In re: Old Carco LLC (f/k/a Chrysler LLC), et al., Indiana s Experience with Experience in Bankruptcy Sale Orders

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1 In re: Old Carco LLC (f/k/a Chrysler LLC), et al., Indiana s Experience with Experience in Bankruptcy Sale Orders

2 Recent Procedural History Chrysler Group protested the Merit Rate Assignment in March 2013 and presented a claim for refund of overpaid UI Tax for the years In 2009 Old Chrysler filed a Ch. 11 Bankruptcy petition. Later that year New Chrysler purchased Old Chrysler out of Bankruptcy pursuant to a Sale Order under Sect. 363(f) of the Bankruptcy Code. New Chrysler now alleges they should have received New Employer treatment in 2009 instead of Successor status. (2.7% rate vs. 5.6%) In October 2013 Chrysler Group filed a motion for entry of an order enforcing the Sale Order issued from the US Bankruptcy Court in the S.D. of New York. The latest demand letter has requested a refund of about $19 million. The Administrative Protest is stayed pending the decision of the US Bankruptcy Court.

3 Are Experience Ratings Interests? Chrysler alleges that the Sale Order from the Bankruptcy Court held that the purchase of assets from Old Chrysler was free and clear of interests, and included the Experience Rating of Old Chrysler. The Sale Order: New Chrysler shall have no successor or vicarious liabilities for liabilities on account of any taxes arising or in any way relating to the operation of the Purchased Assets prior to the closing of the sale.

4 Two Recent Cases In re Tougher Industries, Inc., 2013 Bankr. LEXIS 1228 In re USA Fleet, Inc. 496 B.R. 79 (Bankr. E.D.N.Y. 2013) Two decisions from the Bankruptcy Courts for the Northern and Eastern Districts of New York, respectively.

5 Another case cited in USA Fleet In re PBBPC, Inc., 484 B.R. 860 (B.A.P. 1 ST Cir. 2013) held that experience ratings were interests because an experience rating system imposes a debtor s experience rating on the buyer precisely because, and only because, the buyer purchased assets of the bankruptcy estate.

6 In re Wolverine Radio 930 F.2d 1132 (6 th Circuit Court of Appeals) A Bankruptcy Order prohibiting the Michigan Employment Security Commission from assigning the experience rating of the debtor to the successor was overturned. The Court held that an experience rating was not an interest within the meaning of 363(f) and did not attach to any property dealt with by the bankruptcy plan and was not a debt or claim arising before bankruptcy confirmation.

7 Indiana s Situation The same day the Bankruptcy Sale closed, Chrysler filed a Report to Determine Status and Report of Transfer with DWD. They reported acquiring a complete organization of Old Chrysler (with the same address) and requested successorship status. Indiana was not a party to the bankruptcy proceeding in NY. Chrysler indicated that it had acquired all or a part of an existing Indiana business through the purchase and acquisition of the complete organization of Old Chrysler. DWD then determined that New Chrysler was a successor to Old Chrysler and notified New Chrysler of the determination. Chrysler failed to protest the determination which became conclusive and binding in Aug Chrysler timely paid UC contributions without protest until March 2013.

8 Legal Arguments Advanced 1. Unemployment Insurance Experience Ratings Are Not An Interest That Can Be Extinguished By An 11 U.S.C. 363(f) Free And Clear Sale 2. Paragraph 23 Of The Sale Order Allows The Experience Rating Pursuant To Indiana DWD s Police Power To Regulate The State s Unemployment System 3. The Sale Order Must Be Read As A Whole, Not As Individual Paragraphs 4. Retroactive Application Of Case Law Is Only Allowed In Limited Circumstances

9 Last Week s Ruling For the reasons that follow, the Court concludes that the Sale Order bars the States from using Old Chrysler s Experience Rating to compute New Chrysler s unemployment insurance tax rate unless the police and regulatory exception in paragraph 23 of the Sale Order negates that prohibition. Paragraph 23 is ambiguous, and there appears to be extrinsic evidence that will aid the Court s interpretation. Accordingly, the Court will schedule a trial to determine the meaning of the police and regulatory exception.