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10-3933-bk

United States Court of AppealsFOR THE SECOND CIRCUIT

IN RE OLD CARCO LLC (F / K / A CHRYSLER LLC), ET AL., Debtors.

OLD CARCO LIQUIDATION TRUST, AS SUCCESSOR IN INTEREST TO THE ABOVE-CAPTIONED

DEBTORS, Appellee,

v.

SCOTIA MOTORS INCORPORATED; GOLDEN MOTORS; PEN MOTORS INCORPORATED;

(For Continuation of Caption See Reverse Side of Cover)

ON APPEAL FROM THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF FOR APPELLEEOLD CARCO LIQUIDATION TRUST

JONES DAY222 East 41st StreetNew York, New York 10017Telephone: (212) 326-3939Corinne Ball

JONES DAY1420 Peachtree Street, N.E., Suite 800Atlanta, GA 30309Telephone: (404) 581-3939Jeffrey B. EllmanBrett J. Berlin

JONES DAY51 Louisiana Avenue, N.W.Washington, D.C. 20001-2113Telephone: (202) 879-3939Kevyn D. Orr

Attorneys for Appellee Old Carco Liquidation Trust

ATI-2449180

Case: 10-3933 Document: 59 Page: 1 01/19/2011 188906 52



MAURO MOTORS INCORPORATED; BOLLINGER'S INCORPORATED; BROTHER'S MOTORS

INCORPORATED /DIAMOND DODGE; ST. PETE JEEP CHRYSLER; RALLYE AUTO PLAZA

INCORPORATED; NEIL HUFFMAN INCORPORATED; BILL SPURLOCK DODGE,

INCORPORATED; ROCK OF TEXAS AUTOMOTIVE INCORPORATED; SOUTH HOLLANDDODGE; PRIDE CHRYSLER JEEP; THOMAS DODGE CORPORATION; TAYLOR-PARKER

MOTOR COMPANY; EVANSVILLE CHRYSLER INCORPORATED; ALLEY'S OF KINGSPORT, INCORPORATED; AUGUSTA DODGE, INCORPORATED; M&M DODGE, INCORPORATED; SCHOLTES AUTO WORLD; AXELROD CHRYSLER, INCORPORATED; FIORE CHRYSLER

JEEP /JIM FIORE MOTORS; FAWS GARAGE; LAKES CHRYSLER JEEP LIMITED; VAN

BURKLEO MOTORS INCORPORATED; FISHER MOTORS INCORPORATED; COURTESY NISSAN

INCORPORATED; KEY BUICK-PONT-AMC INCORPORATED; SOUTHEAST AUTOMOTIVE; EXTREME JEEP INCORPORATED; BOB TAYLOR JEEP INCORPORATED; AMBASSADOR AUTO

SERVICE, INCORPORATED; MUELLER CHRYSLER, INCORPORATED; WILSON DODGE

NISSAN; PRESTON CHRYSLER JEEP; FORT MORGAN AUTO CENTER INCORPORATED; SUPERIOR MOTORS INCORPORATED; WACO DODGE SALES INCORPORATED; ARCHER

CHRYSLER JEEP; D PATRICK INCORPORATED; BREHM GROUP INCORPORATED; BIRMINGHAM CHRYSLER PLYMOUTH INCORPORATED; CLARKSTON MOTORS

INCORPORATED; BERLIN CHRYSLER INCORPORATED; EL DORADO MOTORS; RUSSO

GROUP ENTERPRISES INCORPORATED; FOX HILLS CHRYSLER JEEP INCORPORATED; ORLEANS DODGE CHRYSLER JEEP INCORPORATED; WALKER MOTORS INCORPORATED;

MONICATTI CHRYSLER JEEP SALES; SHOEMAKER'S JEEP INCORPORATED; SNOW, LLC/CHAMPION CHRYSLER; RAY'S FORD-MERCURY INCORPORATED /RAY'S CDJ;

BARBER BROS MOTOR COMPANY INCORPORATED; VAN LIESHOUT & SIMON DODGE; DRAKE CHRYSLER; TENAFLY CHRYSLER JEEP INCORPORATED; WYCOFF CHRYSLER

INCORPORATED; TERRY CHRYSLER JEEP INCORPORATED; SOWELL AUTOMOTIVE

INCORPORATED; SHOUT SHORE CHRYSLER; CIMINO BROTHERS FORD INCORPORATED; WILSON DODGE INCORPORATED; KALMAR MOTOR SALES; REUTHER INVESTMENT

COMPANY; CONTINENTAL CHRYSLER JEEP INCORPORATED; MT CLEMENS DODGE

INCORPORATED; GOLICK CHRYSLER JEEP INCORPORATED; BRUCE CAMPBELL DODGE

INCORPORATED; CLAYTON AMERMAN INCORPORATED; ISLAND JEEP INCORPORATED; AUFFENBERG CHRYSLER INCORPORATED; AND DUVALL CHRYSLER DODGE JEEP

INCORPORATED,

Appellants.

ATI-2449180




CORPORATE DISCLOSURE STATEMENT

No publicly traded corporation owns 10% or more of the equity

interests of the Appellee, Old Carco Liquidation Trust, which has no parent

corporation.

ATI-2449180 -i-




TABLE OF CONTENTS

Page

ATI-2449180 -ii-

CORPORATE DISCLOSURE STATEMENT .............................................. i

TABLE OF AUTHORITIES ....................................................................... iiiOVERVIEW .................................................................................................. 1

JURISDICTIONAL STATEMENT ............................................................ 14

QUESTIONS PRESENTED ....................................................................... 14

STATEMENT OF THE CASE AND RELEVANT FACTS ...................... 16

A. The Debtors' Prepetition Dealer Network .................... 18

B. New Chrysler Accepted Only Some of the Dealer

Agreements in the Fiat Transaction .............................. 19C. The Sale Hearing .......................................................... 21

D. The Rejection Hearing .................................................. 24

ARGUMENT ............................................................................................... 27

I. STANDARD OF REVIEW .................................................... 27

II. THE COURTS BELOW CORRECTLY HELD THATNO FRAUD ON THE BANKRUPTCY COURTOCCURRED ........................................................................... 29

III. THE COURTS BELOW CORRECTLY HELD THATTHE RECONSIDERATION MOTION WASUNTIMELY ............................................................................ 37

IV. THE LIQUIDATION TRUST'S COUNSEL(FORMERLY DEBTORS' COUNSEL) IS NOTGUILTY OF FRAUD ............................................................. 41

CONCLUSION ............................................................................................ 43




TABLE OF AUTHORITIES

Page

CASES

Batac Devel. Corp. v. B&R Consultants, Inc.,No. 98-civ-721 (CSH), 2000 U.S. Dist. LEXIS 3695(S.D.N.Y. Mar. 22, 2000) ...................................................................................39

Bulloch v. United States,721 F.2d 713 (10th Cir. 1983) ............................................................................36

Competex, S.A. v. Labow,783 F.2d 333 (2d Cir. 1986) ...............................................................................39

COR Route 5 Co. v. Penn Traffic Co. (In re PennTraffic Co.),524 F.3d 373 (2d Cir. 2008) .........................................................................32, 34

Duse v. IBM Corp.,212 F.R.D. 58 (D. Conn. 2002) ..........................................................................29

Envirotech Corp. v. Amstar Corp.,48 F.3d 1237 (Fed. Cir. 1995) ............................................................................36

Fleming v. N.Y. Univ.,865 F.2d 478 (2d Cir. 1989) ...............................................................................39

Gulf States Exploration Co. v. Manville Forest Prods. Corp.(In re Manville Forest Prods. Corp.),896 F.2d 1384 (2d Cir. 1990) .............................................................................28

Hazel-Atlas Glass v. Hartford Empire Co.,322 U.S. 238 (1944), overruled on other grounds byStandard Oil of Cal. v. United States, 429 U.S. 17 (1976).....................38, 39, 40

In re Boyer,328 F. App'x. 711 (2d Cir. 2009) ........................................................................35

ATI-2449180 -iii-




TABLE OF AUTHORITIES (cont'd)

Page

In re Chrysler LLC,

576 F.3d 108 (2d Cir. 2009) .................................................................................5

In re Chrysler LLC,405 B.R. 84 (Bankr. S.D.N.Y. 2009), aff'd, Ind. State PolicePension Trust v. Chrysler LLC (In re Chrysler LLC), 576 F.3d 108(2d Cir. 2009) ............................................................................................... passim

In re Columbia Gas Sys., Inc.,50 F.3d 233 (3d Cir. 1995) ...................................................................................4

In re Delphi Corp.,No. 06-cv-863, 2006 WL 1470929 (S.D.N.Y. May 30, 2006) ..........................28

In re Health Mgmt. Sys. Inc. Sec. Litig.,113 F. Supp. 613 (S.D.N.Y. 2000) ...............................................................18, 27

In re Helm,335 B.R. 528 (Bankr. S.D.N.Y. 2006) ...............................................................32

In re Ionosphere Clubs, Inc.,

922 F.2d 984 (2d Cir. 1990) ...............................................................................35In re Old Carco, LLC,

