STUART M. BERNSTEIN, United States Bankruptcy Judge:
By order dated December 1, 2014, the District Court remanded this matter to
For the reasons that follow, the Court concludes that the Sale Order bars the States from using Old Chrysler's Experience Rating to compute New Chrysler's unemployment insurance tax rate unless the "police and regulatory" exception in paragraph 23 of the Sale Order negates that prohibition. Paragraph 23 is ambiguous, and there appears to be extrinsic evidence that will aid the Court's interpretation. Accordingly, the Court will schedule a trial to determine the meaning of the "police and regulatory" exception.
The background to this contested matter is set forth at length in the Court's prior decision, In re Old Carco LLC, 505 B.R. 151 (Bankr.S.D.N.Y.2014) ("Chrysler I"), vacated & remanded, No. 14-CV-2225 (JMF), 2014 WL 6790781 (S.D.N.Y. Dec. 1, 2014) ("Chrysler II"). The Court assumes
On June 1, 2009, the Bankruptcy Court signed the Sale Order approving the sale of substantially all of Old Chrysler's assets to New Chrysler. The Sale Order contained several provisions indicating that the transfer was free and clear of claims and interests in the assets and successor liability, and that neither the Purchasers nor the Purchased Assets would be liable for any Claims, other than Assumed Liabilities, or any Claims based on successor liability.
"Claims," as used in the Sale Order, was a defined term. It included "liens, claims (as such term is defined by section 101(5) of the Bankruptcy Code), liabilities, encumbrances, rights, remedies, restrictions and interests and encumbrances of any kind or nature whatsoever whether arising before or after the Petition Date . . . including
The Sale Order included a broad injunction against efforts to enforce any Claims (other than Assumed Liabilities) against the Purchaser or the Purchased Assets:
(Sale Order at ¶ 12.) (Emphasis added.)
The Sale Order incorporated exceptions to its free and clear and successor liability provisions. Paragraph 44 excluded liabilities to a governmental unit under environmental statutes or regulations to which the owner or operator of the property would be subject after the date of the entry of the Sale Order.
(Sale Order at ¶ 23.)
Employers within a state must pay unemployment insurance taxes to that state at a rate computed in accordance with a formula developed by the state. The computation of the tax rate attempts to match the predicted amount of unemployment benefits to be paid in the coming year with the funding necessary to pay those benefits. The rate is based, in part, on the employer's historical claims paying experience, generally reaching back three years. Thus, the greater the number of past unemployment insurance benefits paid to discharged workers during the reach back period, the higher the tax obligation going forward.
Following the sale and transfer of the assets, New Chrysler registered as an employer in several states, including Illinois and Indiana. It completed forms indicating that it had acquired and was continuing the business of Old Chrysler. (See Indiana Memo, Ex. 1; Objection of Illinois Department of Employment Security to Motion of Chrysler Group LLC for Enforcement of Sale Order [Dkt. No. 3232], filed Nov. 21, 2013 ("Illinois Original Objection"), Ex. B (ECF Doc. # 8247).) Based on the information in the forms, Indiana and Illinois determined that New Chrysler was a successor to Old Chrysler, (Indiana Memo, Ex. 3; see Illinois Original Objection, Ex. C), and used Old Chrysler's Experience Rating to compute New Chrysler's unemployment insurance tax rate. This rate was substantially higher than the new employer rate.
The States determined the tax rate each year for several years using the Old Chrysler Experience Rating, and New Chrysler paid the taxes at those rates. Although New Chrysler challenged the rate assessments on various grounds during this period, it did not raise the Sale Order as a prohibition on the use of Old Chrysler's Experience Rating until 2013. In that year, New Chrysler challenged the rate determination at the administrative level in both States contending that the Sale Order barred the use of Old Chrysler's Experience Rating. On January 6, 2015, Illinois denied New Chrysler's protest for the years 2009-2013 based on its failure to timely protest the original rate determinations. New Chrysler filed a statutory protest of the denials. (Illinois Memo at 7.) New Chrysler's protest and request for relief remains pending in Indiana. (See Indiana Memo at 2.)
