U.S. top court asked to delay Chrysler sale

By James Vicini

WASHINGTON (Reuters) - Indiana pension funds and consumer groups asked the U.S. Supreme Court on Sunday to stop the sale of bankrupt automaker Chrysler LLC to a group led by Italian carmaker Fiat SpA while they challenge the deal.

The separate requests, which moved the legal battle to the nation's highest court, were filed after a U.S. appeals court in New York approved Chrysler's sale to a group led by Fiat, a union-aligned trust and the U.S. and Canadian governments.

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 appeals court late on Friday stayed the closing of the sale until Monday afternoon, giving the pension funds and other opponents time over the weekend to ask the Supreme Court to block the sale while they appeal.

The three state pension funds, which hold about $42 million of Chrysler's $6.9 billion in secured loans, argued the sale unlawfully rewarded unsecured creditors such as the union ahead of secured lenders.

"The need for the court to review the profound issues presented by Chrysler's novel bankruptcy sale far outweighs the cost of delaying" a sale, lawyers for the pension funds and the Indiana attorney general said in seeking an immediate stay.

The pension and construction funds also argued the U.S. government, which kept Chrysler afloat with emergency loans before the automaker's bankruptcy and financed its Chapter 11 filing, overstepped its legal authority by using bailout funds Congress intended for banks.

"The public is watching and needs to see that, particularly, when the system is under stress, the rule of law will be honored and an independent judiciary will properly scrutinize the actions of the massively powerful executive branch," the lawyers said.

'IMMEDIATE, ENDURING NATIONAL SIGNIFICANCE'

"The issues presented by this case are of immediate and enduring national significance," they said.

Without a stay from the Supreme Court, the sale will close on Monday, the lawyers said.

The pension funds and the consumer groups seeks to delay the sale so the Supreme Court can hear and then decide their challenges to the deal. The consumer organizations said they planned to file their appeal with the high court by Tuesday.

A federal bankruptcy judge in New York and the three-judge panel of the appeals court rejected the challenges in approving the sale.

Attorneys for Chrysler, the U.S. government and Fiat all have argued the sale should be allowed to go forward. Fiat can walk away from the deal if it does not close by June 15.

The requests to stay the deal were filed with Supreme Court Justice Ruth Bader Ginsburg, who has responsibility for such emergency matters from the New York-based appeals court.