406 B.R. 180 (Bankr. S.D.N.Y. 2009) ........................................................ passim

In re Old Carco, LLC,423 B.R. 40 (Bankr. S.D.N.Y. 2010) .......................................................... passim

In re Old Carco LLC,No. 10-Civ-2493 (AKH), 2010 WL 3566908 (S.D.N.Y. Sept. 14,2010) ............................................................................................................passim

In re Texscan Corp.,976 F.2d 1269 (9th Cir. 1992) ..............................................................................4

Ind. State Police Pension Trust v. Chrysler LLC,129 S.Ct. 2275 (2009) ...........................................................................................6

ATI- 2449180 -iv-





Page

Ind. State Police Pension Trust v. Chrysler LLC,

130 S.Ct. 1015 (2009) ...........................................................................................6

McCormack v. Schindler (In re Orbitec Corp.),392 F. Supp. 633 (S.D.N.Y. 1975) .....................................................................29

Nemaizer v. Baker,793 F.2d 58 (2d Cir. 1986) .................................................................................39

O'Connor v. Pan Am Corp.,5 F. App'x. 48 (2d Cir. 2001) ..............................................................................28

Olsen v. 419 Apartment Corp. (In re Olsen),No. 06-cv-4004 (RJS), 2008 WL 4298586 (S.D.N.Y. Sept. 19,2008) .......................................................................................................18, 27, 28

Unsecured Claims Estate Rep. of Teligent, Inc. v. Cigna Healthcare,Inc. (In re Teligent, Inc.),326 B.R. 219 (Bankr. S.D.N.Y. 2005) ...............................................................28

Workman v. Bell,

245 F.3d 849 (6th Cir. 2001) ..............................................................................36

STATUTES

11 U.S.C. § 365 .................................................................................................passim

11 U.S.C. § 365(b)(1) ................................................................................................ 5

11 U.S.C. § 365(f)(2)(B) ............................................................................................5

11 U.S.C. § 365(g) ..................................................................................................... 8

11 U.S.C. § 502(g) .....................................................................................................8

28 U.S.C. § 157 ........................................................................................................14

28 U.S.C. § 158(d)(1) ..............................................................................................14

ATI- 2449180 -v-




ATI- 2449180 -vi-


Page

28 U.S.C. § 158(d)(a) ...............................................................................................14

28 U.S.C. § 1334 ......................................................................................................14

RULES

Federal Rule of Bankruptcy Procedure 9024 ..........................................................15

Federal Rule of Civil Procedure 60 .................................................................. passim

OTHER AUTHORITIES

H.R. Rep. No. 595, 95th Cong., 1st Sess. 347 (1977) ...............................................4

Stephen J. Lubben, No Big Deal: The Chrysler and GM Cases in

Context (2009) Annex B to the September Oversight Report of theCongressional Oversight Panel (2009) available athttp://cop.senate.gov/documents/cop-090909-report.pdf ...................................20

S. Rep. No. 989, 95th Cong., 2d Sess. 58 (1978) ......................................................4




OVERVIEW

This Appeal arises out of the chapter 11 cases of Old Carco LLC

f/k/a Chrysler LLC and its affiliated debtors (collectively, the "Debtors").1

The Debtors' bankruptcy followed months of widely publicized efforts to

achieve a restructuring of their auto manufacturing and distribution

businesses. As the end of 2008 approached, new government loans were

offered to assist in this effort, premised on the Debtors' pursuit of a

fundamental restructuring of all core aspects of their businesses to ensure

future viability. Initial loans were made under the Trouble Asset Recovery

Program ("TARP") at the start of 2009, with a requirement that Chrysler

provide a detailed viability plan by March 31, 2009, to an Auto Task Force

appointed by the President. Further federal TARP assistance was dependent

upon the President's Auto Task Force making a determination that the plan

in fact demonstrated viability. Among many other requirements, the

viability plan was required to address the restructuring of the Debtors'

network of Chrysler, Dodge and Jeep dealers.

1 The Debtors relevant to this appeal have been dissolved. The appellee herein, OldCarco Liquidation Trust (the "Liquidation Trust"), is the successor in interest tothe Debtors.

ATI-2449180




Ultimately, the President's Auto Task Force determined at the end of

March 2009 that Chrysler's business would be viable (and its viability plan

would be achievable) only if it could complete an alliance transaction with

Fiat S.p.A. ("Fiat"), which expressly contemplated that the company's

dealership network would be restructured and down-sized. Work on that

alliance quickly accelerated with the hope of completing a prompt

transaction with the agreements and concessions of key stakeholders.

In the event that an out-of-court resolution could not be achieved, the

parties also pursued in parallel the sale of the Chrysler operating assets to a

new purchaser, Chrysler Group LLC ("New Chrysler"), established by Fiat.

This sale transaction was to be accomplished through an expedited and

structured bankruptcy sale process. The original term sheet for this

transaction (the "Fiat Transaction") made clear that a restructuring (i.e.,

reduction) of the Debtors' dealer network was required, consistent with the

viability plan presented to the government. See Sale Hr'g Tr., May 27, 2009,

at 351 [SA2].2 More fundamentally, New Chrysler, as the arm's length

purchaser, negotiated the terms of a purchase agreement that permitted it to

2 The Debtors' government financing from the United States Department of theTreasury (the "U.S. Treasury") and Export Development Canada alsocontemplated a reduction of the dealer network. See In re Old Carco, LLC,406 B.R. 180, 197 (Bankr. S.D.N.Y. 2009) (the "Rejection Opinion").

ATI-2449180 -2-




determine which assets it was purchasing. This included the clear

contractual right of New Chrysler to determine which contracts it would

assume and which it would exclude and leave with the Debtors.

Consistent with these agreements, the Debtors commenced their

bankruptcy cases on April 30, 2009, in the United States Bankruptcy Court

for the Southern District of New York (the "Bankruptcy Court")3 to

implement a prompt sale of substantially all of their operating assets through

the Fiat Transaction or another transaction with a competing bidder.

The record showed that such a sale was the only available means to preserve

the Chrysler brand and business as a going concern under new ownership

and to maximize potential benefits for the Debtors' creditors. See In re

Chrysler LLC, 405 B.R. 84, 92-93 (Bankr. S.D.N.Y. 2009) (the "Sale

Opinion"). The purchase agreement for the Fiat Transaction (the "Purchase

Agreement") was promptly filed with the Bankruptcy Court.4

Shortly after the commencement of the bankruptcy cases, after notice

and a hearing, the Bankruptcy Court entered an order establishing

3 The Debtors' bankruptcy cases were assigned to The Honorable Arthur J.Gonzalez, now the Chief Judge of the Bankruptcy Court.

4 The Purchase Agreement was comprised of the Master Transaction Agreementamong the Debtors, New Chrysler and Fiat, dated as of April 30, 2009, asamended, and certain related documents.

ATI-2449180 -3-




procedures for the sale process, including the process for identifying

contracts to be assumed by the purchaser or excluded from the sale. See

Order dated May 8, 2009 (Docket No. 492)5 (the "Sale Procedures Order").

These procedures were consistent with the Purchase Agreement and title 11

of the United States Code (the "Bankruptcy Code").6 Contracts to be

assumed and assigned to the purchaser were required to be designated on

notices filed with the Bankruptcy Court and provided to all contract

counterparties. See Sale Procedures Order at ¶¶ 19(a)-(d). Pursuant to the

terms of the Sale Procedures Order and the Purchase Agreement, only

contracts listed on these designation notices and expressly confirmed in

writing by the purchaser were to be transferred as part of the sale.7 See id.;

5 All citations herein to a "Docket No." refer to the Bankruptcy Court docket. Forthe sake of brevity, full titles of Bankruptcy Court filings are not restated herein.

6 These procedures specifically addressed "executory contracts" and "unexpiredleases." "Executory contracts" generally are defined as agreements wherematerial performance by both parties remains unfulfilled. See 1 H.R. Rep. No.595, 95th Cong., 1st Sess. 347 (1977); S. Rep. No. 989, 95th Cong., 2d Sess. 58(1978) (offering, in legislative history of section 365 of the Bankruptcy Code, thatthe term "executory" ''generally includes contracts on which performance remainsdue to some extent on both sides''); accord, e.g., In re Columbia Gas Sys., Inc., 50F.3d 233, 239 (3d Cir. 1995); In re Texscan Corp., 976 F.2d 1269, 1272 (9th Cir.1992). The treatment of executory contracts is addressed in section 365 of theBankruptcy Code, as described below.

7 In addition, other requirements of the Bankruptcy Code also were required to besatisfied, including the demonstration of adequate assurance of futureperformance by the purchaser and the cure or any monetary defaults owed to the

ATI-2449180 -4-




Purchase Agreement at §§ 2.06(a), 2.10. Contracts not designated for

assumption and assignment, as well as contracts expressly excluded by the

purchaser, would not be transferred in the sale and would remain with the

Debtors. See Purchase Agreement at § 2.07(a). This contract review and

selection process was permitted to continue for designated periods after the

closing of the sale – 30 days after closing in the case of dealer contracts.

