Chrysler Bankruptcy – Who Is Being Hurt?

Posted by Sergei Lemberg, Esq. on May 21st, 2009

Today’s hearings before the House Judiciary Committee brought out a number of consumer constituencies negatively affected by the Chrysler bankruptcy.  Among them are tort victims, warranty/lemon law claimants, minority dealers and various other consumer constituencies who are being denied the right to payment through the bankruptcy mechanism. Clearly, the politicians have a good understanding of political implications of the bankruptcy but not of the legal issues.

The press, too, has focused on the politics and the equities but not on the law.  These issues have received wide coverage on the news, including the LA Times, NY Times, USA Today, Cars.com, Detroit Metro Times, even US News & World Report chimed in, among others.  Connecticut’s AG Blumenthal today published a letter to the Treasure Secretary decrying Chrysler’s stripping of consumer’s lemon law and warranty rights in bankruptcy.

Based on the law, I believe warranty claimants are better situated legally than other consumer constituencies. As can be seen below my firm represents consumers in lemon lawsuits, and we have objected to the sale and asked for the appointment of a special committee to represent warranty holders.  Consumers who bought cars from Chrysler are better situated because they have contractual rights under their warranties. In bankruptcy, if the entity that comes out of bankruptcy decides to take on these contracts — as it already appears to be doing — then, under the law, it will be also be responsible for paying for the liabilities.  Liabilities in this case are breach of warranty claims and lemon law claims.  This is a fairly common and strong bankruptcy argument — there is no question that a debtor who wishes to continue with an existing obligation which it could otherwise leave behind must, under Section 365 of the Bankruptcy Code, cure defaults.

By contrast, folks who have been injured by Chrysler products don’t have a contract claim — they have ‘contingent’ lawsuits against the bankruptcy entity.  As unfortunate as it may be, those liabilities are typically left behind by bankrupt companies.  Auto dealers whose contracts are being cancelled have just that, cancelled contracts, which are not being assumed and under normal circumstances are converted into bankruptcy claims. I’m supportive of some government effort to establish a fund to deal with these liabilities, but from the legal perspective, these claims normally don’t have the strongest footing in bankruptcy.

Thus far, consumer groups and politicians have been grouping warranty holders together with other consumer constituencies, but I’m not sure that makes the best sense. Legally, the warranty holders have the best argument, so I would treat them separately and advocate, by analogy, for similar treatment for the other groups.

Warranty Claimants’ Objection to Chrysler’s Sale- 05/19/09

Posted by Sergei Lemberg, Esq. on May 19th, 2009
LEMBERG & ASSOCIATES LLC
1100 Summer Street
Stamford, Connecticut 06905
Telephone: (203) 653-2250
Facsimile: (203) 653-3424
slemberg@lemberglaw.com

Sergei Lemberg, Esq.
Attorneys for Lemberg Claimants

 

ANDREWS AND KURTH, LLP

450 Lexington Avenue

New York, NY  10017
Telephone: (212) 850-2849
Fax (212) 850-2929
pgoodman@andrewskurth.com

Peter Goodman, Esq.

Special Bankruptcy Counsel To
Lemberg & Associates LLC


UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

  In re

 

Chrysler LLC, et al.,

 

                                               Debtors.

 

 

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  Case No. 09-50002 (AJG) 

 

LEMBERG CLAIMANTS’ OBJECTION TO DEBTORS’ MOTION, PURSUANT TO SECTIONS 105, 363 AND 365 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULES 2002, 6004 AND 6006, FOR (I) AN ORDER (A) APPROVING BIDDING PROCEDURES AND BIDDER PROTECTIONS FOR THE SALE OF SUBSTANTIALLY ALL OF THE DEBTORS’ ASSETS AND (B) SCHEDULING A FINAL SALE HEARING AND APPROVING THE FORM AND MANNER OF NOTICE THEREOF; AND (II) AN ORDER (A) AUTHORIZING THE SALE OF SUBSTANTIALLY ALL OF THE DEBTORS’ ASSETS, FREE AND CLEAR OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES, (B) AUTHORIZING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES IN CONNECTION THEREWITH AND RELATED PROCEDURES, AND (C) GRANTING CERTAIN RELATED RELIEF

 

TO THE HONORABLE ARTHUR GONZALEZ
UNITED STATES BANKRUPTCY JUDGE:

            On behalf of Michelle Simmons, Dicel Ith, and Ashley Cassell, consumers who own a Chrysler Automobile (the “Lemberg Claimants”), Lemberg & Associates LLC hereby files this objection to Motion Of Debtors And Debtors In Possession, Pursuant To Sections 105, 363 And 365 Of The Bankruptcy Code And Bankruptcy Rules 2002, 6004 And 6006, For (I) An Order (A) Approving Bidding Procedures And Bidder Protections For The Sale Of Substantially All Of The Debtors’ Assets And (B) Scheduling A Final Sale Hearing And Approving The Form And Manner Of Notice Thereof; And (Ii) An Order (A) Authorizing The Sale Of Substantially All Of The Debtors’ Assets, Free And Clear Of Liens, Claims, Interests And Encumbrances, (B) Authorizing The Assumption And Assignment Of Certain Executory Contracts And Unexpired Leases In Connection Therewith And Related Procedures, And (C) Granting Certain Related Relief (“Sale Motion”).[1] [2]

INTRODUCTION

  • 1. The Sale Motion fails to articulate, in violation of 16 C.F.R. § 701.3, how the Debtors and the Purchaser propose to resolve hundreds and potentially thousands of claims by consumers, including the Lemberg Claimants, who had purchased defective vehicles from Chrysler prior to its April 29, 2009, bankruptcy filing. According to published figures, Chrysler sold 2,142,505 vehicles in 2006, 2,076,650 vehicles in 2007, and 1,453,122 vehicles in 2008. The Center for Automotive Safety has previously estimated that, on average, 1% of all cars sold in the United States are ‘lemons.’ Even using the conservative estimate of 1%, at least 56,000 consumers who bought Chrysler cars from 2006 through 2008 may have bought a defective vehicle. These claims are not mere “warranty claims” for vehicle repair; rather, these are claims by consumers who bought defective vehicles or whose warranties have been dishonored by Chrysler. As the debtor recognized in its first day motions, Chrysler’s survival depends on its ability to sustain customer loyalty.[3] In this regard, the First Day Motions address issues related to ongoing repairs, sales, and incentives (Id. at ¶¶ 23-24). However, the First Day Motions did not address claims for consumers filing against the Debtors and the Purchaser under state Lemon Law statutes as well as breach of warranty claims.
  • 2. Following the Chapter 11 filing, the Debtors filed the Master Transaction Agreement, dated as of April 30, 2009, with the Court (the “Agreement”). Section 2.08(g) of that Agreement includes within the defined term “Assumed Liabilities” the following claims:

(g) all Liabilities pursuant to product warranties, product returns and rebates on vehicles sold by Sellers prior to the Closing. [Docket 190, Exhibit A]

Read literally, this subsection provides for the assumption of Lemon Law and breached warranty liabilities by the Purchaser. 