In addition to challenging the assessments before the States' administrative agencies, Chrysler sought relief in this Court. In October 2013, it filed a motion to enforce the Sale Order and enjoin the States from using Old Chrysler's Experience Rating. (Motion for Enforcement of the Court's Order (I) Authorizing the Sale of Substantially All of the Debtors' Assets Free and Clear of All Liens, Claims, Interests and Encumbrances, (II) Authorizing the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection Therewith and Related Procedures and (III) Granting Related Relief, dated Oct. 18, 2013 ("Enforcement Motion") (ECF Doc. # 8218).) In Chrysler I, the Court concluded that the Tax Injunction Act, 28 U.S.C. § 1341, deprived the Court of subject matter jurisdiction to provide the declaratory and injunctive relief sought by New Chrysler.
The District Court reversed in Chrysler II. The States had received actual notice of the earlier proceedings culminating in the Sale Order. Chrysler II, 2014 WL 6790781, at *4. The Sale Order was, therefore, res judicata, and the Court's jurisdiction to issue (and hence, enforce) the Sale Order was not subject to collateral attack by the States. Id. at 5. The District Court remanded the matter to this Court, and following the remand, the Court advised the parties that it would
The Enforcement Motion calls for the interpretation of the Sale Order. The Sale Order was negotiated by the parties to the sale with input from other parties in interest, and New Chrysler conceded at oral argument that it was subject to interpretation in accordance with the rules governing the interpretation of contracts. (Transcript of 7-14-15 Oral Argument ("Tr."), at 47:18-49:5 (ECF Doc. # 8434).) The Sale Order did not include a governing law provision, but the MTA stated that it was governed by New York law. (MTA § 11.08.) Given the relationship between the MTA and the Sale Order, and the fact that the Sale Order was approved by a New York bankruptcy court, I will apply New York law.
When asked to interpret contractual language, the question is "whether the contract is unambiguous with respect to the question disputed by the parties." Law Debenture Trust Co. of New York v. Maverick Tube Corp., 595 F.3d 458, 465 (2d Cir.2010) (quoting Int'l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir.2002)). Ambiguity presents a question of law. Maverick Tube, 595 F.3d at 466. A contract is ambiguous if it "could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." Int'l Multifoods, 309 F.3d at 83 (internal quotation marks omitted); accord Cont'l Ins. Co. v. Atlantic Cas. Ins. Co., 603 F.3d 169, 180 (2d Cir. 2010); Maverick Tube, 595 F.3d at 466. An agreement is not ambiguous if it has a definite and precise meaning, and unambiguous language does not become ambiguous because a party urges a different interpretation that strains the language beyond its ordinary meaning. Maverick Tube, 595 F.3d at 467.
Where the dispute concerns a provision of the contract, the Court must consider the contract as a whole to ensure that undue emphasis is not placed upon particular words and phrases. Bailey v. Fish Neave, 8 N.Y.3d 523, 837 N.Y.S.2d 600, 868 N.E.2d 956, 959 (2007); accord Maverick Tube, 595 F.3d at 467. Furthermore, [e]ven where some ambiguity lurks in the language of the contract, a court may still construe the contract, if it can do so without reference to extrinsic circumstances or evidence. Brass v. Am. Film Techs., Inc., 987 F.2d 142, 148 (2d Cir. 1993). Finally, if there is no extrinsic evidence that will assist the Court in interpreting an ambiguous contract, the Court can decide its meaning as a matter of law. Topps Co. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 68 (2d Cir.2008) (To the extent the moving party's case hinges on ambiguous contract language, summary judgment may be granted only if the ambiguities may be resolved through extrinsic evidence that is itself capable of only one interpretation, or where there is no extrinsic evidence that would support a resolution of these ambiguities in favor of the nonmoving party's case.); Revson v. Cinque Cinque, P.C., 221 F.3d 59, 66 (2d Cir.2000) ([T]he the meaning of even an ambiguous contract is also to be decided
The Sale Order authorized the transfer of the Purchased Assets free and clear of Claims, a defined term that included interests. Thus, the threshold question raised by the Enforcement Motion is whether Old Chryslers Experience Rating was an interest in the Purchased Assets that was cut off by the Sale Order. A trustee (and hence, a debtor in possession) may sell property in certain circumstances free and clear of any interest in such property of an entity other than the estate. 11 U.S.C. 363(f).