With these procedures in place, the court process to review the sale

moved forward swiftly. Multiple objections to the sale were filed and

extensive discovery was conducted, leading up to a multi-day evidentiary

hearing on May 27 to 29, 2009 (the "Sale Hearing"). After the conclusion of

the Sale Hearing, the Bankruptcy Court approved the sale of assets to New

Chrysler as contemplated by the Fiat Transaction and authorized the Debtors

to implement the terms of the Purchase Agreement. See Sale Op., 405 B.R.

at 109; Order dated June 1, 2009 (Docket No. 3232) (the "Sale Order").8

The Sale Order was affirmed on an expedited appeal to the Second Circuit.

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

contract counterparties under the agreements. See Sale Procedures Order at ¶¶ 19(k)-(n); 11 U.S.C. §§ 365(b)(1), 365(f)(2)(B).

8 A copy of the Purchase Agreement was attached to the Sale Order as Exhibit Athereto.

ATI-2449180 -5-




Supreme Court declined a request to stay the Fiat Transaction, which closed

on June 10, 2009 (the "Closing Date"). Ind. State Police Pension Trust v.

Chrysler LLC, 129 S.Ct. 2275 (2009). Subsequently, the United States

Supreme Court declined to review the Sale Order, which is a final order.

Ind. State Police Pension Trust v. Chrysler LLC, 130 S.Ct. 1015 (2009).

In connection with implementing the Fiat Transaction, New Chrysler

worked with the Debtors to identify the contracts it would purchase (and

those it would exclude) consistent with the terms of the Purchase Agreement

and the Sale Procedures Order. The appellants in this appeal (collectively,

the "Appellants") are former Chrysler, Dodge and Jeep dealers whose

dealership agreements were among those that New Chrysler expressly

determined not to purchase as part of the Fiat Transaction.

The dealership contracts with the Appellants (collectively,

the "Appellants' Excluded Contracts") were never designated for assumption

and assignment to the purchaser under the Sale Procedures Order, as

required for all executory contracts purchased by New Chrysler. In fact, in

advance of the hearing on the Fiat Transaction, the list of dealership

contracts designated to be assumed and assigned to New Chrysler was filed

with the Bankruptcy Court and did not include the Appellants' Excluded

ATI-2449180 -6-




Contracts. See Notice of Filing of Schedule of Designated Domestic Dealer

Agreements and Cure Costs Related Thereto (May 14, 2009) (Docket

No. 797). To the contrary, New Chrysler included the Appellants' Excluded

Contracts on the list of dealership contracts expressly excluded from the

sale. This list was filed with the Bankruptcy Court before the Closing Date.

See Notice of Designation of Excluded Contracts, Annex 1 (June 3, 2009)

(Docket No. 3478) (the "Dealer Contract Exclusion Notice"). New

Chrysler's business decision not to purchase the Appellants' Excluded

Contracts was consistent with the Purchase Agreement and the viability plan

that formed the longstanding blueprint for the Fiat Transaction. See Sale

Op., 405 B.R. at 90-92, 99.

In light of the purchaser's decision not to assume these agreements,

the Appellants' Excluded Contracts would remain with the Debtors'

bankruptcy estates, and New Chrysler would not take on any contractual

relationship with the Appellants. Under section 365 of the Bankruptcy

Code, and subject to Bankruptcy Court approval, the Debtors then had two

options to address these remaining executory contracts:9

either (a) assume

9 There is no dispute that the Appellants' Excluded Contracts are "executorycontracts" subject to section 365 of the Bankruptcy Code. See Order of theBankruptcy Court dated June 9, 2009 (Docket No. 3802) (the "Rejection Order")

ATI-2449180 -7-




(i.e., ratify) these agreements and commit to the continued performance of

their terms; or (b) reject (i.e., disavow) these agreements. Rejection of an

executory contract under section 365 of the Bankruptcy Code is a court

authorized breach of the agreement that is deemed to have occurred

immediately prior to the filing of the bankruptcy. Rejection thus frees the

debtor from any further performance obligations under the agreement, and

makes any claim of the contract counterparty for damages due to breach

subject to compromise in bankruptcy. See 11 U.S.C. §§ 365(g), 502(g); see

also Sale Op., 405 B.R. at 98-99 (discussing the law of contract rejection).10

Under the circumstances, and as the record amply reflected, the

Debtors had no realistic choice but to pursue their statutory rights under

section 365 of the Bankruptcy Code to reject the Appellants' Excluded

Agreements. Since before commencing their bankruptcy cases, the Debtors

ceased operating their businesses and, as a result of the sale to New

at p. 2, ¶ F (finding that these agreements are executory contracts subject tosection 365 of the Bankruptcy Code).

10 Contract counterparties in the Debtors' chapter 11 cases were provided with clear,court-approved notice of the deadline to file proofs of claims to assert these typesof claims. In the Debtors' cases that deadline was the later of (a) 30 days after theentry of an order authorizing the rejection of a contract or (b) September 28, 2009.See Order dated August 6, 2009 (Docket No. 5018) (the "Bar Date Order"), at ¶ 11. As noted below, the Appellants were provided with notice of the right tofile their claims in the order rejecting their contracts. See Rejection Order, at ¶ 4.

ATI-2449180 -8-




Chrysler, would never operate those businesses or any other business again.

Indeed, the operating assets were transferred to New Chrysler as the

purchaser in the Fiat Transaction on the Closing Date.

Without a car manufacturing business, the Debtors (a) had no need for

a dealer network, (b) had no ability to maintain or support such a network

and (c) lacked the ability to fulfill their obligations under the Appellants'

Excluded Agreements on a going-forward basis. After the Closing Date, the

Debtors would continue to exist solely to complete a liquidation of the assets

not purchased by New Chrysler and to administer their bankruptcy cases.11

Because the liquidating Debtors could not fulfill the Appellants' Excluded

Contracts, they could not meet the standard to assume these agreements.

And neither the Debtors nor any other party could force the purchaser to

accept these excluded dealer agreements. Given these realities, the Debtors'

business judgment was to reject all of the dealer agreements not assumed by

New Chrysler (including the Appellants' Excluded Contracts).12

11 In fact, the Debtors that operated these businesses have now dissolved and aresucceeded in this Appeal by the Liquidation Trust established to complete theremaining liquidation activities.

12 Among other things, rejecting the Appellants' Excluded Contracts would allowthe Debtors to avoid the potential administrative liabilities that might haveaccrued had the contractual relationships continued. The Debtors would havebeen required to pay these administrative liabilities in full, unlike claims subject

ATI-2449180 -9-




Accordingly, the Debtors filed their motion to approve the rejection of these

contracts with the Bankruptcy Court (Docket No. 780) (the "Rejection

Motion").

It is in this context that the Debtors' request to reject the Appellants'

Excluded Contracts was considered by the Bankruptcy Court at a separate

evidentiary hearing following the Sale Hearing on June 4 and 9, 2009

(the "Rejection Hearing").13 The record of the Rejection Hearing (which

incorporated evidence presented in the Sale Hearing) unequivocally

supported the findings that the rejections were appropriate and within the

Debtors' business judgment. On June 9, 2009, the Bankruptcy Court issued

its Rejection Order, approving the rejection of the dealer agreements not

purchased by New Chrysler, including the Appellants' Excluded Contracts.

On June 19, 2009, the Bankruptcy Court issued its written Rejection

Opinion (the "Rejection Opinion"), providing the analysis for its ruling.

Although an appeal of the Rejection Order was initiated by certain parties

to compromise in bankruptcy. Any such liabilities could have been prohibitive to

the Debtors' efforts to complete the chapter 11 process and would have adverselyimpacted other creditors.

13 Notably, New Chrysler was not a party to this proceeding since it declined topurchase the agreements at issue and had no interest in the contracts at issue.Rather, the decision and the request to reject these contracts was solely theDebtors'.

ATI-2449180 -10-




other than the Appellants, that appeal was quickly dropped, and the

Rejection Order became a final order without further litigation.14

The Appellants were no strangers to this process. All but one of the

Appellants appeared or otherwise participated in one or both of the Sale

Hearing and the Rejection Hearing before the Bankruptcy Court. Many of

the Appellants expressed strong opposition to the treatment of their

agreements at those hearings. None of the Appellants, however, appealed

from the resulting Sale Order or Rejection Order, despite having had

adequate notice and opportunity to do so. Instead, after more than six

months of silence on the issue, the Appellants filed a motion seeking

reconsideration of the Rejection Order (Docket No. 6132)

(the "Reconsideration Motion").

The linchpin of the Appellants' request for reconsideration of the

Rejection Order is their accusation that the Bankruptcy Court itself

committed "fraud on the court" in its Rejection Opinion. This accusation,

14 Following rejection, the Appellants retained their statutory and contractual rightsto file claims in the bankruptcy proceeding for so-called "rejection damages"caused by the breach of contract. This right was expressly spelled out in theRejection Order itself. See Rejection Order at ¶ 4. The Appellants had untilSeptember 28, 2009, or nearly 4 months after entry of the Rejection Order, toprepare a proof of claim form to assert any such claims. See Bar Date Order at ¶ 11.