  • 3. Despite this crystal-clear commitment, until recently Debtor’s position had been that no Lemon Law and warranty claims would be paid and that such claims would be treated as unsecured claimants. Indeed, many consumers who had already settled claims against Chrysler, but had either not yet returned or exchanged their cars, were left with worthless checks or in limbo. Exhibit A. Recognizing the inconsistency between the Debtors’ public position and section 2.08(g) of the Agreement, on May 15, 2009, the undersigned sent a letter to the United States Trustee for the Southern District of New York, alerting the Trustee to the issue and requesting the appointment of an Official Committee to represent Statutory Lemon Law and Warranty Claim Holders in the Chrysler bankruptcy proceedings, pursuant to 11 U.S.C. §1102(a)(2). Exhibit B.
  • 4. The Debtors then seemingly changed course and announced that they will reissue settlement checks. Exhibit C. Their counsel has indicated that the Debtors will resume considering pre-petition demand letter claims but that arbitration and litigation claims are stayed.
  • 5. While the Agreement appears to obligate the Purchaser to honor or process payments on Lemon Law and warranty claims with respect to pre-petition arbitration and litigation claims, the Debtors’ conduct is inapposite of this expressed obligation. As of now, a significant number of consumer claimants remain out of luck, with no expressed obligation to assume lemon law and warranty obligations. The Debtors have not committed to honoring pending lemon law arbitrations or existing claims that have been filed, and all Lemon Law and warranty lawsuits remain stayed. For instance, Dicel Ith, a consumer from Maryland, who had won an arbitration award against Chrysler for vehicle repurchase, is unable to enforce the award.
  • 6. The Lemberg Claimants hereby request that the Agreement be clarified to include specific provisions relating to the assumption and resolution of all pre-petition and post-petition Lemon Law and warranty disputes, including pending litigation and new litigation claims based on demand letters and arbitration and litigation claims. For consumers who had bought Chrysler vehicles pre-petition, it is vital to have the ability to prosecute Lemon Law and warranty claims through arbitration or in court.

BACKGROUND

  • 7. Outside of bankruptcy, two laws protect purchasers of defective vehicles. The first are statutory “Lemon Laws” enacted in all states which protect consumers who purchase vehicles that simply do not work and cannot be fixed. While requirements differ from state-to-state, typically, once it is determined that a vehicle has been out-of-service a requisite number of days or that a particular problem has been repaired more than a reasonable number of times, the vehicle is deemed a ‘lemon.’ Its owner then has a right to have the vehicle repurchased or replaced by the manufacturer. General Motors Corp. v. Lee, 193 A.D.2d 741 (2nd Dept. 1993).[4]
  • 8. Lemon Laws are in the nature of governmental regulatory actions – in most states, the attorneys general oversee enforcement of lemon law arbitration programs which adjudicate consumer claims, but private actions can, and are, routinely brought and permitted under the statutory schemes. [5]
  • 9. As then Attorney General Spitzer stated in response to a court decision in Spitzer v. Chrysler several years ago:

The purpose of the Lemon Law is to end the cycle of repairs and provide consumers redress for vehicles with defects that cannot be fixed after a reasonable number of attempts…Requiring a consumer to endure further repair attempts after the manufacturer has failed four times to repair the vehicle would defeat the purpose of the law.

……

One of the most important missions of my office is to advance and protect the rights of consumers…The New and Used Car Lemon Law arbitration program has been one of the most significant consumer protection laws in New York and has provided over $195 million in relief to consumers since it started.[6]

  • 10. Nationwide, consumer lemon law arbitrations fall into several categories:
  • a. Non-mandatory state-run arbitration programs administered by government agencies, either in addition to certifying manufacturer-sponsored programs or instead of them.[7]
  • b. Attorney general-run programs maintained by attorneys general in states where consumers have no right to file suit at all. [8]
  • c. State-certified, manufacturer-sponsored resolution programs in states that require consumers to first avail themselves of the arbitration forum before filing suit.[9]
  • d. National arbitration programs that may or may not be certified in a particular state.[10]
  • 11. Recognizing the importance of this problem to consumers, most car manufacturers have established Early Resolution Programs to ensure expedient resolution of Lemon Law claims. As one would expect, a significant number of these claims remain outstanding following Chrysler’s Chapter 11 filing.
  • 12. Paralleling the protective nature of Lemon Laws are warranty laws, which govern warranty contracts between manufacturers and consumers. Warranty contracts are governed by U.C.C. Article 2 law. Under the Federal Magnuson-Moss Warranty Act (15 U.S.C § 2301, et seq.), a consumer aggrieved by a manufacturer’s failure to meet its warranty promises may sue the manufacturer for the breach and recover damages, including costs and legal fees. In most states, a claim arises when a manufacturer has been unable to repair a vehicle within a reasonable time or within a reasonable number of attempts or, alternatively, when the consumer’s faith in the vehicle is shaken. These are not lemon law claims (because the statutory law coverage periods have expired for these vehicles), but they are similar, because these consumers’ vehicles do not work and cannot be fixed. These claims, if asserted in the arbitration or litigation context, should be assumed as if they were new claims based upon demand letters. Without the ability to prosecute claims, the Debtors’ commitment to ‘consider’ pre-litigation demands has no substance.
  • 13. The Debtors indicated that all warranty and repurchase obligations will be assumed. Section 2.08(g) of the Agreement [Docket 190, Exhibit A], approved by the Court, includes the Assumed Liabilities liability on warranties and automobile returns, which indicates that warranty liabilities and Lemon Law claims (i.e. returns) will be honored. Indeed, the Debtors’ current position that these claims will indeed be paid provided such claims do not arise in litigation makes no sense. Currently, all existing (and potentially newly-filed) arbitrations and litigation claims against the Debtors are stayed, but the Debtors have seemingly committed to paying pre-bankruptcy claims based on demand letters (so called ‘claim letters’). However, if you follow the Debtors’ logic, there is nothing in the proposed Agreement that provides for such disparate treatment or payment. Thousands of consumers have filed Lemon Law arbitration claims against the Debtors which remain stayed; thousands more have lawsuits related to defects in their vehicles. Such disparate treatment between claim letters and other claims, which are essentially the same type of claim, would not be permitted under Section 1122 of the Bankruptcy Code.

LEGAL AUTHORITY

  • 14. The Lemberg Claimants’ objection is based, in part, on basic principles of contract interpretation. Where a written agreement clearly and unambiguously sets forth the parties’ intent, a court called upon to interpret the contract must give effect to the intent as indicated by the language used. Crane Co. v. Coltec Indus., Inc., 171 F.3d 733, 737 (2d Cir. 1999); Aon Financial Prods., Inc. v. Societe Generale, 476 F.3d 90, 96 (2d Cir. 2007) (If a contract’s language is unambiguous, the court is required to give effect to the contract as written). Here, the Purchaser has agreed to assume warranty liability and liability on Lemon Law claims, and it must be compelled to do so by the Court.
  • 15. In addition, the disclosure and clarification requested herein is mandated by Federal Regulations. Through the contemplated sale transaction, the Debtors and the Purchaser are altering warranty rights of Lemberg Claimants and other similarly situated parties. In their written warranties, the Debtors and the Purchaser, as warrantors, must “fully and conspicuously disclose in simple and readily understood language [its] terms and conditions.” 15 U.S.C. § 2302(a) (1994); see also Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. Abrams, 899 F.2d 1315, 1317 (2d Cir.1990), cert. denied, 499 U.S. 912, 111 S.Ct. 1122, 113 L.Ed.2d 230 (1991).
  • 16. The accompanying regulations provide as follows:
  • (a) Any warrantor warranting to a consumer by means of a written warranty a consumer product actually costing the consumer more than $15.00 shall clearly and conspicuously disclose in a single document in simple and readily understood language the following terms and conditions:

….

(3) A statement of what the warrantor will do in the event of a defect, malfunction or failure to conform with the written warranty, including the items or services the warrantor will pay for or provide, and, where necessary for clarification, those which the warrantor will not pay or provide;

(4) The point in time or event on which the warranty terms commences, if different from the purchase date, and the time period or other measurement of warranty duration;

(5) A step-by-step explanation of the procedure which the consumer should follow in order to obtain performance of any warranty obligation, including the persons or class of persons authorized to perform warranty obligations.  This includes the name(s) of the warrantor(s) together with: The mailing address(es) of the warrantors(s), and/or any employee or department of the warrantor responsible for the performance of warranty obligations, and/or a telephone number which consumers may use without charge to obtain information on warranty performance;

(6) Information respecting the availability of any informal dispute settlement mechanism elected by the warrantor in compliance with part 703 of this subchapter.  16 C.F.R. § 701.3.

