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WASHINGTON (Legal Newsline) - The U.S. Supreme Court on Monday ordered the dismissal of an appeal by three Indiana pension funds challenging the sale of Chrysler LLC this year.

The lawsuit by three pension funds challenged how Chrysler was sold to Italian carmaker Fiat SpA.

The sale closed June 10, one day after the high court rejected an emergency request from the pension funds to stop the deal, which the U.S. Treasury Department and the Canadian government helped broker.

Two pension funds for Indiana public employees and a construction fund objected to allowing struggling Chrysler to rapidly sell its assets without going through a reorganization process aimed at protecting debtors. They said the sale left Chrysler's secured lenders hanging.

The U.S. Treasury orchestrated a sale under Section 363 of the Bankruptcy Code, which allowed debtors to avoid having to fully compensate a group of first lien priority creditors.

The first lien priority creditors in Chrysler's case included two public pension funds invested on behalf of approximately 100,000 retired Indiana teachers and police officers.

"On its face, this deal smacks of the sort of insider favoritism that the bankruptcy code was designed to prevent," attorneys for the funds said in court papers. They added that the deal "was nothing more than a way for the government to pick winners and losers from among Chrysler's claimants."

The deal was upheld by the U.S. Bankruptcy Court for the Southern District of New York and the 2nd U.S. Circuit Court of Appeals in New York.

In their order Monday, the U.S. Supreme Court justices set aside the appeals court ruling and send the case back for the court to dismiss., saying that the case is moot because the Chrysler sales has gone forward.

The case is Indiana State Police Pension Trust v. Chrysler LLC, 09-285.

From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.

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