Chrysler Creditors Win Approval for Daimler Suit

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Creditors of Chrysler have won approval from a federal bankruptcy court to sue Daimler AG and pursue a claim that its 2007 sale of Chrysler stripped the U.S. automaker of its most valuable assets.

Judge Arthur Gonzalez, who presided over Chrysler’s bankruptcy case, gave unsecured creditors permission to proceed with the lawsuit Thursday in a court hearing in New York, representatives of both sides said.

Daimler, which sold a controlling stake in Chrysler to private equity firm Cerberus Capital Management in 2007, said the claim by a committee representing Chrysler’s unsecured creditors was baseless.

“We are absolutely certain that it is without merit and we will defend ourselves aggressively against any of the claims,” Daimler spokesman Han Tjan said.

In a filing with the New York bankruptcy court earlier this month, the group representing Chrysler creditors said they were seeking to recover more than $3 billion.

Much of that filing was redacted and the details of the claim against Daimler have not been released.

Gonzalez cleared the way for Chrysler to emerge from bankruptcy in June in a transaction that gave operational control of the No. 3 U.S. automaker to Fiat SpA .

The sale, which was funded and directed by the U.S. government, gave ownership of Chrysler to a trust fund affiliated with the United Auto Workers and the governments of the United States and Canada.

Other Chrysler assets, including shuttered plants, remain in bankruptcy under a legal entity now known as Old Carco.

Since the U.S. Treasury financed Chrysler’s bankruptcy, it could stand to recover if the claim against Daimler concluded with a judgment against the company.

Daimler bought Chrysler in 1998, but failed to integrate the company’s mass-market brands with its luxury Mercedes business.

Cerberus took control of Chrysler in late 2007, just as its sales began to tumble with the sharp contraction in U.S. auto sales that began in 2008.

Chrysler creditors have until Tuesday to file the lawsuit against Daimler under Thursday’s order by Gonzalez. (Reporting by Kevin Krolicki. Editing by Robert MacMillan)