  • 17. The proposed sale transaction alters the terms of Chrysler’s outstanding warranties but fails to comply with the disclosure requirements mandated by the CFR. There is no statement relating to what Chrysler would do to address ongoing warranty repairs; it is unclear when consumers’ warranties commence, there is no explanation as to what consumers should do to redress breaches, nor is there any information relating to the availability of informal dispute resolution mechanisms going forward.

NOTICE AND PRIOR REQUEST

  • 18. Notice of this Objection has been provided to the parties required to be supplied with notice in the Court’s Order dated May 7, 2009. No prior requests for the relief sought in this Objection has been made to this or any other Court.

WHEREFORE, the Lemberg Claimants hereby request an order from the court:

  • a. Compelling the Purchaser to assume, recognize and resolve all pending pre- and post- petition litigation and arbitration claims;
  • b. Compelling the Purchaser to pay, as appropriate, amounts necessary to effectuate settlement on these claims;

 

  • c. Alternatively, compelling the Purchaser to comply fully with 16 C.F.R. § 701.3 with respect to their ongoing warranty obligations and disclose the basis in the public filings between the disparate treatment of claims it has decided to assume and arbitration/litigation claims not being honored.

 

LEMBERG & ASSOCIATES L.L.C.

By:_________________________

Sergei Lemberg, Esq.
Attorneys for the Lemberg Claimants
Lemberg Associates LLC
1100 Summer Street
Stamford, CT 06905
Phone (203) 653-2250
Fax (203) 653-3424
slemberg@lemberglaw.com             andPeter Goodman, Esq.
Andrews Kurth LLP
450 Lexington Avenue, 15th Floor
New York, NY 10017
Phone (212) 850-2849
Fax (212) 850-2929
pgoodman@andrewskurth.com

As Special Bankruptcy Counsel to Lemberg & Associates LLC

   

 

   

 
 

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

  In re

 

Chrysler LLC, et al.,

 

                                               Debtors.

 

 

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:

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  Case No. 09-50002 (AJG) 

CERTIFICATE OF SERVICE

            I, Sergei Lemberg, do hereby certify, that on May 19, 2009, I caused true and correct copies of the Motion to Compel the Debtor to Cure Defaults and Proceed with Resolving All Lemon Law Disputes to be served by facsimile and by electronically transmitting the document listed above to the email addresses and/ or facsimile numbers of the persons set forth on the attached service list

            I declare under penalty of perjury under the laws of the United States of America and the State of Connecticut that the foregoing is true and correct.

 

Dated: May 19, 2009                                                     _____________________________________

                                                                                    Sergei Lemberg

 

 

 

 

 

 

 

 

 

SERVICE LIST

Chrysler LLC

Attn: Holly E. Leese, Esq.

Senior Vice President, General Counsel and Secretary

1000 Chrysler Drive

CIMS # 485-14-36

Auburn Hills, MI 48326

Email: ChryslerOGC@chrysler.com

 

Corrine Ball, Esq.

Veerle Roovers, Esq.

Nathan Lebioda, Esq.

JONES DAY

222 East 41st Street

New York, NY 10017

Telephone: (212) 326-3939

Facsimile: (212) 755-7306

Email: cball@jonesday.com

Email: vroovers@jonesday.com

Email: nlebioda@jonesday.com

 

Jeffrey B. Ellman, Esq.

JONES DAY

1420 Peachtree Street, N.E.

Suite 800

Atlanta, GA 30309

Telephone: (404) 521-3939

Facsimile: (404) 581-8330

Email: jbellman@jonesday.com

 

Capstone Advisory Group, LLC

Attn: Robert Manzo

Park 80 West, Plaza 1, Plaza Level

Saddle Brook, NJ 07663

Telephone: (201) 587-7190
Facsimile: (201) 587-7102
Email:

 

Kramer Levin Naftalis & Frankel LLP

Attn: Thomas M. Mayer, Esq.

1177 Avenue of the Americas

New York, NY 10036

Telephone: (212) 715-9169
Facsimile: (212) 715-8000

Email: tmayer@kramerlevin.com

 

Kramer Levin Naftalis & Frankel LLP

Attn: Kenneth H. Eckstein, Esq.

1177 Avenue of the Americas

New York, NY 10036

Telephone: (212) 715-9229
Facsimile: (212) 715-8229

Email: keckstein@kramerlevin.com

 

Simpson Thacher & Bartlett, LLP

Attn: Peter Pantaleo, Esq.

425 Lexington Avenue

New York, NY 10017

Telephone: (212) 455-2220

Facsimile: (212) 455-2502

Email: ppantaleo@stblaw.com

 

Simpson Thacher & Bartlett, LLP

Attn: David Eisenberg, Esq.

425 Lexington Avenue

New York, NY 10017

Telephone: (212) 455-7103

Facsimile: (212) 455-2502

Email: Deisenberg@stblaw.com

 

United States Trustee

Attn: Brian S. Masumoto, Esq,

33 Whitehall Street, 21st Floor

New York, NY 10004

Telephone: (212) 501-0500

Facsimile: (212) 668-2255

 

United States Treasury

Attn: Matthew Feldman, Esq.

1500 Pennsylvania Avenue NW, Room 2312

Washington, D.C. 20220

 

Cadwalader, Wickersham & Taft LLP

Of Counsel to the Presidential Task Force on the Auto Industry

Attn: John J. Rapisardi, Esq.

One World Financial Center

New York, NY 10281

Telephone: (212) 504-5585

Email: john.rapisardi@cwt.com

 

Vedder Price, P.C.

Counsel to Export Development Canada

Attn: Michael J. Edelman, Esq.

1633 Broadway, 47th Floor

New York, NY 10019

Telephone: (212) 407-7770

Facsimile: (212) 407-7799

Email: mjedelman@vedderprice.com

 

The Purchaser and Fiat

C/O Fiat S.p.A

Attn: Chief Executive Officer

Via Nizza n. 250

10125 Torino, Italy

 

Sullivan and Cromwell LLP

Counsel to the Purchaser and Fiat

Attn: Scott D. Miller, Esq.

125 Broad Street

New York, NY 10004

Telephone: (650) 461-5620
Facsimile: (650) 461-5700

Email: millersc@sullcrom.com

 

Sullivan and Cromwell LLP

Counsel to the Purchaser and Fiat

Attn: Andrew Dietderich, Esq.

125 Broad Street

New York, NY 10004

Telephone: (212) 558-3830
Facsimile: (212) 558-3588

Email: dietdericha@sullcrom.com

 

Sullivan and Cromwell LLP

Counsel to the Purchaser and Fiat

Attn: Hydee R. Feldstein, Esq.

1888 Century Park East, 21st Floor

Los Angeles, CA 90067

Telephone: (310) 712-6600

Facsimile: (310) 712-8800

Email: feldsteinh@sullcrom.com

 

International Union, UAW

Attn: Daniel Sherrick, Esq.

8000 East Jefferson Avenue

Detroit, MI 48214

 

Cleary Gottlieb Steen & Hamilton LLP

Counsel to the UAW

Attn: James L. Bromley, Esq.

One Liberty Plaza

New York, NY 10006

Telephone: (212) 225-2264

Facsimile: (212) 225-3999

Email: jbromley@cgsh.com

 

Cohen, Weiss & Simon LLP

Counsel to the UAW

Attn: Babette Ceccotti, Esq.

330 W. 42nd Street

New York, NY 10036

Telephone: (212) 356-0227
Facsimile: (646) 473-8227

Email: bceccotti@cwsny.com

 

Togut, Segal & Segal, LLP

Conflicts Counsel to the Debtors

Attn: Albert Togut, Esq.

One Penn Plaza

New York, NY 10119

Telephone: (212) 594-5000

Facsimile: (212) 967-4258

Email: altogut@teamtogut.com

 

Epiq Bankruptcy Solutions, LLC

Attn: Chrysler Claims Department

757 Third Avenue

New York, NY 10017

Facsimile: (646) 282-2501

Email: Chrysler@epiqsystems.com

 

 

 

 


 [1]               Lemberg & Associates LLC, has been asked by a number of consumers claimants to request the appointment of an official Statutory Lemon Law and Warrant Claim Holders in the Chrysler bankruptcy proceedings, pursuant to 11 U.S.C.§ 1102(a)(2).[2]               The Lemberg Claimants are joined by clients represented by New York attorney Eugene Krukas, Esq.