The phrase "interest in such property" used in § 363(f) was initially interpreted narrowly, but its scope is now interpreted more broadly to effectuate the purposes of the Bankruptcy Code.
Several years later, the Fourth Circuit's Leckie decision cast doubt on the Wolverine Court's conclusion. There, several debtors, coal mine operators, were obligated under the Coal Act, 26 U.S.C. §§ 9701 et seq., to contribute to plans that paid benefits to retirees. In each case, the amount of the premiums was based upon the benefits payable to the debtor's own retirees and to retirees of operators that were no longer in business. An operator's "related persons" were jointly and severally liable for the operator's premiums, and "related persons" included the operator's successors. Leckie, 99 F.3d at 576-77.
After the debtors filed chapter 11 petitions, they sought to sell their assets "free
Id.
The Third Circuit subsequently considered the meaning of "interests" as used in Bankruptcy Code § 363(f) in In re Trans World Airlines, Inc., 322 F.3d 283, 289-90 (3d Cir.2003). There, TWA sold its assets to American Airlines ("American") free and clear of successor liability. Prior to the sale, TWA had issued travel vouchers to female flight attendants in settlement of a class action alleging claims of sex discrimination that allowed them or their families to fly for free. In addition, employment discrimination claims were pending against TWA before the EEOC and state agencies. Id. at 285-86. After it filed for chapter 11, TWA sold its assets to American pursuant to § 363(f) over the objection of the class and the EEOC. The sale order stated that the transfer would be free and clear of successor liability and enjoined all persons from enforcing successor liability claims against American. Id. at 286-87.
The issue before the Third Circuit was whether the travel voucher program and the EEOC charges were "interests in property" cut off by the sale order. Id. at 288. The Court observed that while some courts narrowly interpreted "interests in property" to mean in rem interests, "the trend seems to be toward a more expansive reading of `interests in property' which `encompasses other obligations that may flow from ownership of the property.'" Id. at 288-89 (quoting 3 COLLIER ON BANKRUPTCY ¶ 363.06[1]). Adopting the analysis applied in Leckie, the Court concluded that the claims under the travel voucher program and before the EEOC were "interests in property":
Id. at 289-90 (emphasis added). The TWA Court did not mention much less discuss Wolverine.
The Second Circuit addressed the issue in the Chrysler bankruptcy. Numerous parties in interest had objected to the proposed Sale Order. An ad hoc group argued that the "free and clear" language did not cut off pre-sale product liability claims because personal injury claims were not "interests in property" under Bankruptcy Code § 363(f). Chrysler, 576 F.3d at 123-24. Rejecting the objection, the Second Circuit adopted the test applied by the Leckie and TWA Courts:
Id. at 126. The Court concluded:
Id. The Chrysler opinion also ignored Wolverine.
The foregoing authorities support the conclusion that Old Chrysler's Experience Rating is an "interest in property." The States' rights to use Old Chrysler's Experience Rating arises from New Chrysler's acquisition of its assets and the continuation of its business. Had New Chrysler started the same business from scratch with new assets, the States could not use Old Chrysler's Experience Rating to compute
The Court's conclusion is consistent with a series of decisions rendered in 2013 on this very issue. They expressly or implicitly rejected Wolverine and ruled that the debtor's Experience Rating was an "interest in property" under Bankruptcy Code § 363(f) that was cut off by a sale order provision transferring the assets "free and clear" of "interests" and successor liability. Massachusetts Dep't of Unemployment Assistance v. OPK Biotech, LLC (In re PBBPC, Inc.), 484 B.R. 860, 869-70 (1st Cir. BAP 2013); In re Tougher Indus., Inc., No. 06-12960, 2013 WL 1276501, at *6-8 (Bankr.N.D.N.Y. Mar. 27, 2013); In re USA Fleet Inc., 496 B.R. 79, 87-89 (Bankr.E.D.N.Y.2013); Ouray Sportswear, LLC v. Indus. Claim Appeals Office, 315 P.3d 1280, 1283-84 (Colo.App.2013).