ATI-2449180 -11-




and the inexcusable lateness of the Appellants' Reconsideration Motion, are

the focus of this Appeal.

As the Liquidation Trust demonstrates herein, no "fraud on the court"

occurred. The entire premise of the alleged fraud is the Appellants'

contention that the Bankruptcy Court's own interpretation of and citation to

certain testimony in a footnote in the Rejection Opinion disregarded "the

truth." The testimony at issue in the challenged footnote concerned the issue

of whether New Chrysler would have consummated the Fiat Transaction

without any reduction in the Debtors' dealership network at all.

The Appellants twist the testimony and ignore the balance of the record in

arguing that the exclusion of their dealer agreements was neither desirable

nor a negotiated part of the Fiat Transaction, and therefore was allegedly

unnecessary. The record as a whole, however, directly and unequivocally

supports the Bankruptcy Court's contrary interpretation.

The Appellants essentially seek to modify the Fiat Transaction and

force their dealer agreements upon New Chrysler despite its business

decision not to purchase those agreements. But neither the Fiat Transaction

nor New Chrysler is before the Court here. New Chrysler exercised its

unambiguous contractual rights not to purchase the Appellants' Excluded

ATI-2449180 -12-




Contracts. This was consistent with its strategy of obtaining a smaller,

streamlined dealer network from the Debtors, which was identified even

before the bankruptcy as part of the viability plan for the Chrysler business.

Indeed, the need for a streamlined dealership network was even conceded by

several dealers during the course of the Rejection Hearing. See Hr'g Tr.,

May 29, 2009, at 72-74, 89-93, 102-06 [SA38-39, SA42-43, SA46-47]. Of

course, despite the Appellants' dissatisfaction, neither the Debtors nor the

Bankruptcy Court could have compelled New Chrysler to take the

Appellants' agreements. The only matter now before the Court is the

Appellants' request for reconsideration of the Debtors' decision – in their

business judgment as non-operating, liquidating entities – to reject (rather

than assume) the Appellants' Excluded Contracts.

The Bankruptcy Court denied the Reconsideration Motion, ruling that

(a) no fraud on the court had occurred, and the testimony had been properly

and correctly weighed and cited; and (b) the request was untimely and could

not substitute for a timely appeal. See In re Old Carco, LLC, 423 B.R. 40

(Bankr. S.D.N.Y. 2010) (the "Reconsideration Ruling"). On appeal, the

United States District Court for the Southern District of New York, Judge

Alvin K. Hellerstein (the "District Court") affirmed the Reconsideration

ATI-2449180 -13-




Ruling and agreed both that no fraud on the court had occurred and that the

Reconsideration Motion was untimely. See In re Old Carco LLC,

No. 10-Civ-2493 (AKH), 2010 WL 3566908 (S.D.N.Y. Sept. 14, 2010)

(the "District Court Decision"). The Appellants now appeal the District

Court Decision.15

As described herein, the facts and the law overwhelmingly support the

decisions of the courts below in denying the reconsideration request. The

District Court Decision should be affirmed.

JURISDICTIONAL STATEMENT

Under 28 U.S.C. § 1334 and 28 U.S.C. § 157, the Bankruptcy Court

has subject matter jurisdiction over the chapter 11 case from which this

appeal arose. Under 28 U.S.C. § 158(d)(a), the District Court had appellate

jurisdiction over the Appellants' initial appeal of the Reconsideration

Decision. Under 28 U.S.C. § 158(d)(1), this Court has appellate jurisdiction

over the present appeal from the District Court Decision.

QUESTIONS PRESENTED

The Appellants expressly limit the issues in this appeal to two

questions, which the Liquidation Trust clarifies below:

15 Notably, neither the Rejection Order nor the Sale Order are subject to this appeal,and both of those orders remain final.

ATI-2449180 -14-




1. Whether the District Court erred in affirming the

Reconsideration Ruling by agreeing with the Bankruptcy Court that no

"fraud on the court" occurred, within the meaning of Rule 60(d)(3) of the

Federal Rules of Civil Procedure (the "Civil Rules"),16 in footnote 21 of the

Rejection Opinion ("Footnote 21"); and

2. Whether the District Court erred in affirming the

Reconsideration Ruling by agreeing with the Bankruptcy Court that the

Reconsideration Motion was untimely and could not replace an appeal.

The Appellants improperly frame the second issue by stating that the

District Court "dismiss[ed] Appellants' appeal as untimely." Br. at 9

(emphasis added). This is procedurally inaccurate. The District Court did

not dismiss the Appellants' appeal. Rather, the District Court affirmed the

ruling below that the Appellants' Reconsideration Motion in the Bankruptcy

Court was untimely.17

Notably, in this Court the Appellants have retreated significantly from

the issues they argued in the courts below. Among other things, the

16 Civil Rule 60 is applicable in bankruptcy cases pursuant to Rule 9024 of theFederal Rules of Bankruptcy Procedure.

17 Note also the Appellants' incorrect statement that the District Court affirmed theRejection Order and the Rejection Opinion. See Br. at 10. The District Courtaffirmed only the Reconsideration Ruling, not the Rejection Order and theRejection Opinion, which are final orders that were not and are not on appeal.

ATI-2449180 -15-




Appellants expressly "have not brought an appeal of the [Civil Rule]

60(b)(1) decision [finding that there had been no mistake or oversight by the

Bankruptcy Court] before the Second Circuit. This appeal is strictly limited

to the [Civil] Rule 60(d)(3) fraud on the court issue." Br. at 13.

Finally, in addition to requesting reversal and remand, the Appellants

make the procedurally inappropriate request for this Court "to vacate the

June 9, 2009 rejection order , to vacate the June 19, 2009 Rejection Opinion,

and to remand the case to the [Bankruptcy Court] for damages." See

Br. at 10 (emphasis added); id. at 30 (same). As noted above, the Rejection

Order itself is not on appeal, and there is no basis in this appeal or on the

reconsideration record for any award of damages. The sole matter on appeal

here is the denial of the Reconsideration Motion, which sought to have the

Rejection Order reconsidered. Reversal would mean only that the

Bankruptcy Court should reconsider the merits of the Rejection Order de

novo, a process that would not necessarily result in any vacatur or

modification of that order, nor any right to damages.

STATEMENT OF THE CASE AND RELEVANT FACTS

Following an extended evaluation of alternatives, months of

deepening losses totaling more than $16.8 billion, a prolonged search for a

ATI-2449180 -16-




merger partner, billions of dollars in government financing and a failed

effort at an out-of-court restructuring, the Debtors determined that the sole

option to maintain the viability of their businesses and to preserve their

value was to sell substantially all of their assets to New Chrysler under the

authority provided in the Bankruptcy Code, by way of the Fiat Transaction.

See Sale Op., 405 B.R. at 92-93. As part of the Fiat Transaction, most, but

not all, of the Debtors' dealer contracts were acquired by New Chrysler.

These accepted dealer agreements were assumed by the Debtors and

assigned to New Chrysler. New Chrysler opted not to purchase the

Appellants' Excluded Contracts. Thus, with no ability to fulfill these

agreements and no benefit to maintaining them, the Debtors rejected these

agreements under section 365 of the Bankruptcy Code. In the Bankruptcy

Court, all but one of the Appellants opposed that treatment and sought to

force their agreements upon New Chrysler. This challenge was

unsuccessful, and the Rejection Order was entered over these dealers'

objections. The objecting dealers elected not to appeal the Rejection Order,

just as they had not appealed the Sale Order.

Instead, six months later, the Appellants suddenly reappeared with

their Reconsideration Motion. Their arguments therein were a thinly veiled

ATI-2449180 -17-




and baseless appeal. They said nothing in seeking reconsideration that they

could not have said six months earlier. Nor did they meet their burden of

showing any facts or controlling decisions that were not available to the

Bankruptcy Court initially, and that could be expected to have altered its

conclusion. See Olsen v. 419 Apartment Corp. (In re Olsen), No. 06-cv-

4004 (RJS), 2008 WL 4298586, at *5 (S.D.N.Y. Sept. 19, 2008); In re

Health Mgmt. Sys. Inc. Secs. Litig., 113 F. Supp. 2d 613, 614 (S.D.N.Y.

2000). Moreover, in the intervening six months, numerous activities in the

bankruptcy proceedings occurred that were premised on, among other

things, the finality of the Rejection Order and the elimination of potentially

substantial contractual obligations to rejected dealers.

A. The Debtors' Prepetition Dealer Network.

Before bankruptcy, the Debtors maintained a domestic network of

approximately 3,200 dealers authorized to sell and service new vehicles

under one or more agreements with the Debtors (collectively with any

ancillary agreements, the "Dealer Agreements"). See Rejection Op., 406

B.R. at 188. The fragmented nature of the Debtors' dealer network, with

many dealers selling fewer than all three brands of Chrysler vehicles, placed

the Debtors' business at a competitive disadvantage. See id. at 193-94.