[3]               Motion of Debtors and Debtors-in-Possession, Pursuant to Sections 105(a) and 363(b) of the Bankruptcy Code, for Interim and Final Orders Authorizing the Debtors to Honor or Pay Pre-petition Obligations to or for the Benefit of Their Dealers and Other Customers, and For Related Relief. [Docket 26]

[4]               See also 6 Del.C. § 5002; Jackson v. Hyundai Motor America, 1997 WL 119794 (E.D.Pa. March 6, 1997) (If manufacturer cannot repair within reasonable number of attempts, the manufacturer shall replace or repurchase the vehicle); Cal. Civ. Code § 1790; Ortega v. Toyota Motor Sales, USA, Inc., 572 F.Supp.2d 1218, 1221 (S.D.Cal. 2008) (Manufacturer has obligation to repurchase or replace motor vehicles that do not conform to warranties); Fla. Stat. § 681; Lebel v. Rampage Sport Fishing Yachts, 2007 WL 1724942 (S.D.Fla. June 14, 2007); Wis.Stat. § 218; Hughes v. Chrysler Motors Corp., 542 N.W.2d 148, 151 (Wis. 1996); Md.Code Ann., Com. Law § 14-1502; Evans v. General Motors Corp., 459 F.Supp.2d 407, 412 (D.Md. 2006) (If manufacturer cannot repair or correct any defect, manufacturer shall replace vehicle at consumer’s options).

[5]               Ala. Code. § 8-20A-1; Cal. Civ. Code § 1793; Conn. Gen. Stat. § 42-179; Del. Code Ann. tit. 6; D.C. Code §50-501; Haw. Rev. Stat. §481I-1; 815 Ill. Comp. Stat. § 380/1; Ind. Code § 24-5-13-1; Mass. Gen Laws ch. 90, § 7N1/2; Neb. Rev. Stat. § 60-2701; N.Y. Gen. Bus. Law Alaska Stat. § 45.45.300; Mont. Code Ann. § 61-4-501; 198-a; Vt. Stat. Ann. tit. 9, § 4170.

[6]               http://www.oag.state.ny.us/media_center/2004/sep/sep20b_04.html

[7]               Cal. Civ. Code § 1793; Conn. Gen. Stat. § 42-179; Del. Code Ann. tit. 6; D.C. Code §50-501; Haw. Rev. Stat. §481I-1; 815 Ill. Comp. Stat. § 380/1; Ind. Code § 24-5-13-1; Mass. Gen Laws ch. 90, § 7N1/2; Neb. Rev. Stat. § 60-2701; N.Y. Gen. Bus. Law Alaska Stat. § 45.45.300; Mont. Code Ann. § 61-4-501; 198-a; Vt. Stat. Ann. tit. 9, § 4170.

[8]               Ga. Code Ann. § 10-1-780; Me. Rev. Stat. Ann. tit. 10, § 1161; N.H. Rev. Stat. Ann. Alaska Stat. § 45.45.300; Mont. Code Ann. § 61-4-501; 357-D:1.

[9]               Ala. Code. § 8-20A-1; Ariz. Rev. Stat. Ann. § 44-1261; Ark. Code Ann. § 4-90-401; Colo. Rev. Stat. § 42-10-101; Fla. Stat. § 681.10; Idaho Code Ann. § 48-901; Iowa Code § 322G.1; Ka. Stat. Ann. §50-645; Ky. Rev. Stat. Ann. § 367.840; La. Rev. Stat. Ann. § 51:1941; Md. Code. Ann., Com. Law § 14-1501; Mich. Comp. Laws § 257.1401; Minn. Stat. § 325F.665; Miss. Code Ann. § 63-17-151;  Mo. Rev. Stat. § 407.560; Nav. Rev. Stat. Alaska Stat. § 45.45.300; Mont. Code Ann. § 61-4-501; 597.600; S.C. Code Ann. § 56-28-10.

[10]             Better Business Bureau Auto Line Program for Lemon Law Arbitration.

                                                                                                      Hearing Date: May 27, 2009      at 10:00 P.M.

                                                                                                      Objections Due: May 19, 2009
                                                                                                      at 4:00 P.M.

LEMBERG & ASSOCIATES LLC
1100 Summer Street
Stamford, Connecticut 06905
Telephone: (203) 653-2250

Facsimile: (203) 653-3424
slemberg@lemberglaw.com

Sergei Lemberg, Esq.
Attorneys for Lemberg Claimants

 

ANDREWS AND KURTH, LLP

450 Lexington Avenue

New York, NY  10017
Telephone: (212) 850-2849
Fax (212) 850-2929
pgoodman@andrewskurth.com

Peter Goodman, Esq.

Special Bankruptcy Counsel To
Lemberg & Associates LLC


UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

  In re

 

Chrysler LLC, et al.,

 

                                               Debtors.

 

 

:

:

:

:

:

:

:

:

:

  Case No. 09-50002 (AJG) 

 

 

LEMBERG CLAIMANTS’ OBJECTION TO DEBTORS’ MOTION, PURSUANT TO SECTIONS 105, 363 AND 365 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULES 2002, 6004 AND 6006, FOR (I) AN ORDER (A) APPROVING BIDDING PROCEDURES AND BIDDER PROTECTIONS FOR THE SALE OF SUBSTANTIALLY ALL OF THE DEBTORS’ ASSETS AND (B) SCHEDULING A FINAL SALE HEARING AND APPROVING THE FORM AND MANNER OF NOTICE THEREOF; AND (II) AN ORDER (A) AUTHORIZING THE SALE OF SUBSTANTIALLY ALL OF THE DEBTORS’ ASSETS, FREE AND CLEAR OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES, (B) AUTHORIZING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES IN CONNECTION THEREWITH AND RELATED PROCEDURES, AND (C) GRANTING CERTAIN RELATED RELIEF

 

TO THE HONORABLE ARTHUR GONZALEZ
UNITED STATES BANKRUPTCY JUDGE:

            On behalf of Michelle Simmons, Dicel Ith, and Ashley Cassell, consumers who own a Chrysler Automobile (the “Lemberg Claimants”), Lemberg & Associates LLC hereby files this objection to Motion Of Debtors And Debtors In Possession, Pursuant To Sections 105, 363 And 365 Of The Bankruptcy Code And Bankruptcy Rules 2002, 6004 And 6006, For (I) An Order (A) Approving Bidding Procedures And Bidder Protections For The Sale Of Substantially All Of The Debtors’ Assets And (B) Scheduling A Final Sale Hearing And Approving The Form And Manner Of Notice Thereof; And (Ii) An Order (A) Authorizing The Sale Of Substantially All Of The Debtors’ Assets, Free And Clear Of Liens, Claims, Interests And Encumbrances, (B) Authorizing The Assumption And Assignment Of Certain Executory Contracts And Unexpired Leases In Connection Therewith And Related Procedures, And (C) Granting Certain Related Relief (“Sale Motion”).[1] [2]

INTRODUCTION

  • 1. The Sale Motion fails to articulate, in violation of 16 C.F.R. § 701.3, how the Debtors and the Purchaser propose to resolve hundreds and potentially thousands of claims by consumers, including the Lemberg Claimants, who had purchased defective vehicles from Chrysler prior to its April 29, 2009, bankruptcy filing. According to published figures, Chrysler sold 2,142,505 vehicles in 2006, 2,076,650 vehicles in 2007, and 1,453,122 vehicles in 2008. The Center for Automotive Safety has previously estimated that, on average, 1% of all cars sold in the United States are ‘lemons.’ Even using the conservative estimate of 1%, at least 56,000 consumers who bought Chrysler cars from 2006 through 2008 may have bought a defective vehicle. These claims are not mere “warranty claims” for vehicle repair; rather, these are claims by consumers who bought defective vehicles or whose warranties have been dishonored by Chrysler. As the debtor recognized in its first day motions, Chrysler’s survival depends on its ability to sustain customer loyalty.[3] In this regard, the First Day Motions address issues related to ongoing repairs, sales, and incentives (Id. at ¶¶ 23-24). However, the First Day Motions did not address claims for consumers filing against the Debtors and the Purchaser under state Lemon Law statutes as well as breach of warranty claims.
  • 2. Following the Chapter 11 filing, the Debtors filed the Master Transaction Agreement, dated as of April 30, 2009, with the Court (the “Agreement”). Section 2.08(g) of that Agreement includes within the defined term “Assumed Liabilities” the following claims:

(g) all Liabilities pursuant to product warranties, product returns and rebates on vehicles sold by Sellers prior to the Closing. [Docket 190, Exhibit A]

Read literally, this subsection provides for the assumption of Lemon Law and breached warranty liabilities by the Purchaser. 