Having concluded that Old Chrysler's Experience Rating was an "interest in property," the next question is whether the Sale Order unambiguously transferred the Purchased Assets "free and clear" of the States' right to use it. The answer is plainly yes. After defining "Claims" to include "interests," and except for the Assumed Liabilities, the Sale Order states in various places and in various ways that the transfer will be "free and clear" of Claims and successor liabilities. (Sale Order at ¶ 9 ("The Purchased Assets shall be transferred. . . free and clear of all Claims except for Assumed Liabilities. . . ."); ¶ 12 ("governmental, tax and regulatory authorities. . . holding Claims . . . are. . . barred. . . from asserting such Claims against the Purchaser. . . ."); ¶ 35 (the Purchaser shall not have any liability for any Claim and shall not be deemed a successor to the Debtors or have successor liability for any Claim).
The Sale Order also specifically provides that New Chrysler shall not be deemed a successor "as a result of any action taken in connection with the Purchase Agreement or any of the transactions or documents ancillary thereto or contemplated thereby or the acquisition of the Purchased Assets." (Sale Order at ¶ 35.) The determination by the States that New Chrysler was a successor to Old Chrysler as a result of the acquisition of Old Chrysler's assets and the continuation of its business in the States contravened this provision.
Furthermore, the successor liability provisions in the Sale Order bar claims against New Chrysler that arose from the purchase even if those claims could not
On appeal, the dealers contended, inter alia, that the Enforcement Order erred in concluding that their claims were essentially successor/transferee liability claims barred by the Sale Order because successor liability was limited to claims that could have been brought against Old Chrysler and their claims under the dealer protection statutes could never have been asserted against Old Chrysler. Id. at *15. After quoting from paragraph 35 of the Sale Order, which unambiguously immunized New Chrysler from successor liability, District Judge McMahon phrased the question in the following way: "whether the rights the dealers seek to assert—rights to resurrect franchise agreements with New CarCo—can be considered successor liability claims if the dealers could not have demanded post-rejection franchise agreements from the Debtors." Id.
The District Court concluded that the dealers state law rights to the continuation of their dealerships with New Chrysler were successor liability claims. Successor liability has two requirements: (1) a direct relationship between the one primarily liable and the successor, and (2) the blameworthy behavior or status of the primarily liable person must be established as a prerequisite to recovery against the secondarily liable person. Id. at *16 (citing and quoting R.C.M. Exec. Gallery Corp. v. Rols Capital Co., 901 F.Supp. 630, 636 (S.D.N.Y.1995)). New Chrysler purchased substantially all of Old Chryslers assets, and there was a direct relationship between the two. Id. In addition, Old Chrysler had entered into and terminated the dealership agreements; New Chrysler was not a party to the terminated dealership agreements and did not otherwise have a relationship with the dealers. Id. Hence, the dealers claims satisfied the elements of successor liability.
Finally, the District Court rejected the dealers argument that New Chrysler had created its own liability by purchasing Old Chryslers assets:
Id.
Although the facts of the present dispute are different, the conclusion that the
Accordingly, the Sale Order unambiguously extinguishes the States' right to apply Old Chrysler's Experience Rating to New Chrysler or collect increased taxes from New Chrysler as a result of Old Chrysler's discharge of its employees. In fact, Indiana agrees. Although it argued in its submissions that the Experience Rating is not an "interest in property" based primarily on the holding in Wolverine, it conceded during oral argument that under the current state of the law the "free and clear" provisions of the Sale Order extinguished its right to use Old Chrysler's Experience Rating to compute New Chrysler's employment taxes. During Indiana's argument, the following colloquy with the Court took place:
(Tr. at 34:20-25.)
When Illinois took its turn, it conceded that the definition of "Claim" included an "interest in property" that might cut off the right to use the Experience Rating unless the "police and regulatory" exception in paragraph 23 applied or Illinois prevailed on its other defenses:
(Tr. at 39:8-13.)
The States make two arguments why the Sale Order does not bar the use of Old Chrysler's Experience Rating even if the Experience Rating is construed to be an "interest in property" within the meaning of Bankruptcy Code § 363(f).