ATI-2449180 -18-




Many dealers were poor performers, selling far fewer vehicles on average

than dealers of the Debtors' competitors, and fewer sales than would be

expected based on standard industry metrics for average sales for their

particular geographic locale. See id. at 193. Additionally, automotive

manufacturers incur greater network oversight costs as the number of their

dealers increases. See id. at 194. Thus, there was a pressing and ongoing

business need to streamline and strengthen the domestic dealer network.

B. New Chrysler Accepted Only Some of the

Dealer Agreements in the Fiat Transaction.

Central to New Chrysler's agreement to purchase the Debtors' assets

was its bargained for right to take assignment of certain Dealer Agreements

but not others — thereby resulting in the acquisition of a smaller, more

efficient and more profitable dealer network. See Rejection Op., 406 B.R. at

194-95; Sale Order at 19. As described in the motion to approve the Fiat

Transaction (Docket No. 190) (the "Sale Motion"), the Purchase Agreement

provided that New Chrysler would have up to 30 days after closing to

designate Dealer Agreements either (a) as "Assumed Contracts" that would

be assumed and assigned to New Chrysler or (b) as "Excluded Contracts"

that New Chrysler would not accept and that would be left with the Debtors.

See Purchase Agreement at § 2.10; Sale Procedures Order, at ¶ 19(c).

ATI-2449180 -19-




Consistent with bankruptcy law, this decision was within the sole discretion

of New Chrysler, as executory contracts cannot forcibly be assigned to a

buyer without its consent.18

New Chrysler, acting within its negotiated rights to do so, opted not to

purchase and accept assignment of the Appellants' Excluded Contracts.

Specifically, New Chrysler filed the Dealer Contract Exclusion Notice,

expressly designated them as Excluded Contracts — thereby precluding the

Debtors from assigning them to the purchaser — before the closing of the

Fiat Transaction and before the hearings on the dealer rejections. Having no

further business operations, the Debtors had no need for the Appellants'

Excluded Contracts and no ability to perform under them, resulting in the

determination in the Debtors' business judgment to seek rejection of these

agreements under section 365 of the Bankruptcy Code.

Hundreds of dealers, either directly or by way of "committees" or

other loosely affiliated dealer groups, objected to the Sale Motion (see Sale

18 See, e.g., Stephen J. Lubben, No Big Deal: The Chrysler and GM Cases in

Context , at 16 (2009), attached as Annex B to the September Oversight Report of the Congressional Oversight Panel (2009) available athttp://cop.senate.gov/documents/cop-090909-report.pdf ("Asset buyers have noobligation to buy anything more than they want to buy, and no obligation toabsorb any claims other than those the buyer feels it needs to operate thepurchased assets.").

ATI-2449180 -20-




Order at 13-16) and/or the Rejection Motion. See Rejection Op., 406 B.R.

at 187. As for the Appellants, all but one of them (Wilson Dodge Nissan)

objected to the Rejection Motion and all but seven of them (Bruce Campbell

Dodge Inc.; Jim Fiore Motors; M&M Dodge Inc.; Mt Clemens Dodge Inc.;

Russo Group Enterprises Inc.; SNOW, LLC; and Wilson Dodge Nissan)

objected to the Sale Motion. All of the Appellants had notice and an

opportunity to object to both the Sale Motion and the Rejection Motion.19

C. The Sale Hearing.

Beginning on May 27, 2009, the Bankruptcy Court conducted the Sale

Hearing to consider the Fiat Transaction. See Sale Op., 405 B.R. at 93.

During the Sale Hearing, 21 witnesses testified live or by deposition.

Among the in-person witnesses was Peter Grady, who at the time was the

Debtors' Director of Dealer Operations. He testified regarding the objective

of eliminating poorly performing dealers and restructuring the network as

19 See Sale Op., 405 B.R. at 109 ("[T]he Court determines that notice of the SaleHearing is proper and adequate."); Rejection Op., 406 B.R. at 207-08 ("The Courtconcludes that notice of the [Rejection] Motion and opportunity to be heard wasadequate . . . ."); see also Aff. of Serv. dated May 3, 2009 (Docket No. 195)(service of the Sale Motion and related memorandum of law on May 3, 2009);Supplemental Aff. of Serv. dated May 14, 2009 (Docket No. 842) (supplementalservice of the Sale Motion and related memorandum of law on May 4, 2009); Aff.of Serv. dated May 15, 2009 (Docket No. 930) (service of the Notice of Hearingfor the Sale Motion on May 11, 2009); Aff. of Serv. dated May 21, 2009 (DocketNo. 1588) (service of the Rejection Motion and the Amended Notice of Hearingfor Rejection Motion on May 14, 2009).

ATI-2449180 -21-




part of the Fiat Transaction. See Hr'g Tr., May 28, 2009, at 427-542

[SA-33]. He testified about the development of a restructuring plan to

assign approximately 75% of the Dealer Agreements to New Chrysler and to

reject the remainder. See id. at 447-48 [SA9]. He also testified that the

Debtors had shared this analysis with Fiat, and that Fiat expected a reduction

of the dealer network as part of the Fiat Transaction. See Hr'g Tr., May 28,

2009, at 539 [SA32] (stating his understanding that Fiat would not have

proceeded with the Fiat Transaction absent rejection of the Appellants'

Excluded Contracts and the other excluded dealer agreements); id. at 476-77

[SA16] (stating that the Debtors were expected to transfer a robust dealer

network and that Fiat "encourage[d] and [bought] into a restructuring of the

dealer network"); id. at 496-97 [SA21] (stating that "Fiat and their dealer

development people . . . signed off on the process [for dealer network

restructuring]. They agreed with it."); id. at 538-39 [SA32] (confirming that

the Debtors showed the dealer assignment list to Fiat, discussed the

methodology for it and that Fiat agreed with the methodology for it).

Another key witness was Fiat executive Mr. Alfredo Altavilla.

Among other things, he testified regarding Fiat's view that a dealer network

restructuring "need[ed] to occur." See, e.g., Hr'g Tr., May 27, 2009, at 350

ATI-2449180 -22-




[SA2] (stating that the Fiat Transaction term sheet contained a "provision . . .

calling for a restructuring of the existing dealer network"); id. at 351 [SA2]

(stating that Fiat "requested a restructuring of the dealer network"); id. at

352 [SA2] (stating that "a restructure needs to occur").

Various dealers presented live testimony of fact witnesses at the Sale

Hearing and argued, among other things, that the Appellants' Excluded

Contracts and other excluded dealer agreements that were not being assigned

to New Chrysler should nevertheless be imposed upon New Chrysler as if

they had been assigned. See Hr'g Tr., May 29, 2009, at 58-108, 280-312

[SA35-56]. Several of the dealers' witnesses conceded on cross-

examination, however, that the dealer network needed to be downsized. See

id. at 72-74, 89-93, 102-06 [SA38-39, SA42-43, SA46-47].

On May 31, 2009, the Bankruptcy Court issued its Sale Opinion

overruling the various objections by the dealers and others and approving the

Fiat Transaction. See Sale Op., 405 B.R. at 113. The Bankruptcy Court

recognized that, "[a]s in any case, the potential purchaser, New Chrysler,

identified the assets it desired to purchase, which of necessity dictated the

contracts that the Debtor would assume." Id. at 98. "Obviously," the

Bankruptcy Court added, "the value that New Chrysler would agree to pay

ATI-2449180 -23-




for the assets has to be impacted by the inclusion or exclusion of certain

contracts." Id. at 99. New Chrysler appropriately "decid[ed] to assume

certain contracts but not others" and took such steps that occur "[i]n every

bankruptcy case involving the sale of substantially all of a debtor's assets."

Id. The Court specifically held that "the procedures utilized . . . to determine

which contracts would be assumed and assigned to the purchaser was a

reasonable exercise of the Debtors' business judgment." Id. at 96.

D. The Rejection Hearing.

Soon after the Sale Hearing, the Bankruptcy Court conducted

Rejection Hearing on June 4, 2009, and June 9, 2009, to consider the

Debtors' request to reject the dealer agreements not purchased by New

Chrysler. Fifteen witnesses testified live and 66 witnesses submitted

declarations. Rejection Op., 406 B.R. at 187. At the Rejection Hearing, just

as at the Sale Hearing, the same argument that the Appellants repeated when

seeking reconsideration and in this appeal — i.e., that Mr. Altavilla's

testimony somehow mandated a finding that Fiat would have taken all of

their Dealer Agreements and forsaken a dealer network restructuring — was

argued by multiple dealer factions. See Hr'g Tr., May 29, 2009, at 282-83

[SA49] (argument of counsel to the "Committee of Chrysler Affected

ATI-2449180 -24-




Dealers"); id. at 294 [SA52] (argument of counsel to 31 dealers); Hr'g Tr.,

Jun. 9, 2009, at 69-70 [SA59] (argument of counsel to the Palmer Chrysler

dealership).

