US Supreme Court Drops Bombshell "Summary Disposition" Vacating 2d Circuit's Chrysler Decision

Hard to ignore today's bombshell summary disposition by the US Supreme Court today on the Indiana Pension Funds' appeal of the Second Circuit's decision in Chrysler (see earlier discussion of case here).  Clearly, however, the Court's six line summary disposition tossing the 2d Circuit’s decision in Chrysler requires careful thought.  First, here's what the Supreme Court held:

The petition for a writ of certiorari is granted.  The judgment is vacated, and the case is remanded to the United States Court of Appeals for the Second Circuit with instructions to dismiss the appeal as moot.  See United States v. Munsingwear, Inc., 340 U.S. 36 (1950).

One may be tempted (as this esteemed blogger was) to claim that Chrysler remains persuasive authority, but was simply “vacated on other grounds.”  I don’t think that's the case here, however.  For starters, the Supreme Court couldn't have vacated Chrysler on the basis that the matter was moot at the time the case was decided.  After all, the 2d Circuit's original order of 6/5/09 denying the appeal on the merits wasn’t moot at the time of entry since the effectiveness of the bankruptcy court's sale order had been stayed by the 2d Circuit itself until it had a chance to rule on the merits.  Additionally, the effectiveness of the 2d Circuit's judgment itself was stayed by the Supreme Court.  As such, there’s no basis for the Supreme Court now to have vacated Chrysler based on an argument that the matter was moot at the time of the original decision.

Perhaps then, a better reading of today's mysterious "summary disposition" is that the Court found merit in the petition, and hence granted it, and furthermore didn’t much care for the opinion on substantive grounds, so vacated it.  Having done so, however, the Court had nothing left to decide since the matter truly was moot because the sale had closed and couldn't be unwound.

One also may be tempted to say that the Court wasn’t tipping its hand in this way, but if not, then why not simply deny the petition as moot, which it clearly is at this point?  Why take the extra, unnecessary step of vacating the judgment and only then dismissing the appeal as moot?  Also, why cite to Munsingwear if the Court didn't intend to erase the precedential effect of the decision, for there the Court noted:

Our supervisory power over the judgments of the lower federal courts is a broad one.  As already indicated, it is commonly utilized in precisely this situation to prevent a judgment, unreviewable because of mootness, from spawning any legal consequences.  (Citations omitted, emphasis added).

If nothing else, reading the Court's summary disposition today as a spaying of Chrysler to "prevent a ... spawning of any legal consequences" surely neuters any reading of the Court's 2 page per curiam opinion from last June suggesting there wasn't a "fair prospect that a majority of the Court will conclude that the decision below was erroneous."

Given all the speeches, articles, and thought advanced about the significance and game-changing nature of Chrysler, it's amazing how two simple sentences from the highest court in the land can turn the bankruptcy world on its head.

I'd say the slow boat's finally catching some wind!

[Inset is an artist's rendition of the USS Constitution (a/k/a "Old Ironside"), the oldest commissioned naval vessel still afloat today.]

[12/15/09 Update:  Be sure to check out Steve Lubben's Credit Slips post linking to the Alvarez v. Smith case for further insights into the Court's practice of vacating lower court judgments that, by happenstance, are moot.]

© Steve Jakubowski 2009

Written By:check it On December 14, 2009 8:52 PM

best explanation of today's ruling is at the link above

Written By:Lawrence D. Loeb On December 15, 2009 2:34 AM


I took it to mean that SCOTUS didn't want the 2nd Circuit opinion as precedent and, perhaps, was signalling that Chrysler and GM were special cases. Furthermore, (and I could be reading too much in here) I read it to indicate that, should such a transaction occur again - where creditors request a stay to allow a SCOTUS hearing - that stay would likely be GRANTED.

That seems different from your interpretation.

How do you think my read fits?

The decision also seems to indicate that, unless there are claims that the parties to the transaction did not act in "good faith" under 363(m), the transaction is final and there's nothing left to discuss.

Does that fit your interpretation?


Written By:FJP On December 15, 2009 9:14 AM

I'm with you. Looks to me like SCOTUS decided the CA2 opinion was a clunker, so they poured some sand into the engine.

Written By:kfg On December 16, 2009 2:34 AM

Isn't the Court, under Munsingwear, required to vacate the lower court ruling when an appeal is moot? Not sure this is any bombshell. Court will not address merits of moot appeal. And standard practice is to vacate ruling when appeal becomes moot (at least where it becomes moot for reasons other than settlement, see Bonner Mall decision).

[Ed. Note: You're right the Court won't address a moot appeal--after it grants certiorari. In the vast majority of appeals that are moot once they reach the Supreme Court, however, certiorari isn't granted, thus leaving the decision (and hard work) of the appellate court and process intact. Here, the Court granted certiorari, vacated the judgment, and then dismissed the appeal as moot. That all seemed unnecessary if it just wanted to emphasize that the appeal is moot. Why not simply deny certiorari based on mootness. It's the extra step of granting certiorari and vacating the Second Circuit's judgment that makes this disposition such a bombshell in my view.]

Written By:1 world currency On December 28, 2009 6:14 AM

The Indiana Pension Funds' claims were only several million dollars out of a multi-billion dollar sale. Presumably, the appellants could still be made whole without the prevention, or subsequent voiding, of the sale, which might prejudice Fiat, a good faith purchaser.

Therefore, the Supreme Court did not see fit to grant injunctive relief back in June, and the appeal of the allowed quick sale is now moot. This does not preclude a claim for money damages caused by improper dealings in bankruptcy. The specific appeal regarding the quick sale may be moot, but not the issue of the priority of secured creditors' claims.

Written By:Disability Insurance Quotes On January 2, 2010 6:57 PM

Appreciate the summary, Steve. Always interesting conversation when a decision is vacated.

Post A Comment / Question

Remember personal info?