  • 3. Despite this crystal-clear commitment, until recently Debtor’s position had been that no Lemon Law and warranty claims would be paid and that such claims would be treated as unsecured claimants. Indeed, many consumers who had already settled claims against Chrysler, but had either not yet returned or exchanged their cars, were left with worthless checks or in limbo. Exhibit A. Recognizing the inconsistency between the Debtors’ public position and section 2.08(g) of the Agreement, on May 15, 2009, the undersigned sent a letter to the United States Trustee for the Southern District of New York, alerting the Trustee to the issue and requesting the appointment of an Official Committee to represent Statutory Lemon Law and Warranty Claim Holders in the Chrysler bankruptcy proceedings, pursuant to 11 U.S.C. §1102(a)(2). Exhibit B.
  • 4. The Debtors then seemingly changed course and announced that they will reissue settlement checks. Exhibit C. Their counsel has indicated that the Debtors will resume considering pre-petition demand letter claims but that arbitration and litigation claims are stayed.
  • 5. While the Agreement appears to obligate the Purchaser to honor or process payments on Lemon Law and warranty claims with respect to pre-petition arbitration and litigation claims, the Debtors’ conduct is inapposite of this expressed obligation. As of now, a significant number of consumer claimants remain out of luck, with no expressed obligation to assume lemon law and warranty obligations. The Debtors have not committed to honoring pending lemon law arbitrations or existing claims that have been filed, and all Lemon Law and warranty lawsuits remain stayed. For instance, Dicel Ith, a consumer from Maryland, who had won an arbitration award against Chrysler for vehicle repurchase, is unable to enforce the award.
  • 6. The Lemberg Claimants hereby request that the Agreement be clarified to include specific provisions relating to the assumption and resolution of all pre-petition and post-petition Lemon Law and warranty disputes, including pending litigation and new litigation claims based on demand letters and arbitration and litigation claims. For consumers who had bought Chrysler vehicles pre-petition, it is vital to have the ability to prosecute Lemon Law and warranty claims through arbitration or in court.

BACKGROUND

  • 7. Outside of bankruptcy, two laws protect purchasers of defective vehicles. The first are statutory “Lemon Laws” enacted in all states which protect consumers who purchase vehicles that simply do not work and cannot be fixed. While requirements differ from state-to-state, typically, once it is determined that a vehicle has been out-of-service a requisite number of days or that a particular problem has been repaired more than a reasonable number of times, the vehicle is deemed a ‘lemon.’ Its owner then has a right to have the vehicle repurchased or replaced by the manufacturer. General Motors Corp. v. Lee, 193 A.D.2d 741 (2nd Dept. 1993).[4]
  • 8. Lemon Laws are in the nature of governmental regulatory actions – in most states, the attorneys general oversee enforcement of lemon law arbitration programs which adjudicate consumer claims, but private actions can, and are, routinely brought and permitted under the statutory schemes. [5]
  • 9. As then Attorney General Spitzer stated in response to a court decision in Spitzer v. Chrysler several years ago:

The purpose of the Lemon Law is to end the cycle of repairs and provide consumers redress for vehicles with defects that cannot be fixed after a reasonable number of attempts…Requiring a consumer to endure further repair attempts after the manufacturer has failed four times to repair the vehicle would defeat the purpose of the law.

……

One of the most important missions of my office is to advance and protect the rights of consumers…The New and Used Car Lemon Law arbitration program has been one of the most significant consumer protection laws in New York and has provided over $195 million in relief to consumers since it started.[6]

  • 10. Nationwide, consumer lemon law arbitrations fall into several categories:
  • a. Non-mandatory state-run arbitration programs administered by government agencies, either in addition to certifying manufacturer-sponsored programs or instead of them.[7]
  • b. Attorney general-run programs maintained by attorneys general in states where consumers have no right to file suit at all. [8]
  • c. State-certified, manufacturer-sponsored resolution programs in states that require consumers to first avail themselves of the arbitration forum before filing suit.[9]
  • d. National arbitration programs that may or may not be certified in a particular state.[10]
  • 11. Recognizing the importance of this problem to consumers, most car manufacturers have established Early Resolution Programs to ensure expedient resolution of Lemon Law claims. As one would expect, a significant number of these claims remain outstanding following Chrysler’s Chapter 11 filing.
  • 12. Paralleling the protective nature of Lemon Laws are warranty laws, which govern warranty contracts between manufacturers and consumers. Warranty contracts are governed by U.C.C. Article 2 law. Under the Federal Magnuson-Moss Warranty Act (15 U.S.C § 2301, et seq.), a consumer aggrieved by a manufacturer’s failure to meet its warranty promises may sue the manufacturer for the breach and recover damages, including costs and legal fees. In most states, a claim arises when a manufacturer has been unable to repair a vehicle within a reasonable time or within a reasonable number of attempts or, alternatively, when the consumer’s faith in the vehicle is shaken. These are not lemon law claims (because the statutory law coverage periods have expired for these vehicles), but they are similar, because these consumers’ vehicles do not work and cannot be fixed. These claims, if asserted in the arbitration or litigation context, should be assumed as if they were new claims based upon demand letters. Without the ability to prosecute claims, the Debtors’ commitment to ‘consider’ pre-litigation demands has no substance.
  • 13. The Debtors indicated that all warranty and repurchase obligations will be assumed. Section 2.08(g) of the Agreement [Docket 190, Exhibit A], approved by the Court, includes the Assumed Liabilities liability on warranties and automobile returns, which indicates that warranty liabilities and Lemon Law claims (i.e. returns) will be honored. Indeed, the Debtors’ current position that these claims will indeed be paid provided such claims do not arise in litigation makes no sense. Currently, all existing (and potentially newly-filed) arbitrations and litigation claims against the Debtors are stayed, but the Debtors have seemingly committed to paying pre-bankruptcy claims based on demand letters (so called ‘claim letters’). However, if you follow the Debtors’ logic, there is nothing in the proposed Agreement that provides for such disparate treatment or payment. Thousands of consumers have filed Lemon Law arbitration claims against the Debtors which remain stayed; thousands more have lawsuits related to defects in their vehicles. Such disparate treatment between claim letters and other claims, which are essentially the same type of claim, would not be permitted under Section 1122 of the Bankruptcy Code.