On June 9, 2009, the Bankruptcy Court entered the Rejection Order,

overruling these and other objections after considering all of the evidence

and arguments. On June 19, 2009, the Bankruptcy Court issued the

Rejection Opinion, describing its analysis of the facts and the law.

Consistent with the Sale Opinion, the Bankruptcy Court found that Fiat

would not have agreed to the Fiat Transaction without the option to select

the assets and liabilities that New Chrysler would purchase, including the

right to pick and choose the dealer contracts to accept to achieve a smaller

and stronger dealer network. See, e.g., Rejection Op., 406 B.R. at 195.

"The Debtors determined, and New Chrysler agreed, that rejection of

the [contracts New Chrysler excluded from its asset purchase] was necessary

and appropriate for implementing" a plan for revival of the Chrysler

business, "by enabling the Debtor to consummate the Fiat Transaction and

transfer to New Chrysler a smaller, more effective, and more profitable

dealer network without disruption while limiting the Debtors' potential

postpetition obligations to the Affected Dealers." Id. The Bankruptcy Court

ATI-2449180 -25-




emphasized that making a debtor more attractive to its buyer is an

appropriate reason to reject a contract. Rejection Op., 406 B.R. at 192 n.10;

id. at 194. More directly, given the circumstances, the Bankruptcy Court

found that the Debtors properly exercised their business judgment to reject

the Dealer Agreements that were not purchased by New Chrysler.

None of the Appellants appealed the Rejection Order. Yet, having

failed in their efforts in Bankruptcy Court to oppose the sale and the

rejection of their Dealer Agreements, they now seek to collaterally attack

key elements of the chapter 11 cases by seeking to have their Dealer

Agreements treated as if the rejections had not occurred (presumably with

the goal of treating these agreements as if New Chrysler had agreed to

acquire them and fulfill their terms).20 In doing so, they rely at this point

almost exclusively on an incorrect argument that was made to and rejected

by the Bankruptcy Court in the original briefing and hearings on the

Rejection Motion.

Specifically, the Appellants continue to argue that Fiat supposedly

would have undertaken the Fiat Transaction without any restructuring of the

20 This is presumably the goal because the Liquidation Trust, having no business,operations or manufacturing capabilities, nor ownership of the Chrysler name,lacks the wherewithal to fulfill the Appellants' dealer agreements. This is one of the fundamental reasons that these agreements were rejected in the first place.

ATI-2449180 -26-




dealer network at all and without the opportunity for New Chrysler to select

and acquire only the contracts that it was willing to accept. The Appellants

continue to make this argument despite the fact that there was simply no

evidence presented below to support this assertion. To reach this conclusion

and to seek relief without a timely appeal, the Appellants argue that the

Bankruptcy Court's evaluation of the evidence, and citation to the record,

somehow constitute a fraud on the court.

ARGUMENT

I. STANDARD OF REVIEW

When the Bankruptcy Court considered the Reconsideration Motion,

its analysis was subject to a "strict" standard under which reconsideration

"will generally be denied unless the moving party can point to controlling

decisions or data that the court overlooked . . . that might reasonably be

expected to alter the conclusion reached by the court." Olsen, 2008 WL

4298586, at *5 (quoting Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d

Cir. 1995) (alterations in original); see also Health Mgmt. Sys. Inc. Secs.

Litig., 113 F. Supp. 2d at 614 ("reconsideration . . . is an extraordinary

remedy to be employed sparingly") (internal quotes omitted).

ATI-2449180 -27-




When the District Court considered the Appellants' first appeal, its

analysis was subject to a standard under which "the decision by the

Bankruptcy Court is reversed only for an abuse of discretion." Unsecured

Claims Estate Rep. of Teligent, Inc. v. Cigna Healthcare, Inc. (In re Teligent,

Inc.), 326 B.R. 219, 224 (Bankr. S.D.N.Y. 2005), accord O'Connor v. Pan

Am Corp., 5 F. App'x. 48, 51-52 (2d Cir. 2001) (affirming, with an abuse of

discretion standard, denial of a motion for reconsideration); Olsen, 2008 WL

4298586, at *5 (same). An abuse of discretion may be found "only . . .

where (1) the decision was based on an erroneous conclusion of law; (2) the

record contains no evidence on which the judge could have based his

decision; or (3) the supposed facts found are erroneous as found." In re

Delphi Corp., No. 06-cv-863, 2006 WL 1470929, at *3 (S.D.N.Y. May 30,

2006).

This Court independently reviews the Bankruptcy Court's conclusions

of law de novo and findings of fact for clear error, to be reversed only if this

Court is "left with the definite and firm conviction" that a mistake occurred.

Gulf States Exploration Co. v. Manville Forest Prods. Corp. (In re Manville

Forest Prods. Corp.), 896 F.2d 1384, 1388 (2d Cir. 1990) (quoting United

States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)).

ATI-2449180 -28-




The Appellants purport to reserve rights to bring an "independent

action" under Civil Rule 60(d)(3), separate from this appeal. See Br. at 17.

The Liquidation Trust objects to this attempted reservation of rights.21

II. THE COURTS BELOW CORRECTLY HELD THAT NO

FRAUD ON THE BANKRUPTCY COURT OCCURRED.

The Appellants level the grave accusation that Judge Gonzalez

"falsified the testimony" of a "key witness," Alfredo Altavilla of Fiat. See,

e.g., Br. at 19; see also, e.g., Br. at 12, 18 (alleging that Judge Gonzalez is

guilty of "judicial ventriloquism"), id. at 19 (alleging that Judge Gonzalez

"impermissibly changed the meaning" of Mr. Altavilla's testimony).

According to the Appellants, by "completely turn[ing Altavilla's] testimony

around," Br. at 18, Judge Gonzalez himself committed "fraud on the court"

within the meaning of Civil Rule 60(d)(3), warranting reconsideration and

vacatur of the Rejection Order. Id. at 19-23.

21 Motions for reconsideration and independent actions are alternative, notcumulative, remedies. See McCormack v. Schindler (In re Orbitec Corp.), 392 F.Supp. 633, 635 (S.D.N.Y. 1975) (stating this principle in dismissing withprejudice an action brought after denial of a motion for relief from judgment); seealso Duse v. IBM Corp., 212 F.R.D. 58, 62 (D. Conn. 2002) (stating that actionsunder Civil Rule 60(d)(3) are "barred where plaintiff had ample opportunity to or,in fact, did raise the alleged fraud in the underlying action") (citing M.W. Zack Metal Co. v. Int'l Navigation Corp. of Monrovia, 675 F.2d 525, 529 (2d Cir.1982)). By the Reconsideration Motion, the appeal below and now this appeal,the Appellants have had multiple opportunities to assert their arguments. The lawdoes not permit yet another avenue for relief by way of an "independent action."

ATI-2449180 -29-




Specifically, the Appellants take issue with Footnote 21 of the

Rejection Opinion, which refers to certain live testimony by Mr. Altavilla

during the Sale Hearing. The testimony in question was this: when asked

whether Fiat would "still go through with" the Fiat Transaction absent "an

absolute requirement of a particular number of dealers that are being

terminated," Altavilla answered clearly and definitively that "a restructure

needs to occur." Hr'g Tr., May 27, 2009, at 352 [SA2]. But "[w]hether it

occurs before or after the closing of the deal is not a material difference."

Id.22

In Footnote 21, the Bankruptcy Court stated, in relevant part,

"Altavilla also responded affirmatively to a question regarding whether a

dealership network needed to be restructured for the Fiat Transaction to

close, stating that a 'restructuring needs to occur.'" Rejection Op., 406 B.R.

at 197. The Appellants latch on to the Bankruptcy Court's use of the phrase

22 Fiat's indifference as to timing was consistent with the negotiated procedures forreducing the dealer network. As noted earlier, the Purchase Agreement and theCourt's Sale Procedures Order provided up to 30 days after the Closing Date forNew Chrysler to finalize its list of Dealer Agreements to be purchased and thoseto be excluded. See Purchase Agreement at § 2.10; Sale Procedures Order at ¶ 19(c). Moreover, Mr. Altavilla's testimony was given on May 27, 2009, sixdays before New Chrysler provided final notice that all of the Appellants'Excluded Contracts would definitively be excluded from the sale. See, e.g., Hr'gTr., May 27, 2009, at 350-52 [SA2] (containing a portion of Mr. Altavilla'stestimony); Dealer Contract Exclusion Notice (filing, on June 3, 2009, NewChrysler's notice dated June 2, 2009).

ATI-2449180 -30-




"to close." Under the Appellants' misreading of Footnote 21, the Bankruptcy

Court found that Fiat required a dealer network restructuring as a first-in-

time precondition to the act of closing the Fiat Transaction. This perceived

"finding" — which, as shown below, is the Appellants' misinterpretation of

the testimony and the Bankruptcy Court's point — is where the Appellants

find "fraud" in the Rejection Opinion. See Br. at 19-23.

In particular, although Mr. Altavilla stated Fiat's position that "a

restructure needs to occur," the Appellants contend that his statement of

indifference on timing ("before or after the closing") meant that Fiat actually

had no desire at all to restructure the dealer network and was willing to close

and fully implement the Fiat Transaction without any dealership rejections.