Indiana (but not Illinois) contends that case law may be applied retroactively in limited circumstances and the three-part test established in Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971) bars this Court from applying the 2013 decisions to conclude that the Experience Rating is an "interest in property." Chevron Oil concerned which statute of limitations governed a personal injury claim arising from an incident on an oil rig in the Gulf of Mexico off the coast of Louisiana—general admiralty law or the law of the adjacent state. When the lawsuit was filed, a line of federal
The issue before the Supreme Court was whether the Rodrigue decision should apply retroactively to bar the plaintiff's claim that appeared to be timely under existing law when it was commenced. Id. at 100, 92 S.Ct. 349. The Court identified three factors to consider when deciding whether a judicial decision should apply retroactively to a pending case: (1) "the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, . . . or by deciding an issue of first impression whose resolution was not clearly foreshadowed," (2) the court must "weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation," and (3) the court must weigh "the inequity imposed by retroactive application, for [w]here a decision of this Court could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the injustice or hardship by a holding of nonretroactivity." Id. at 106-07, 92 S.Ct. 349 (internal citations and quotation marks omitted). Applying these factors, the Supreme Court ruled that it would not give retroactive effect to Rodrigue because it overruled a long line of precedent, the change was not foreseeable when the plaintiff commenced the suit and the most he could have done was to rely on the existing law, and retroactive application of Rodrigues would deprive the plaintiff of a remedy and produce an inequitable result. Id. at 107-08, 92 S.Ct. 349. Indiana primarily argues that it relied on Wolverine, the only decision at the time to address Experience Ratings, which had concluded that an Experience Rating was not an interest within the meaning of Bankruptcy Code § 363(f), it could not foresee the 2013 change in the law and the Court should apply the law as it existed in 2009. (Indiana Memo at 5-6, 11-12.)
Chevron Oil has been undercut and to some extent overruled by more recent Supreme Court jurisprudence. In James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991), the Supreme Court addressed the right to a refund for taxes paid under an unconstitutional taxing scheme. The Supreme Court had ruled several years earlier in Bacchus Imps., Ltd. v. Dias, 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984) that the Commerce Clause prohibited Hawaii from imposing an excise tax on imported alcoholic beverages at a higher rate than state law imposed on locally produced alcoholic beverages. After Bacchus, the petitioner ("Beam") challenged a similar discriminatory tax imposed under Georgia law and sought to recover taxes paid in the past. Relying on the Chevron Oil analysis, the Georgia state court refused to apply Bacchus retroactively. Id. at 532-534, 111 S.Ct. 2439.
Reversing the Georgia Supreme Court, the United States Supreme Court ruled that the principle of equality, "that similarly situated litigants should be treated the same," and stare decisis prevail over any claim based on Chevron Oil, id. at 540, 92 S.Ct. 349; accord Harper v. Virginia Dep't of Taxation, 509 U.S. 86, 98, 113 S.Ct. 2510,
Beam, 501 U.S. at 543, 111 S.Ct. 2439; accord Harper, 509 U.S. at 95 n.9, 113 S.Ct. 2510. In short, "when the Court has applied a rule of law to the litigants in one case it must do so with respect to all others not barred by procedural requirements or res judicata." Beam, 501 U.S. at 544, 111 S.Ct. 2439
Indiana's reliance on Chevron Oil and its contention that retroactivity is applied in limited circumstances are wrong; retroactivity is the rule, not the exception. Here, the Court has not finally decided whether Old Chrysler's Experience Rating is an "interest" or any dispute between the parties in which it might have been raised. Hence, principles of finality do not bar consideration of the issue in the context of the Enforcement Motion. Furthermore, Indiana's reliance on Wolverine and the individual inequities it will allegedly suffer are irrelevant for purposes of determining the retroactive application of post-Sale Order law.
Even under Chevron Oil, Indiana fails to make a case against retroactivity. The 2013 decisions by other, lower courts are not controlling and did not overrule clear precedent; rather, Indiana took its chances relying on Wolverine. The Wolverine Court limited "interests in property" to in rem interests. But in Leckie, decided in 1996, and TWA, decided in 2003, the Courts rejected that limitation and ruled that § 363(f) interests included obligations that arose from the ownership of the property that was sold. The Second Circuit reached the same conclusion in Chrysler based on the reasoning in Leckie and TWA. The interpretation of interests to include Experience Ratings in the 2013 decisions did not come out of the blue, and Indiana's reliance on the continuing vitality of Wolverine was a risky decision. See Chrysler II, 2014 WL 6790781, at *5 (Wolverine was never binding law in this Circuit, and accordingly, the States "cannot hang their hat on that case in making the definitive assertion that `the Sale Order did not contemplate the inclusion of experience ratings as interests'") (quoting Indiana's brief at 9).
