Judges OK Chrysler Sale

NEW YORK (Reuters) – The sale of bankrupt automaker Chrysler LLC to a group led by Italian carmaker Fiat SpA (FIA.MI) was upheld by a U.S. appeals court on Friday, but the deal is expected to be appealed to the Supreme Court by a group of investors.

A three-judge panel of the U.S. Court of Appeals for the Second Circuit stayed the closing of the sale until Monday.

The appeals court said it would issue a written order later Friday.

In oral arguments to the court, Glenn Kurtz, a lawyer at White & Case representing a group of Indiana pension funds opposing the Chrysler sale, said his law firm was already working on papers for the appeal to the U.S. top court if necessary. The Supreme Court could stay the closing beyond Monday.

Kurtz’s comments came during his argument that the U.S. Treasury exceeded its authority by providing bailout funds to Chrysler and that the sale amounted to a covert reorganization that circumvented the normal court procedures, among other objections.

Judge Dennis Jacobs asked Kurtz whether this was a constitutional issue and asked the lawyer, “Should we give the Supreme Court a swing at this ball?”

Kurtz said he “would still like to be successful in this court” but that if the court does not side with them they would ask the appeals court for enough time to see if the Supreme Court would delay Chrysler’s sale, pending a hearing of their appeal in the high court.

The sale of Chrysler was approved by a federal bankruptcy court judge in Manhattan late Sunday, but quickly appealed.

The deal would bring a “New Chrysler” out of bankruptcy, which will be owned by Fiat, the company’s union, and the U.S. and Canadian governments.

The group of Indiana pension funds holds about $42 million of Chrysler’s $6.9 billion in secured loans.

The appeal is: In re: Chrysler LLC, U.S. Court of Appeals for the Second Circuit, No. 09-2311. The bankruptcy case is In re: Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002.

(Reporting by Emily Chasan and Tom Hals; Editing by Richard Chang)