See, e.g., Br. at 10 (arguing that the rejections were "not at the request of the

purchaser, Fiat/New Chrysler"), id. at 12 (contending that Altavilla "clearly

indicated that the sale would close even if no dealers had been cut"), id.

at 20 (inferring that "Fiat would have gone through with the purchase

without Appellants having lost their dealerships.")23 As demonstrated

below, however, this theory and the fraud on the court theory are baseless.

23 The Appellants contend that if "Fiat would have gone through with the purchasewithout Appellants having lost their dealerships" then "there was no reason for theDebtor[s] to reject those contracts and certainly no legal cause for the . . .

ATI-2449180 -31-




First, the Appellants are flat wrong. The record shows that New

Chrysler would not have gone through with the Fiat Transaction without a

restructuring of the dealer network as part of the process. Mr. Altavilla

stated outright that "a restructure needs to occur." Hr'g Tr., May 27, 2009,

at 352 [SA2]; see also id. at 350-51 [SA2] (Altavilla testimony quoted supra

p. 12); Hr'g Tr., May 28, 2009, at 427-542 [SA4-33] (Grady testimony

quoted supra p. 11-12). The Appellants have not even tried to explain how

Mr. Altavilla's statements on Fiat's behalf and Grady's related testimony

could coexist with their theory that Fiat did not want a dealer network

restructuring and would have proceeded without one.

approval of the rejections." Br. at 20. This argument mischaracterizes thebusiness judgment standard and is incorrect on the facts as well. Apart fromMr. Altavilla's testimony, the record supports many other, distinct findings andconclusions, all of which also supported the holding that the Debtors had satisfiedthe business judgment standard to reject the Appellants' Excluded Contracts. Forexample, among other things, the Bankruptcy Court found that: (a) after theclosing of the Fiat Transaction, the Debtors would no longer be in the carmanufacturing business and would not have the necessary intellectual propertyrights to permit the dealers to be authorized dealers; and (b) in accelerating thereduction of the dealer network, the Debtors were acting within the limits of theirgovernment funding. See Rejection Op., 406 B.R. at 196-97. Second Circuit lawprovides that a debtor need only show a benefit to the estate from the rejections— a showing that the Bankruptcy Court determined had been made. Id.; see, e.g.,COR Route 5 Co. v. Penn Traffic Co. (In re PennTraffic Co.), 524 F.3d 373, 382(2d Cir. 2008) (stating this standard) (citing In re Orion Pictures Corp., 4 F.3d1095, 1098 (2d Cir. 1993)); In re Helm, 335 B.R. 528, 538 (Bankr. S.D.N.Y.2006) (same). Moreover, this determination to reject was solely the Debtors' tomake. New Chrysler, having already determined not to purchase the Appellants'Excluded Agreements, had no interest in these agreements and was not relevant tothe rejection process in the bankruptcy proceeding.

ATI-2449180 -32-




In addition, after Mr. Altavilla's testimony at the Sale Hearing and

before the Rejection Hearing, New Chrysler provided an express written

notice of its designation of the Appellants' Excluded Contracts as excluded

from the sale, definitively demonstrating that it would not accept assignment

of these agreements, consistent with the terms and conditions of the sale

documents. See Dealer Contract Exclusion Notice; Purchase Agreement

at § 2.10; Bidding Procedures Order at ¶ 19(c). In interpreting the

testimony, the Bankruptcy Court had the benefit of this information. The

express notice of exclusion of certain Dealer Agreement should eliminate an

ambiguity that a restructuring of the dealer network was required.

Further still, (a) the Fiat Transaction term sheet expressly "stat[ed]

that a [re]structuring was required," see Hr'g Tr., May 27, 2009, at 351

[SA2]; (b) when questioned by counsel for certain dealers regarding whether

Fiat requested a restructuring of the dealer network, Mr. Altavilla himself

reconfirmed, "as I said, [Fiat] requested a restructuring of the dealer network

without indicating the size of that restructuring," id.;24 (c) the Debtors'

24 Despite this testimony by Mr. Altavilla that Fiat requested the dealer network restructuring, the Appellants nevertheless assert that the dealership rejectionswere "not [made] at the request of the purchaser, Fiat/New Chrysler." Br. at 10;see also id. at 21 (arguing that the record "lacks any evidence whatsoever toindicate that rejection of the dealership contracts was requested by Fiat or New

ATI-2449180 -33-




financing from the U.S. Treasury and Export Development Canada

contemplated a reduction of the dealer network, see Rejection Op., 406 B.R.

at 197; and (d) the "Alliance Viability Plan" (i.e., the plan the Debtors

presented to the U.S. Treasury to demonstrate the synergies from an alliance

with Fiat and in support of requested government financing) required a

reduced dealer network, see id. at 196.

Thus, the Appellants' theory that Fiat would have "gone through with

the purchase" without streamlining the dealer network is no more than a

groundless, self-serving fiction. Consequently, there was no fraud in the

Bankruptcy Court concluding in the Rejection Opinion, among other things,

that New Chrysler and Fiat expected a dealer network restructuring as part

of the Fiat Transaction.

Second, Footnote 21, in addition to being an accurate reference to

Mr. Altavilla's testimony, is also fair and honest for purposes of the precise

point the Bankruptcy Court was making with the footnote. Specifically, the

Chrysler as a condition precedent to the sale closing"). In addition to beingfactually wrong, these assertions are legally misplaced. Ultimately, as a matter of law, whether anyone requested the rejections is irrelevant in applying section 365of the Bankruptcy Code. The decision was the Debtors' to make and it was solelythe Debtors' business judgment that was critical in evaluating the request to rejectthe agreements. See Penn Traffic, 524 F.3d at 383 (collecting cases). Whetherother parties agreed, disagreed or acquiesced was of little consequence.

ATI-2449180 -34-




Bankruptcy Court found that, for the purposes of the business judgment

standard, it was "immaterial whether Fiat required the Debtors to reject the

number of agreements [they] rejected." See Rejection Op., 406 B.R. at 197

(emphasis added). The Bankruptcy Court was noting that Fiat's participation

(or not) in selecting the precise number of dealers to reject was unimportant.

See id. Thus, the testimony expressing indifference to the timing of the

rejections (i.e., "before or after the closing") was not needed in Footnote 21

and, therefore, the fact that the Bankruptcy Court did not include it is

understandable and appropriate.25

Certainly, this does not constitute fraud.

Third, it is axiomatic that Judge Gonzalez was the finder of fact and,

as such, was entitled to evaluate and weigh the evidence presented to him.

In re Boyer, 328 F. App'x. 711, 714 (2d Cir. 2009) (stating that an appellate

court must accept a lower court's findings of fact unless clearly erroneous);

In re Ionosphere Clubs, Inc., 922 F.2d 984, 988-89 (2d Cir. 1990) (same).

While the Appellants may disagree with how the Bankruptcy Court weighed

and applied the testimony, such disagreement alone does not make the

Bankruptcy Court's analysis fraudulent. The issue of interpretation of the

25 By contrast, footnote 18 of the Rejection Opinion involved an element of timing,and Mr. Altavilla's testimony as to timing was quoted therein. See Rejection Op.,406 B.R. at 195 n.18.

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facts and the application of those facts to the law should have been raised by

appeal — a right the Appellants chose not to exercise.

Fourth, the primary authority the Appellants offer, Workman v. Bell,

245 F.3d 849, 851-52 (6th Cir. 2001), is of no help to them. The factors

used in Workman to define fraud on the court were "conduct: (1) [o]n the

part of an officer of the court; (2) [t]hat is directed to the judicial machinery

itself; (3) [t]hat is intentionally false, willfully blind to the truth, or is in

reckless disregard for the truth; (4) [t]hat is a positive averment or is

concealment when one is under a duty to disclose; and (5) [t]hat deceives the

court." 245 F.3d at 852. Here, however, the Bankruptcy Court: (a) made no

"positive averment or a concealment" about the testimony, as shown above;

(b) was not under any duty to disclose the testimony; (c) was not deceived

by any party or witness; and (d) was not "false . . . blind . . . or . . . reckless"

but fair and logical in discussing the testimony.26

26 The Appellants are also misguided in their comments about Envirotech Corp. v.Amstar Corp., 48 F.3d 1237 (Fed. Cir. 1995) and Bulloch v. United States,721 F.2d 713 (10th Cir. 1983), neither of which supports their argument. See Br.at 22. Neither case involved allegations of a judge "not perform[ing] his common judicial function" and, in both cases, the courts found that no fraud on the courthad occurred. See Envirotech, 48 F.3d at 1237; Bulloch, 721 F.2d at 718-19.Moreover, in Bulloch, the court chastised the plaintiffs for their inexcusable delayin challenging the earlier judgment. See id. at 718.

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Accordingly, for all of these reasons, (a) there was no "fraud on the

court" under Civil Rule 60(d)(3); (b) the Bankruptcy Court was right to deny

the Reconsideration Motion on this ground; and (c) the District Court was

correct in affirming on grounds that "Footnote 21 fairly and accurately

captured the relevant portion of Altavilla's testimony. Since the footnote did

not contain a false statement, there could be no fraud on the court," Dist. Ct.

