PrintJune 30, 2009
The GM Bankruptcy and the Supreme Court
Hearings on GM's motion to approve its restructuring plan are set to start today in Manhattan bankruptcy court. The heart of the individual bondholders' objections to the Obama Administration's plan to save GM is that it is a sub rosa and unconstitutional effort to do an end-run around the bankruptcy code and to enrich the coffers of the UAW, a key political ally of President Obama. In vacating its brief stay in the Chrysler case, the Supreme Court refused to address the merits of similar allegations, but limited its order to the facts at hand and arguably left open the possibility for a return trip with GM bondholders.
A few individual GM bondholders make constitutional and statutory claims in objecting to the GM restructuring plan. An unofficial bondholders' committee which purports to represent more than 1,500 individual GM bondholders does not advance the constitutional issues and instead focuses on the plan's violation of the U.S. Bankruptcy Code.
I expect contrarians to argue that the constitutional train has left our union's station, but this is no academic pleasure for me. I'm an attorney and a GM bondholder. I remain unconvinced, despite President Obama's June 1st remarks to the nation and the government's ongoing allegations, that I'm better off with the government bailout than without it. On principle, I oppose the Administration's decision to prop up political allies whose interests are very much at odds with those of the industry and the rest of the country.
Two recent Supreme Court decisions, Medellin v. Texas and Hamdan v. Rumsfeld bear on the threshold question of whether the Obama Administration had the power to nationalize carmakers and enrich the UAW pursuant to the Emergency Economic Stabilization Act of 2008 (EESA) which authorized the Troubled Asset Relief Program (TARP) last October. The two opinions, which invalidated Bush Administration measures as extra-statutory, suggest that the Court (at least as it's presently configured) is not too fond of presidential actions unchecked by legislative or constitutional authority.
Here's a quick summary of the EESA provisions, with some spin:
Only a tortured reading of EESA's definition of financial institutions and purpose could make up for the absence of any mention of automakers or manufacturers in the legislation. TARP cannot be a Treasury slush fund, because that would turn Treasury into an unconstitutional mini-legislature without those pesky voters to check its power. Treasury's informal commentary to Congress and guidelines which interpret EESA broadly to cover automakers also are unlikely to be given the judicial deference accorded to Congress' own statutory definition.
Not even a tortured reading of EESA defends the use of TARP to create a UAW sweetheart deal. Of course, the UAW is mentioned nowhere in the legislation. The deal still is at odds with EESA's statutory considerations, including preventing financial market disruption to protect jobs and retirement security, and "protecting the interests of taxpayers by maximizing overall returns and minimizing the impact on the national debt."
An article in Barron's details the unprecedented nature of the UAW deal -- for which the taxpayers are taking the biggest hit. Notwithstanding the Administration's allegations of arms-length negotiations, the UAW's present workforce retains its out-sized wages and health care and pension benefits that helped to bring an industry to its knees. As the Barron's article points out, "never has an American union done so well at the expense of shareholders and creditors" who are on a par with the union:
The federal government may be lucky to get back half of the $50 billion owed by GM . . . . The government effectively is making a gift to the UAW... "a recovery of five times the bondholders' under reasonably upbeat scenarios.... The willingness of the Treasury to face the likelihood of eating a major loss down the line to get this deal done in what is still a very UAW-friendly and lopsided deal only partly eases the pain for bondholders."
There's far more than a colorable argument that TARP just wasn't meant as gift wrap to hide a very sour deal for the taxpayers. In a Washington Post editorial, Charles Lane argued that where there's an absence of express or implied statutory language that empowers a president to act, "sometimes the president can get away with stretching his authority because Congress would rather not be held accountable for formally defining it." Lane thinks that the automaker bailout falls within a "zone of twilight" of presidential power described by Justice Jackson in his seminal concurrence in the well-known Youngstown v. Sawyer case.
Under the Jackson tripartite methodology, presidential power falls in the "zone of twilight" when a president acts without a grant or denial of statutory authority because "congressional inertia, indifference or quiescence may sometimes, at least, as a practical matter, enable, if not invite, measures on independent presidential responsibility."
If only Congress had been inert, indifferent, or quiescent! In December 2008, Congress attempted and failed to pass new legislation free of the TARP ambiguities. Democratic leaders, backed by Treasury and acting comptroller general opinions, proceeded to evade the legislative process with President Bush. It's of little consolation that Congress receives periodic Treasury reports and other statutorily-mandated information on TARP.
All we know for sure is that there was no majority of voices or majority of silence in Congress for intervention in the automaker mess. I don't see how all of this can be packaged into some kind of passive-aggressive invitation to nationalize the carmakers with a taxpayer gift of a chunk of the industry to the UAW.
Medellin v. Texas, decided last year, suggests that the Court may be uncomfortable with this kind of gauzy "zone of twilight" inquiry, at least in the absence of longstanding Congressional acquiescence in the executive action. Another recent Supreme Court case on executive power, Hamdan v. Rumsfeld shows a Court very willing to circumscribe presidential power which finds no express statutory or constitutional authority. A law review comment published this year on the two cases picks up on the Court's possibly evolving thinking.
In Medellin, President Bush attempted to give force to a World Court ruling and an international treaty that had not been ratified by Congress. The Court relied on Youngstown to rule that presidential authority "'must stem either from an act of Congress or from the Constitution itself.'" In order to come within the "zone of twilight," the Court would require the President to show a "systematic, unbroken, executive practice, long pursued to the knowledge of the Congress and never before questioned." The Court seemed to hint at a general discomfort with congressional acquiescence as a source of power, where "even if [the court was] persuaded that congressional acquiescence could support the President's asserted authority... such acquiescence" did not exist in the Medellin case.
In Hamdan, the Court did not invoke the "zone of twilight" to invalidate the military commission used by the Bush Administration to try Osama Bin Laden's body guard/personal driver/Guantanamo Bay detainee. The Court found that three statutes which included presidential power to create military commissions merely preserved the right of presidents to form the commissions. One of the statutes was created after President Bush set up the commission and reserved judgment as to the validity of the commission's standards and procedures. Yet the Court never subscribed to the idea of congressional acquiescence, to arrive at its ruling.
Together, Medellin and Hamdan show a Court presently willing to curb executive power not found in express statutory terminology. I suspect, however, that the ultimate question for a GM court would be whether there's a viable and legal alternative to GM's liquidation. Ideas from proposals made by the unofficial GM bondholders' committee and the House Republican Leader John Boehner, are practical compromises that might not be my personal preference, but seem to make a lot of sense at this point.
The court might suggest that the Obama Administration return to Congress and ask for expedited hearings on legislation that allows the federal government to make loans to GM. Armed with a court order and a bully pulpit, President Obama should have some quick success. The loans would be conditioned on GM's filing for normal Chapter 11 bankruptcy plan process with an accelerated calendar and with the procedural protections unavailable under the section 363 fast track bankruptcy provisions used in the GM and Chrysler cases. The new loan assistance to GM would be tied to a requirement that the UAW adjust its benefits and wages to be more in line with that of GM's historically profitable counterparts. All of the federal government's senior claims would be paid before the bondholders, UAW, and other junior creditors would be eligible to collect significant recoveries on their claims.
That's a rebuilt vehicle I'd be happy to store in my own garage.
