David McLaughlin
Chrysler's creditors say German auto maker Daimler AG intentionally defrauded them through a restructuring of Chrysler on the eve of its 2007 sale.
In a new lawsuit filed against Daimler, the creditors offer new details about their claims that Daimler stripped Chrysler of billions of dollars in assets for its own benefit before unloading the struggling U.S. auto maker.
"These exchanges enriched Daimler at the expense of the many Chrysler creditors who now are unable to look to these assets to satisfy their claims," the creditors said in the complaint.
The lawsuit, filed with the U.S. Bankruptcy Court in Manhattan Monday, comes after a judge ruled last Thursday that committee representing Chrysler's unsecured creditors could sue Daimler in an effort to increase their recovery from Chrysler's bankruptcy case.
A Daimler spokeswoman, Julia Engelhardt, said the claims in the lawsuit "are without merit."
"We will vigorously defend ourselves against these claims, which we believe are completely baseless," she said.
Creditors say that in early 2007, as Chrysler struggled under a heavy debt load and falling auto sales, Daimler faced the risk that it could be on the hook for billions of dollars in Chrysler obligations, including $17.5 billion for retiree health benefits and $5 billion in unfunded pension costs.
To avoid this risk, Daimler decided to unload Chrysler, which it bought in 1998. But before doing that, creditors say, it orchestrated the restructuring plan in the spring of 2007.
Under the plan, Daimler transferred valuable Chrysler assets to other Daimler-controlled entities. It also left assets in the group of Chrysler companies but separated them so they were no longer subject to claims from creditors, making them more valuable.
The lawsuit says the "most egregious" of these steps came when Daimler transferred Chrysler's most valuable business - its U.S. and Canadian financing subsidiaries - to a new Chrysler holding company.
By becoming a sister company of Chrysler rather than a subsidiary, the finance arm escaped potential creditor claims, according to the lawsuit. As a result, Daimler got a "substantially better price" for Chrysler when it sold an 80% stake to Cerberus Capital Management in 2007 for $7.4 billion.
After filing for bankruptcy in April, the bulk of Chrysler assets were sold to a new company owned by Fiat SpA, the U.S. and Canadian governments and the United Auto Workers union.
Besides Daimler, the lawsuit names four former members of Chrysler's board of directors. The complaint seeks unspecified damages.
Lawyers for the creditors committee say any proceeds from the lawsuit would go to paying off creditors, a group that includes the U.S. government and secured lenders that received $2 billion from the bankruptcy sale, giving them a recovery of about 29 cents on the dollar.
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