Finally, Indiana's argument ignores the jurisprudential principles that attend the interpretation of statutes. When a court "construes a statute, it is explaining its understanding of what the statute has meant continuously since the date when it became law," and a court has no authority to depart from that meaning. Rivers v. Roadway Express, Inc., 511 U.S. 298, 313 n. 12, 114 S.Ct. 1510, 128 L.Ed.2d 274 (1994). The Court's conclusion that "interests" under Bankruptcy Code § 363(f) include Old Chrysler's Experience Rating, like the similar decisions rendered in 2013,
The States' main opposition focuses on paragraph 23 of the Sale Order, which creates an exception to the "free and clear" provisions:
(Sale Order at ¶ 23.) The States contend that the exception applies to the use of Old Chrysler's Experience Rating. New Chrysler responds that paragraph 23 was intended to except only the enforcement of environmental statutes and regulations.
The term "police power" refers to "[t]he inherent and plenary power of a sovereign to make all laws necessary and proper to preserve the public security, order, health, morality, and justice." BLACK'S LAW DICTIONARY 1345 (10th ed.2014); accord Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 756, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985) ("The States traditionally have had great latitude under their police powers to legislate as to the protection of the lives, limbs, health, comfort, and quiet of all persons.") (internal quotation marks and citations omitted). The enactment and enforcement of unemployment insurance and similar programs generally reflects the sovereign's exercise of its police powers even though such programs are funded by taxing employers. United States v. Silk, 331 U.S. 704, 710-11, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947) (discussing the Social Security Act); Warehouse Indem. Corp. v. Arizona Dept of Econ. Sec., 128 Ariz. 504, 627 P.2d 235, 238 (App.1981) (unemployment tax contribution law that transferred former employers experience rating to successor was remedial legislation, and all provisions including taxing provisions, should be construed liberally to effectuate the legislative purpose); see generally 3A NORMAN SINGER, SUTHERLAND STATUTORY CONSTRUCTION 74:7, at 1072 (7th ed. 2014) (SUTHERLAND).
Here, the States declarations of public policy say that their unemployment compensation laws were enacted "to lessen the menace to the health, safety and morals of the people of Illinois, and to encourage stabilization of employment, compulsory unemployment insurance upon a statewide scale," 820 ILL. COMP. STAT. 405/100 (2015); accord IND.CODE § 22-4-1-1 (2015), and as a proper exercise of the police powers of the state. IND. CODE § 22-4-1-1. In addition, the Illinois Supreme Court has ruled that the unemployment compensation law is a police power act that should be liberally construed to help protect workers from the consequences of unemployment. Ray Schools-Chicago, Inc. v. Cummins, 12 Ill.2d 376, 146 N.E.2d 42, 46 (1957); Ross v. Cummins, 7 Ill.2d 595, 131 N.E.2d 521, 523 (1956); see Jack Bradley, Inc. v. Dep't of Emp't Sec., 146 Ill.2d 61, 165 Ill.Dec. 727, 585 N.E.2d 123, 129 (1991) ("[T]he Unemployment Compensation Act is not a taxing act, but is one passed to alleviate the perils of unemployment under the police powers of the State, and should receive a liberal construction." (quoting Eutectic
On the other hand, and notwithstanding the Indiana legislature's declaration of public policy, the Indiana Supreme Court has held that the unemployment insurance laws were enacted pursuant to the state's taxing power rather than its police power. Besozzi v. Indiana Emp't Sec. Bd., 237 Ind. 341, 146 N.E.2d 100, 105 (1957). In reaching its conclusion, the Indiana Court observed that the declaration of public policy in the earlier version of the laws under consideration was a preamble that was not controlling and, instead, the nature of the statute must be determined by the operational effect of the law. Id. at 103-04; see 1A SUTHERLAND § 20:3, at 122-125 ("When considering the purpose of the legislation, purposes stated in the preamble are entitled to weight, although they are not conclusive. In general, statements regarding the scope or purpose of an act that appear in the preamble may aid the construction of doubtful clauses, but they cannot control the substantive provisions of the statute. The preamble of a legislative act is not part of the law, and it cannot be used to discern the legislature's intent if no doubt exists as to a statute's meaning.") (footnotes omitted).
