has drifted over the years into arguments over whether a taking deprives the owner entirely of his property, with some courts suggesting that in certain circumstances partial takings aren't protected by the Fifth Amendment. I don't know whether the proposed robbery leaves the creditors with nothing or merely less, and I don't know if that matters when we're talking about dissolving liens rather than regulatory taking. Maybe the Bankruptcy Court will reach the constitutional issue and we'll find out.

But I doubt it. As interesting as it would be to have it on the record that the President ignored the constitution in order to attempt a robbery, the Bankruptcy Court doesn't have to go that far. The creditor's motion describes statutory reasons for disapproving the sale: it doesn't comply with the Bankruptcy Code. Unless Congress wants to try and make this thuggery legal by altering the Code, the Court has ample opportunity to stop it without discussing the constitutional problem.


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posted by Gabriel Malor at 01:45 AM

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