LEGAL AUTHORITY

  • 14. The Lemberg Claimants’ objection is based, in part, on basic principles of contract interpretation. Where a written agreement clearly and unambiguously sets forth the parties’ intent, a court called upon to interpret the contract must give effect to the intent as indicated by the language used. Crane Co. v. Coltec Indus., Inc., 171 F.3d 733, 737 (2d Cir. 1999); Aon Financial Prods., Inc. v. Societe Generale, 476 F.3d 90, 96 (2d Cir. 2007) (If a contract’s language is unambiguous, the court is required to give effect to the contract as written). Here, the Purchaser has agreed to assume warranty liability and liability on Lemon Law claims, and it must be compelled to do so by the Court.
  • 15. In addition, the disclosure and clarification requested herein is mandated by Federal Regulations. Through the contemplated sale transaction, the Debtors and the Purchaser are altering warranty rights of Lemberg Claimants and other similarly situated parties. In their written warranties, the Debtors and the Purchaser, as warrantors, must “fully and conspicuously disclose in simple and readily understood language [its] terms and conditions.” 15 U.S.C. § 2302(a) (1994); see also Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. Abrams, 899 F.2d 1315, 1317 (2d Cir.1990), cert. denied, 499 U.S. 912, 111 S.Ct. 1122, 113 L.Ed.2d 230 (1991).
  • 16. The accompanying regulations provide as follows:
  • (a) Any warrantor warranting to a consumer by means of a written warranty a consumer product actually costing the consumer more than $15.00 shall clearly and conspicuously disclose in a single document in simple and readily understood language the following terms and conditions:

….

(3) A statement of what the warrantor will do in the event of a defect, malfunction or failure to conform with the written warranty, including the items or services the warrantor will pay for or provide, and, where necessary for clarification, those which the warrantor will not pay or provide;

(4) The point in time or event on which the warranty terms commences, if different from the purchase date, and the time period or other measurement of warranty duration;

(5) A step-by-step explanation of the procedure which the consumer should follow in order to obtain performance of any warranty obligation, including the persons or class of persons authorized to perform warranty obligations.  This includes the name(s) of the warrantor(s) together with: The mailing address(es) of the warrantors(s), and/or any employee or department of the warrantor responsible for the performance of warranty obligations, and/or a telephone number which consumers may use without charge to obtain information on warranty performance;

(6) Information respecting the availability of any informal dispute settlement mechanism elected by the warrantor in compliance with part 703 of this subchapter.  16 C.F.R. § 701.3.

  • 17. The proposed sale transaction alters the terms of Chrysler’s outstanding warranties but fails to comply with the disclosure requirements mandated by the CFR. There is no statement relating to what Chrysler would do to address ongoing warranty repairs; it is unclear when consumers’ warranties commence, there is no explanation as to what consumers should do to redress breaches, nor is there any information relating to the availability of informal dispute resolution mechanisms going forward.

NOTICE AND PRIOR REQUEST

  • 18. Notice of this Objection has been provided to the parties required to be supplied with notice in the Court’s Order dated May 7, 2009. No prior requests for the relief sought in this Objection has been made to this or any other Court.

WHEREFORE, the Lemberg Claimants hereby request an order from the court:

  • a. Compelling the Purchaser to assume, recognize and resolve all pending pre- and post- petition litigation and arbitration claims;
  • b. Compelling the Purchaser to pay, as appropriate, amounts necessary to effectuate settlement on these claims;

 

  • c. Alternatively, compelling the Purchaser to comply fully with 16 C.F.R. § 701.3 with respect to their ongoing warranty obligations and disclose the basis in the public filings between the disparate treatment of claims it has decided to assume and arbitration/litigation claims not being honored.

 

LEMBERG & ASSOCIATES L.L.C.

By:_________________________

Sergei Lemberg, Esq.
Attorneys for the Lemberg Claimants
Lemberg Associates LLC
1100 Summer Street
Stamford, CT 06905
Phone (203) 653-2250
Fax (203) 653-3424
slemberg@lemberglaw.com             andPeter Goodman, Esq.
Andrews Kurth LLP
450 Lexington Avenue, 15th Floor
New York, NY 10017
Phone (212) 850-2849
Fax (212) 850-2929
pgoodman@andrewskurth.com

As Special Bankruptcy Counsel to Lemberg & Associates LLC

   

 

   

 

 

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

  In re

 

Chrysler LLC, et al.,

 

                                               Debtors.

 

 

:

:

:

:

:

:

:

:

:

  Case No. 09-50002 (AJG) 

CERTIFICATE OF SERVICE

            I, Sergei Lemberg, do hereby certify, that on May 19, 2009, I caused true and correct copies of the Motion to Compel the Debtor to Cure Defaults and Proceed with Resolving All Lemon Law Disputes to be served by facsimile and by electronically transmitting the document listed above to the email addresses and/ or facsimile numbers of the persons set forth on the attached service list

            I declare under penalty of perjury under the laws of the United States of America and the State of Connecticut that the foregoing is true and correct.

 

Dated: May 19, 2009                                                     _____________________________________

                                                                                    Sergei Lemberg

 

 

 

 

 

 

 

 

 

SERVICE LIST

Chrysler LLC

Attn: Holly E. Leese, Esq.

Senior Vice President, General Counsel and Secretary

1000 Chrysler Drive

CIMS # 485-14-36

Auburn Hills, MI 48326

Email: ChryslerOGC@chrysler.com

 

Corrine Ball, Esq.

Veerle Roovers, Esq.

Nathan Lebioda, Esq.

JONES DAY

222 East 41st Street

New York, NY 10017

Telephone: (212) 326-3939

Facsimile: (212) 755-7306

Email: cball@jonesday.com

Email: vroovers@jonesday.com

Email: nlebioda@jonesday.com

 

Jeffrey B. Ellman, Esq.

JONES DAY

1420 Peachtree Street, N.E.

Suite 800

Atlanta, GA 30309

Telephone: (404) 521-3939

Facsimile: (404) 581-8330

Email: jbellman@jonesday.com

 

Capstone Advisory Group, LLC

Attn: Robert Manzo

Park 80 West, Plaza 1, Plaza Level

Saddle Brook, NJ 07663

Telephone: (201) 587-7190
Facsimile: (201) 587-7102
Email:

 

Kramer Levin Naftalis & Frankel LLP

Attn: Thomas M. Mayer, Esq.

1177 Avenue of the Americas

New York, NY 10036

Telephone: (212) 715-9169
Facsimile: (212) 715-8000

Email: tmayer@kramerlevin.com

 

Kramer Levin Naftalis & Frankel LLP

Attn: Kenneth H. Eckstein, Esq.

1177 Avenue of the Americas

New York, NY 10036

Telephone: (212) 715-9229
Facsimile: (212) 715-8229

Email: keckstein@kramerlevin.com

 

Simpson Thacher & Bartlett, LLP

Attn: Peter Pantaleo, Esq.

425 Lexington Avenue

New York, NY 10017

Telephone: (212) 455-2220

Facsimile: (212) 455-2502

Email: ppantaleo@stblaw.com

 

Simpson Thacher & Bartlett, LLP

Attn: David Eisenberg, Esq.

425 Lexington Avenue

New York, NY 10017

Telephone: (212) 455-7103

Facsimile: (212) 455-2502

Email: Deisenberg@stblaw.com

 

United States Trustee

Attn: Brian S. Masumoto, Esq,

33 Whitehall Street, 21st Floor

New York, NY 10004

Telephone: (212) 501-0500

Facsimile: (212) 668-2255

 

United States Treasury

Attn: Matthew Feldman, Esq.

1500 Pennsylvania Avenue NW, Room 2312

Washington, D.C. 20220

 

Cadwalader, Wickersham & Taft LLP

Of Counsel to the Presidential Task Force on the Auto Industry

Attn: John J. Rapisardi, Esq.

One World Financial Center

New York, NY 10281

Telephone: (212) 504-5585

Email: john.rapisardi@cwt.com

 

Vedder Price, P.C.

Counsel to Export Development Canada

Attn: Michael J. Edelman, Esq.

1633 Broadway, 47th Floor

New York, NY 10019

Telephone: (212) 407-7770

Facsimile: (212) 407-7799

Email: mjedelman@vedderprice.com

 

The Purchaser and Fiat

C/O Fiat S.p.A

Attn: Chief Executive Officer

Via Nizza n. 250

10125 Torino, Italy

 

Sullivan and Cromwell LLP

Counsel to the Purchaser and Fiat

Attn: Scott D. Miller, Esq.

