Daimler seeks to avoid Chrysler legal costs image

Daimler AG wants to make sure it is not on the hook for additional legal costs associated with a lawsuit filed by the creditors of the old Chrysler LLC.

The German automaker filed its opposition to the law firms being appointed as Special Counsel to the Chrysler Official Committee of Unsecured Creditors, which is suing the German automaker.

The documents were filed Monday with the New York bankruptcy court that continues to deal with issues concerning Old Carco LLC, the new name for the former Chrysler LLC that still has assets to be liquidated in bankruptcy.

The creditors won court approval Aug. 17 to pursue a lawsuit against Daimler in an attempt to recover what they say are billions of dollars of Chrysler assets that were stripped prior to the 2007 sale of the Auburn Hills-based automaker to private equity firm Capital Management LP. The creditors charge that Daimler committed fraud by transferring about $9 billion in assets to the German carmaker, for which Chrysler got only $1.23 billion.

Recouping the full value is important to the creditors who seek payment of their claims from Old Carco’s meager assets. They have retained Stutzman, Bromberg, Esserman & Plifka PC and Susman Godfrey LLP as special counsel.

Daimler counters that the creditors’ application does not adequately identify who will be liable for, and pay, the costs to pursue the claims against the automaker. The document argues the Special Counsel would be paid even if the lawsuit were dropped and the lawyers can bow out if monthly expenses are not paid — which is “a highly likely occurrence, given that there are currently no funds available to pay them,” the document asserts.

Counsel’s agreement calls for an upfront payment of $2 million and some of the proceeds recovered through the litigation.

The creditors committee initially said it would pay up to $7.5 million in expert fees and the law firms would be responsible for additional costs. But they revised this position this month to say the estate would cover extra expenses. The change came after the U.S. Treasury filed a motion that said it did not consent to the committee using cash collateral to pursue the suit against Daimler.

Daimler wants to know how the estate will pay for expenses, warning it might necessitate having the Treasury — which has already said no — and secured lenders to release their liens on the assets of Old Carco.

“This lack of a source of funds to pay expenses is all the more problematic in view of the prospect that the Committee may not even be able to pursue the lawsuit to completion,” the lawyers for Daimler say in the document.

Source: Gasgoo