Decision, 2010 WL 3566908, at *4.27 This Court should affirm.

III. THE COURTS BELOW CORRECTLY HELD THAT

THE RECONSIDERATION MOTION WAS UNTIMELY.

The Bankruptcy Court found that the Appellants could not pursue

relief under Civil Rule 60(d) when they could and should have asserted their

arguments by appeal instead. See Reconsideration Ruling, 423 B.R. at 47.

Under the authority the Bankruptcy Court relied upon, to ensure that Civil

Rule 60(d)(3) does not gut the appeal process, "the boundaries of the

concept of 'fraud upon the court' are strict." See id. at 52. Thus, a party who

alleges fraud on the court must show that the fraud "precluded [it] from fully

27 The Appellants turn this statement by the District Court on its head, drawing fromit the false conclusion that "Judge Hellerstein correctly indicates that if there wasa false statement in . . . Footnote 21, [it] would establish fraud on the court." Br.at 18; id. at 19 (same). The District Court found only that Footnote 21 is not falseand that, consequently, there definitely was not fraud on the court. This reasoningleaves open the question of whether some degree of inaccuracy in Footnote 21necessarily would satisfy Civil Rule 60(d)(3), which is not a foregone conclusion.

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and fairly representing its case" — a showing the Appellants could not

make. Id. at 50, 52-53. In affirming, the District Court agreed that the

Appellants had not provided an acceptable explanation for the extreme delay

of their Reconsideration Motion, or for why their arguments "could not have

been raised in a timely appeal." See Dist. Ct. Decision, 2010 WL 3566908,

at *3.

The Appellants allege error in these holdings. See Br. at 25-30. They

rely almost exclusively on Hazel-Atlas Glass v. Hartford Empire Co.,

322 U.S. 238 (1944), overruled on other grounds by Standard Oil of Cal. v.

United States, 429 U.S. 17 (1976), to argue that seeking relief from fraud on

the court — when such fraud has in fact occurred — is not time-barred. See

Br. at 12-13. This reliance is misplaced for several reasons.

First, the absence of an exact time bar as an outside limitation does

not preclude the application of equity and reasonableness to determine

(a) that a party's indefensible delay in acting, when it had the ability to act

sooner, precludes the requested relief; or (b) that the party could have, and

therefore should have, proceeded by way of an appeal instead. As the

District Court correctly noted, Civil Rule 60(d) relief is equitable in nature.

Dist. Ct. Decision, 2010 WL 3566908, at *2. Indeed, the District Court

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agreed with the Bankruptcy Court that the Appellants may not use a Civil

Rule 60 "to excuse their failure to timely appeal." Id. at *3.28 This

reasoning has to do with promptness, fairness and the preservation of the

appellate process and is distinct from whether there is a "time bar" to raise

fraud arguments. If, as the lower courts recognized was true here, a party is

not handicapped in its ability to make the argument — and, in particular,

could do so by way of an appeal — then the party may not use a Civil

Rule 60 motion as a late substitute for the failure to appeal. See id.

Second, the Hazel-Atlas case is distinguishable. In Hazel-Atlas, a

party in a patent lawsuit arranged for journal publication of a favorable

article on a glass-blowing process as part of a definitively fraudulent scheme

to obtain a patent. See Hazel-Atlas, 322 U.S. at 240-42. Many years later,

the fact that the article had been "planted" came to light in an unrelated

antitrust case, which led to an action to vacate the patent. See id. at 244.

28 The Appellants go to length to argue that the authorities the District Court reliedupon for this point "do not in any way support [the] contention that [theReconsideration Motion was] untimely." Br. at 27. But the Appellants' attemptsto distinguish the cases miss the point. All of the cases undeniably state outrightthe point the District Court was reiterating; i.e., that a Civil Rule 60 motion maynot be used as a substitute for appeal and/or to attempt to relitigate the merits,both of which are precisely what the Appellants are attempting here. See Flemingv. N.Y. Univ., 865 F.2d 478, 484 (2d Cir. 1989); Nemaizer v. Baker, 793 F.2d 58,61 (2d Cir. 1986); Competex, S.A. v. Labow, 783 F.2d 333, 335 (2d Cir. 1986);Batac Devel. Corp. v. B&R Consultants, Inc., No. 98-civ-721 (CSH), 2000 U.S.Dist. LEXIS 3695, at *7-9 (S.D.N.Y. Mar. 22, 2000).

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The U.S. Supreme Court vacated the patent because the Third Circuit

appeared to have been defrauded in relying on the planted article when

originally approving the patent. See id. at 246-47.

Here, in contrast to the fraud in Hazel-Atlas, which was unknown

when it occurred and went undetected for years, the alleged "fraud on the

court" was nothing more than Footnote 21 of the Bankruptcy Court's own

Rejection Opinion, issued mere days after the Rejection Order, explaining

the Bankruptcy Court's interpretation of testimony elicited in open court, on

cross-examination, during an adversarial process in which nearly all of the

Appellants participated directly. The Rejection Opinion itself is a public

document that was available to the Appellants for review immediately upon

issuance. The Bankruptcy Court's weighing and description of the evidence

in a post-hearing published opinion cannot possibly have prevented the

Appellants either from "fully and fairly presenting their case" during the

proceeding or from filing an appeal.

If the Appellants disagreed with the rejection decision, they had

immediate avenues of recourse through a timely motion to reconsider or an

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appeal. See Reconsideration Ruling, 423 B.R. at 55.29 Thus, the Appellants'

Reconsideration Motion six months later was "untimely because the asserted

basis upon which the motion was filed was available to the [Appellants]

upon issuance of" the Rejection Order and the Rejection Opinion. Id. This

holding and the District Court Decision affirming it correctly applied proper

legal standards and should be affirmed.30

IV. THE LIQUIDATION TRUST'S COUNSEL (FORMERLY

DEBTORS' COUNSEL) IS NOT GUILTY OF FRAUD.

The Appellants accuse the Debtors' counsel31

of committing

intentional fraud on the Bankruptcy Court when arguing the reconsideration

dispute, Br. at 23-25 — a new version of similar accusations they made in

their reconsideration briefing and their briefing to the District Court. See

29 Indeed, two dealers who are not Appellants — Tarbox Motors, Inc. and TarboxChrysler Jeep, LLC — both timely appealed (Notice of Appeal, DocketNo. 4150), but withdrew the appeal before any briefing. Id.

30 The Appellants also allege error in the District Court's quotation to the effect thatthat they must "demonstrate that [they] had no adequate remedy at law or that[their] 'fault, neglect, or carelessness did not create the situation for which [it][sic] seek[s] equitable relief.'" Br. at 27-28 (referring to the District Ct. Decision,2010 WL 3566908, at *2 (quoting LinkCo, Inc. v. Naoyuki Akikusa, 615 F. Supp.2d. 130, 135 (S.D.N.Y. 2009) (quoting Campaniello Imports, Ltd. v. Saporiti

Italia S.p.A., 117 F.3d 655, 662 (2d Cir. 1997))). Yet the District Court'squotation is accurate, and whether or not the specific facts of those cases matchthe facts here, the standard remains applicable to the equitable relief theAppellants seek. The reference to that standard is not error.

31 Because the Liquidation Trust's counsel was counsel for the Debtors at the time inquestion, counsel is referred to as "Debtors' counsel" in this section of argument.

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Appellants' Reconsideration Reply Br. (Docket No. 6270) at 2; Appellants'

Dist. Ct. Br. at 16-20. These accusations are groundless for three reasons.

First, there was no fraud. The Appellants complain that Debtors'

counsel described Mr. Altavilla as having testified that Fiat expected a

dealer network restructuring "as part of the sale transaction." Br. at 24. As

shown in Part I above, there is ample, uncontroverted record support for this

characterization. Second, as a matter of common sense, and as the

Bankruptcy Court recognized, any allegedly fraudulent representation in the

reconsideration briefing could not possibly have influenced the Bankruptcy

Court's Rejection Order six months earlier. Reconsideration Ruling,

423 B.R. at 57 n.13. Third, because the Appellants raised this allegation in

their reply briefing on reconsideration, the Bankruptcy Court was able to

consider the issue when reviewing the Debtors' briefing at the time.

The Bankruptcy Court found the accusations to be meritless. See id.

(finding that counsel's briefing did not "rise to the level of fraud on the

Court"). Accordingly, this Court should disregard the Appellants' false ad

hominem accusations against counsel.

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CERTIFICATE OF COMPLIANCE

This brief complies with the type-volume limitation in Federal Rule of

Appellate Procedure 32(a)(7)(B)(i). It contains 10,504 words as counted by

the word-processing system used to prepare the brief, exclusive of the parts

of the brief exempted from the type-volume limitation by Federal Rule of

Appellate Procedure 32(a)(7)(B)(iii).

Dated: January 14, 2011 /s/ Brett J. Berlin


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