125 Broad Street

New York, NY 10004

Telephone: (650) 461-5620
Facsimile: (650) 461-5700

Email: millersc@sullcrom.com

 

Sullivan and Cromwell LLP

Counsel to the Purchaser and Fiat

Attn: Andrew Dietderich, Esq.

125 Broad Street

New York, NY 10004

Telephone: (212) 558-3830
Facsimile: (212) 558-3588

Email: dietdericha@sullcrom.com

 

Sullivan and Cromwell LLP

Counsel to the Purchaser and Fiat

Attn: Hydee R. Feldstein, Esq.

1888 Century Park East, 21st Floor

Los Angeles, CA 90067

Telephone: (310) 712-6600

Facsimile: (310) 712-8800

Email: feldsteinh@sullcrom.com

 

International Union, UAW

Attn: Daniel Sherrick, Esq.

8000 East Jefferson Avenue

Detroit, MI 48214

 

Cleary Gottlieb Steen & Hamilton LLP

Counsel to the UAW

Attn: James L. Bromley, Esq.

One Liberty Plaza

New York, NY 10006

Telephone: (212) 225-2264

Facsimile: (212) 225-3999

Email: jbromley@cgsh.com

 

Cohen, Weiss & Simon LLP

Counsel to the UAW

Attn: Babette Ceccotti, Esq.

330 W. 42nd Street

New York, NY 10036

Telephone: (212) 356-0227
Facsimile: (646) 473-8227

Email: bceccotti@cwsny.com

 

Togut, Segal & Segal, LLP

Conflicts Counsel to the Debtors

Attn: Albert Togut, Esq.

One Penn Plaza

New York, NY 10119

Telephone: (212) 594-5000

Facsimile: (212) 967-4258

Email: altogut@teamtogut.com

 

Epiq Bankruptcy Solutions, LLC

Attn: Chrysler Claims Department

757 Third Avenue

New York, NY 10017

Facsimile: (646) 282-2501

Email: Chrysler@epiqsystems.com

 

 

 

 


 [1]               Lemberg & Associates LLC, has been asked by a number of consumers claimants to request the appointment of an official Statutory Lemon Law and Warrant Claim Holders in the Chrysler bankruptcy proceedings, pursuant to 11 U.S.C.§ 1102(a)(2).[2]               The Lemberg Claimants are joined by clients represented by New York attorney Eugene Krukas, Esq.

[3]               Motion of Debtors and Debtors-in-Possession, Pursuant to Sections 105(a) and 363(b) of the Bankruptcy Code, for Interim and Final Orders Authorizing the Debtors to Honor or Pay Pre-petition Obligations to or for the Benefit of Their Dealers and Other Customers, and For Related Relief. [Docket 26]

[4]               See also 6 Del.C. § 5002; Jackson v. Hyundai Motor America, 1997 WL 119794 (E.D.Pa. March 6, 1997) (If manufacturer cannot repair within reasonable number of attempts, the manufacturer shall replace or repurchase the vehicle); Cal. Civ. Code § 1790; Ortega v. Toyota Motor Sales, USA, Inc., 572 F.Supp.2d 1218, 1221 (S.D.Cal. 2008) (Manufacturer has obligation to repurchase or replace motor vehicles that do not conform to warranties); Fla. Stat. § 681; Lebel v. Rampage Sport Fishing Yachts, 2007 WL 1724942 (S.D.Fla. June 14, 2007); Wis.Stat. § 218; Hughes v. Chrysler Motors Corp., 542 N.W.2d 148, 151 (Wis. 1996); Md.Code Ann., Com. Law § 14-1502; Evans v. General Motors Corp., 459 F.Supp.2d 407, 412 (D.Md. 2006) (If manufacturer cannot repair or correct any defect, manufacturer shall replace vehicle at consumer’s options).

[5]               Ala. Code. § 8-20A-1; Cal. Civ. Code § 1793; Conn. Gen. Stat. § 42-179; Del. Code Ann. tit. 6; D.C. Code §50-501; Haw. Rev. Stat. §481I-1; 815 Ill. Comp. Stat. § 380/1; Ind. Code § 24-5-13-1; Mass. Gen Laws ch. 90, § 7N1/2; Neb. Rev. Stat. § 60-2701; N.Y. Gen. Bus. Law Alaska Stat. § 45.45.300; Mont. Code Ann. § 61-4-501; 198-a; Vt. Stat. Ann. tit. 9, § 4170.

[6]               http://www.oag.state.ny.us/media_center/2004/sep/sep20b_04.html

[7]               Cal. Civ. Code § 1793; Conn. Gen. Stat. § 42-179; Del. Code Ann. tit. 6; D.C. Code §50-501; Haw. Rev. Stat. §481I-1; 815 Ill. Comp. Stat. § 380/1; Ind. Code § 24-5-13-1; Mass. Gen Laws ch. 90, § 7N1/2; Neb. Rev. Stat. § 60-2701; N.Y. Gen. Bus. Law Alaska Stat. § 45.45.300; Mont. Code Ann. § 61-4-501; 198-a; Vt. Stat. Ann. tit. 9, § 4170.

[8]               Ga. Code Ann. § 10-1-780; Me. Rev. Stat. Ann. tit. 10, § 1161; N.H. Rev. Stat. Ann. Alaska Stat. § 45.45.300; Mont. Code Ann. § 61-4-501; 357-D:1.

[9]               Ala. Code. § 8-20A-1; Ariz. Rev. Stat. Ann. § 44-1261; Ark. Code Ann. § 4-90-401; Colo. Rev. Stat. § 42-10-101; Fla. Stat. § 681.10; Idaho Code Ann. § 48-901; Iowa Code § 322G.1; Ka. Stat. Ann. §50-645; Ky. Rev. Stat. Ann. § 367.840; La. Rev. Stat. Ann. § 51:1941; Md. Code. Ann., Com. Law § 14-1501; Mich. Comp. Laws § 257.1401; Minn. Stat. § 325F.665; Miss. Code Ann. § 63-17-151;  Mo. Rev. Stat. § 407.560; Nav. Rev. Stat. Alaska Stat. § 45.45.300; Mont. Code Ann. § 61-4-501; 597.600; S.C. Code Ann. § 56-28-10.

[10]             Better Business Bureau Auto Line Program for Lemon Law Arbitration.

 

 

Consumers’ Letter to US Trustee – May 13, 2009

Posted by Sergei Lemberg, Esq. on May 13th, 2009

May 13, 2009

 

VIA FEDERAL EXPRESS

Diana G. Adams, Esq.
Brian S. Masumoto, Esq.

The Office of the United States Trustee
For The Southern District of New York
33 Whitehall Street, 21 Floor
New York, New York 10004

 

Case Name: In re Chrysler LLC
Case Number: 09-50002-AJG

Dear Ms. Adams and Mr. Masumoto:

Lemberg & Associates LLC, with the assistance of its special bankruptcy counsel Andrews Kurth LLP, has been asked by a number of consumers claimants to request that you appoint, pursuant to 11 U.S.C. §1102(a)(2), a committee of “Statutory Law and Warranty Claim Holders” as an Official Committee in the Chrysler bankruptcy proceedings.<!–[if !supportFootnotes]–>[1]<!–[endif]–> The committee would represent thousands of consumers that Chrysler has completely ignored in its Chapter 11 case (e.g. consumers who have purchased defective vehicles from Chrysler prior to its April 29, 2009, bankruptcy filing). These claims are not “warranty claims” for vehicle repair; rather, these are claims by consumers who bought defective vehicles or whose warranties have been dishonored by Chrysler.

As the debtor fully concedes in its first day motions, Chrysler’s survival depends on its ability to sustain customer.   In this regard, the first day motions address issues related to ongoing repairs, sales, and incentives (Id. at ¶¶ 23-24). However, the Statutory Law and Warranty Claim Holders, i.e. consumers who had purchased defective vehicles from Chrysler prior to its bankruptcy, remain without representation or any sort of protection.