The phrase "police and regulatory power" also appears in various parts of the Bankruptcy Code and Judicial Code. See 11 U.S.C. § 107(c)(2) (granting access to "protected" information "to an entity acting pursuant to the police or regulatory power of a domestic governmental unit"); 11 U.S.C. 362(b)(4) (granting an exception to the automatic stay to enforce such governmental units or organizations police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental units or organization's police or regulatory power); 11 U.S.C. 1519(d) (prohibiting the Court in a chapter 15 case from enjoining a police or regulatory act of a governmental unit, including a criminal action or proceeding); 11 U.S.C. 1521(d) (same); 28 U.S.C. 1452(a) (prohibiting removal of a claim or cause of action by a governmental unit to enforce such governmental units police or regulatory power).
The Bankruptcy Code does not define the term, but the legislative history to the exception to the automatic stay states:
H.R. Rep No. 95-595 at 343 (1977); S.Rep. No. 95-989, at 52 (1978). The sponsors of the Bankruptcy Reform Act added that the phrase was intended to be given a narrow construction to permit governmental units to protect the public health and safety but not to protect a governmental units pecuniary interest in property of the debtor or its estate. 124 CONG. REC. H11092 (daily ed. Sept. 28, 1978); S17409 CONG. REC. 17409 (daily ed. Oct. 6, 1978) (remarks of Rep. Edwards and Sen. DeConcini).
The States argue that the police and regulatory exception should be interpreted in accordance with state law (which would doom Indianas argument), but the Sale Order must be interpreted in accordance with general principles of contract law, and the Court must determine the meaning the parties intended when they included the phrase in the Sale Order. The States interpretation that it applies to the computation
New Chryslers interpretation, which limits the exception to environmental statutes and regulations, is also reasonable. Paragraph 23 applies to liabilities as the owner or operator of property, a phrase commonly found in the environmental laws, see, e.g., 42 U.S.C. § 9607(a) (ascribing liability to the "owner and operator of a vessel or a facility" for the release of "a hazardous substance"); 33 U.S.C. § 1317(d) ("It shall be unlawful for any owner or operator of any source to operate any source in violation of any such effluent standard or prohibition or pretreatment standard."); 40 C.F.R. § 52.21(r)(1) (2014) ("Any owner or operator who constructs or operates a source or modification not in accordance with the application submitted pursuant to this section . . . shall be subject to appropriate enforcement action."), and included in paragraph 44 of the Sale Order, which specifically addresses environmental liabilities. The States argue, in this regard, that since paragraph 44 of the Sale Order already addressed exceptions for environmental statutes and regulations, paragraph 23 should be interpreted to mean something else. Redundancy, however, is the rule rather than the exception in the Sale Order,
Finally, New Chrysler has informed the Court that "the DOJ requested the inclusion of paragraph 23, and the Debtors and Chrysler Group agreed to the DOJ's request the day before the final Sale Order was presented to the Court." (New Chrysler Reply at ¶ 29; see Tr. at 19:4-18.) Given the ambiguity in paragraph 23, extrinsic evidence regarding the reason for its inclusion and its intended purpose would assist the Court in determining its meaning, and the Court will conduct an evidentiary hearing to resolve the ambiguity in paragraph 23.
Accordingly, the parties are directed to contact chambers to arrange a conference. Prior to the conference, the parties should confer regarding a discovery schedule on the narrow issue that is presented, and if possible, submit a proposed consent order to the Court.
So ordered.
Sale Order at ¶ 35 stated in pertinent part:
(Emphasis added.)
Sale Order at ¶ 39 stated in pertinent part:
(Emphasis added.) The Master Transaction Agreement ("MTA"), (ECF Doc. # 5988-1), approved by the Sale Order, (Sale Order at ¶ 4), expressly excluded liabilities "except as otherwise provided herein and other than Taxes relating to the Purchased Assets for taxable periods (or portions thereof) beginning after the Closing Date, all Liabilities for Taxes of any Selling Group Member." (MTA at ¶ 2.09(f).) The MTA defined "Taxes" to include assessments of unemployment insurance taxes imposed by any state or federal authority. (MTA, Definitions Addendum.)
