Chrysler, Fiat, U.S. govt. want deal by June 15

WASHINGTON (Reuters) - Chrysler LLC, Italian carmaker Fiat SpA and the Obama administration told the U.S. Supreme Court on Tuesday the bankrupt automaker's sale needed to be completed by June 15 or the deal might collapse.

They sought to counter the argument by opponents of the deal, who had seized on a Fiat statement in Italy earlier on Tuesday that it did not plan to walk away from the transaction should it fail to close by June 15.

Attorneys for the Indiana pension funds challenging Chrysler's sale to Fiat, a union-aligned trust and the U.S. and Canadian governments had cited Fiat's statement in arguing for Supreme Court review of the case.

But Fiat's lawyers told the Supreme Court that "further delay imperils the chances of achieving an agreement" and said Chrysler, the smallest of the three U.S.-based automakers, could be forced into liquidation if the sale is not done by June 15.

Representing the Obama administration, Solicitor General Elena Kagan said a "substantial possibility" exists that Fiat will abandon the deal or insist on materially different terms if the sale does not go through by June 15.

Both Kagan and Chrysler cited the deteriorating financial condition of Chrysler in bankruptcy, as the automaker is losing $100 million a day.

Chrysler's lawyers said the strategy of the pension funds was "to wreak further havoc and apply coercive pressure by further delaying the sale."

The pension fund attorneys said Chrysler and the administration have made the argument -- including to the Supreme Court -- that the sale had to close by June 15 or Fiat would exercise its right to withdraw and the deal would collapse.

CASE MOVED AT 'UNPRECEDENTED PACE'

They said the bankruptcy judge and the U.S. appeals court in New York relied on that argument "in moving this case forward at an unprecedented pace."

In a one-sentence order issued Monday afternoon, Supreme Court Justice Ruth Bader Ginsburg said the bankruptcy judge's orders allowing the sale "are stayed pending further order" by her or by the high court.

It remained unclear what the court's next step would be or when it would happen.

But many legal experts and an administration official interpreted Ginsburg's action as giving the Supreme Court more time to weigh whether to intervene in the dispute.

The Chrysler case could set a precedent for General Motors Corp, which is using a similar quick-sale strategy in its bankruptcy in New York.

The pension funds asked the Supreme Court over the weekend to stop the sale of Chrysler so they could challenge the deal in an appeal to the nation's highest court. The court has yet to say whether it would hear that appeal.

The funds argued Chrysler's sale would unlawfully reward unsecured creditors ahead of secured lenders, that it amounted to an illegal reorganization plan and that the U.S. Treasury Department overstepped its legal authority by using financial bailout funds for Chrysler when Congress had intended the money for banks.

In another development, consumer groups said on Tuesday they have filed a U.S. Supreme Court appeal challenging the sale on the grounds it would leave Chrysler free of current and future product liability claims.

Five consumer groups and three individuals with pending cases challenged a provision of the sale agreement that releases the new company from pending and future product liability claims involving vehicles sold before the new company's creation.

"This case presents exceptionally important questions," they said in the appeal. They argued that Chrysler could not be sold "free and clear" of current and future product liability claims.

The consumer groups over the weekend also asked Ginsburg to put the deal on hold.

(Additional reporting by Ian Simpson in Milan; Editing by Gerald E. McCormick, Maureen Bavdek, Tim Dobbyn)