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Will The Supreme Court Begin Ruling On Bailouts?

In what may have been an excess of exuberance, the White House issued a statement about the Chrysler deal Tuesday night. Attributed to an unnamed White House official, it included this assertion: "We are gratified that not a single court that reviewed this matter, including the U.S. Supreme Court, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. Government...." There are some problems with that, and they are not mere legal technicalities.

The state of what might be called "bailout" law has not been reviewed at all by the Supreme Court, except at a somewhat speculative level of whether there was a chance the Court would rule against the deal if it did rule on the merits. It was not convinced, at this stage, that it would do so if that time came.

Fundamental constitutional issues surround the use of federal funds in the Chrysler bailout, as do a host of questions about using the bankruptcy laws as they were in this case. They were raised in the papers filed at the Court this week, but they were not answered in any final way.

The White House was close to right, it seems, about the lower courts. A federal bankruptcy judge in New York City found no "fault," with Chrysler or the U.S. Treasury, on the issues he did decide (which was not all of those presented), and apparently the same was true of three judges of the Second Circuit Court (although they have not yet issued an opinion to say just exactly they had found beyond a generalized agreement with the bankruptcy judge).

But the Supreme Court did not do that. It did not rule on "fault" because that would involve "the merits of the underlying legal issues" and the Tuesday order explicitly denied reaching the merits.

Whether the Court will now do so, at any point, depends on a few things.

First, it depends on whether it will agree to hear the formal appeals that already have begun to be filed with the Justices to contest the bankruptcy court's approval and the Second Circuit's approval of the Chrysler deal. Those are and will be separate from the applications for delay that have now been denied. One such appeal was filed Tuesday: Center for Auto Safety, et al., v. Chrysler LLC, et al. (docket 08-1513). The Court did not signal on Tuesday night that it would not hear that case, or others, if others are now filed.

Second, it depends upon whether, at least as to the Chryler deal, the Court in the future would say that the challenges are dead letters (in a legal sense, "moot") because the deal will soon--as early as tomorrow--become a fait accompli. There are ways around the "mootness" problem, but they are not really dependable. (If a General Motors rescue is crafted along the same lines as the Chrysler deal, Tuesday's order was no guarantee either way on how the Court might react to any legal protests. The order said the Justices were dealing with "this case alone.")

Third, it depends on whether anyone who objects to the Chrysler deal, or another "bailout," will be able to show that their interests would be genuinely harmed by the transaction, so they could sue. There was an active dispute in the legal papers as to whether some of the challengers did have "standing" to sue. That, too, is a legal issue that the Court did not address.

And, fourth, it depends on whether lower courts start issuing conflicting rulings on the issues like those raised in the Chrysler rescue. If that occurs, it would increase the chances that the Court would allow itself to get involved in the future. It might also be more inclined to get involved if the current crisis atmosphere eases somewhat in the near future; the Court does not lack institutional self-confidence, but it may well feel some reluctance to second-guess the Executive Branch's crisis management while the crisis is still going on.

[Cross-posted at SCOTUSblog.]

--Lyle Denniston