Background. By way of background, outside of bankruptcy, two laws protect purchasers of defective vehicles. The first are statutory “Lemon Laws” enacted in all states which protect consumers who purchase vehicles that simply do not work and cannot be fixed. While requirements differ slightly from state-to-state, once it is determined that a vehicle has been out-of-service a requisite number of days or that a particular problem has been repaired more than a reasonable number of times, the vehicle is deemed a ‘lemon.’ Its owner then has a right to have the vehicle repurchased or replaced by the manufacturer. In most states, the attorneys general oversee enforcement of lemon law arbitration programs which adjudicate consumer claims, but private actions can, and are, routinely brought and permitted under the statutory scheme. Successful consumers are normally entitled to payment of legal fees and costs of suit by the manufacturer. Recognizing the importance of this problem, most car manufacturers have established Early Resolution Programs to ensure expedient resolution of lemon law claims. As one would expect, a significant number of these claims remain outstanding following Chrysler’s Chapter 11 filing (i.e. the claims are pending with counsel in all states but have not been resolved). Furthermore, I am aware of many claims that have been resolved by Chrysler through repurchase, replacement or cash offers that are no longer being honored by Chrysler.

Paralleling the protective nature of lemon laws are warranty laws, which govern warranty contracts between manufacturers and consumers. Under the Federal Magnuson-Moss Warranty Act (15 U.S.C § 2301), a consumer aggrieved by a manufacturer’s failure to meet its warranty promises may sue the manufacturer for the breach and recover damages, including costs and legal fees. In most states, a claim arises when a manufacturer has been unable to repair a vehicle within a reasonable time or within a reasonable number of attempts or, alternatively, when the consumer’s faith in the vehicle is shaken. These are not lemon law claims (because the statutory law coverage periods have expired for these vehicles) but they are similar, because these consumers’ vehicles do not work and cannot be fixed.

Extent of the Problem. Lemberg & Associates represents several dozen consumers victimized by mechanical defects in Chrysler’s vehicles, but that is just the tip of the iceberg. According to published figures, Chrysler sold 2,142,505 vehicles in 2006, 2,076,650 vehicles in 2007, and 1,453,122 million vehicles in 2008. The Center for Automotive Safety has previously estimated that, on average, 1% of all cars sold in the United States are ‘lemons.’ In Lemberg & Associates’ estimation, that average figure is considerably higher for Chrysler and other US-made vehicles. Even using a conservative estimate of 1%, at least 56,000 consumers who bought Chrysler cars from 2006 through 2008 may be left unrepresented, and that does not include thousands of breach of warranty claimants whose cars do not technically qualify for lemon law relief.

Reason to Appoint the Statutory Law and Warranty Claimants’ Committee. Chrysler represented that all warranty and repurchase obligations will be assumed, but I have learned that pending settlements are not being honored. Section 2.08(g) of the Master Transaction Agreement [Docket 190, Exhibit A], approved by the Court, includes within the refined term “Assumed Liabilities” the following claims:

(g) all Liabilities pursuant to product warranties, product returns and rebates on vehicles sold by Sellers prior to the Closing.

Read fairly, the Agreement indicates that warranty liabilities and lemon law claims will be honored, but that is not what the Debtor is doing. On Friday, we received the following e-mail from Chrysler’s consumer claims counsel for the Northeast:

The news just conveyed is not what you will want to hear. All settlement checks in our possession should not be mailed because they will not be honored by Chrysler’s bank. All checks that have bounced will not be replaced nor honored. If you have a specific client with whom Chrysler had agreed to repurchase the vehicle and the vehicle is no longer in your client’s possession and the checks have bounced, I can attempt to unwind the transaction to at least get the car back in your client’s possession (maybe). The Early Resolution Programs cannot touch anything that is a lawsuit as such are stayed and have no settlement authority with respect to claims at this time. E-mail from Keith Rose, Esq., dated May 8, 2009.

It appears that Chrysler has no present intention of honoring its pre-bankruptcy and post-bankruptcy commitments to the Statutory Law and Warranty Claim Holders. Something must be done immediately to protect the thousands of consumers impacted by the Chrysler Chapter 11 Filing. Take, for instance, the case of Jennifer Thom, of Carthage, New York, who has agreed to accept $9,000.00 from Chrysler in exchange for waiving her claims to a repurchase of her lemon Grand Cherokee Laredo. Jennifer’s husband is in Iraq, and she desperately needs the money to pay her bills. If the position of Chrysler’s bankruptcy counsel is correct, then Jennifer will not be paid her settlement, and will be stuck with her lemon Jeep. Our client, Nicholas Branchina, has a lemon Dodge Ram that Chrysler agreed to repurchase, but he is stuck now too – unable to drive a broken car, paying monthly payments, and holding a worthless repurchase agreement with Chrysler that the Debtor will not honor. These consumers, and thousands of others, need to be represented by counsel.

It would be impossible for these consumer claimants to represent themselves in Chrysler’s bankruptcy proceedings. Consumer lawyers normally handle these matters on a contingency basis, because most states’ lemon laws and the federal Magnuson Moss Act contain fee-shifting provisions that entitle prevailing consumers to reimbursement of attorneys’ fees and expenses of litigation. However, Chrysler’s bankruptcy filing makes continued representation impossible for most consumer attorneys. In these difficult economic times, consumers will not be able to retain private bankruptcy counsel on an hourly basis. That is why a committee must be appointed to represent the interests of these claimants.

The proposed Statutory Law and Warranty Claim Holders Committee is necessary to deal with the gaping hole created by the Chrysler bankruptcy.

Those consumers who have purchased new Chrysler vehicles within the past few years, yet have been unable to drive them or have had ongoing problems due to vehicle defects, must be protected. These are more than just unsecured creditors – they are consumers who have a right to give their vehicles back to Chrysler or to require that Chrysler compensate them for failing to repair a lemon car and who – in these difficult economic times – have the burden of paying loans on vehicles that just cannot be fixed.

Other major constituents (i.e., the unsecured creditors’ committee) with a stake in this case are represented by counsel whose fees are being paid by the estate. These constituencies have been supporting Chrysler’s pre-packaged Section 363 sale, which will provide them with some recoveries but will leave the Statutory Law and Warranty Claim Holders out in the cold. Those constituents do not represent the interests of the Statutory Law and Warranty Claim Holders. Neither existing management nor the current board of directors adequately fills this role.

A committee is absolutely necessary to protect the interests of these consumers left with dishonored warranties and defective vehicles. Without such a committee, thousands of Chrysler owners will be left without recourse and without the protections promised to them by their vehicle warranties.

 


 

For the reasons stated above, we respectfully request that an official committee be appointed as soon as possible. Thank you for your consideration and prompt attention to this matter.

 

Sincerely,

Sergei Lemberg
Lemberg Associates LLC
1100 Summer Street
Stamford, CT 06905
Phone (203) 653-2250
Fax (203) 653-3424
slemberg@lemberglaw.com

and
Peter Goodman, Esq.
Andrews Kurth LLP
450 Lexington Avenue, 15th Floor
New York, NY 10017
Phone (212) 850-2849
Fax (212) 850-2929
pgoodman@andrewskurth.com

As Special Bankruptcy Counsel to

Lemberg & Associates LLC

 

 

 

 

 

 

 

cc: Corinne Ball (Jones Day)

Richard Blumenthal (Connecticut Attorney General)

Andrew M. Cuomo (New York Attorney General)

Anne Milgram (New Jersey Attorney General)

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<!–[if !supportFootnotes]–>[1]<!–[endif]–> Lemberg & Associates has represented and continues to represent many Chrysler vehicle owners, and its clients would be willing to serve on the Committee.

<!–[if !supportFootnotes]–>[2]<!–[endif]–> Motion of Debtors and Debtors-in-Possession, Pursuant to Sections 105(a) and 363(b) of the Bankruptcy Code, for Interim and Final Orders Authorizing the Debtors to Honor or Pay Pre-petition Obligations to or for the Benefit of Their Dealers and Other Customers, and For Related Relief. [Docket 26]