December 15, 2008
Will Toyota Sue if Treasury Bails Out GM?
Posted by David Zaring

If the TARP is given to Detroit, as I think is plausibly permitted by the statute (though others disagree), there may well be litigation over it.  This is because, unlike those ad hoc section 13 bailouts by the Fed, the government’s implementation of the TARP is clearly reviewable under the Administrative Procedure Act. So there is a cause of action out there, and a presumption that the court will not shy away from review.

Who might sue? Creditors could, ranging from bondholders to vendors, as they would be made worse off if the US takes a preferred position in exchange for its equity, as the TARP appears to mandate, and as Treasury has done so far. That seems like pretty clear injury … but these creditors, who are many, multifarious, and may include some bloody minded lunch-truck operators with distribution deals or whatever (a subordinated bondholder would have a clearer claim of injury), will for the most part welcome government assistance to keep their debtors afloat to repay another day. Shareholders, even if diluted, would probably feel the same way.

What about competitors, though? Perhaps Honda would prefer not to compete against a combination of Ford and the American taxpayer? Competitors have generally been found to be injured when the government helps someone out by regulation, and, crucially, within the “zone of interests” covered by the statute – that’s ADSPO v. Camp, though the zone of interests test hardly repays logical contemplation. The general issue would be whether the competitors, though injured in fact, have “interests … so marginally related to or inconsistent with the purposes implicit in the statute that it cannot reasonably be assumed that Congress intended to permit the suit.” That’s Clarke v. SIA. (Here’s a good backgrounder.)

No one really knows what this means, but given case after case of standing found for competitors, including, most recently, the 5-4 NCUA v. First Nat’l Bank case (it’s the conservatives who tend to find standing in these cases, and the Court has gotten more conservative since NCUA), my preliminary view is that Honda or Toyota would meet this test. The strange thing about standing here is that, as a substantive matter, the foreign automakers would be arguing that the purpose and plain language of the TARP has nothing to do with bailing out the auto industry, and so therefore that Treasury illegally acted when it did so – in other words that, under the plain language of the statute, automakers and their interests are, in fact, “marginally related” at best to what Congress intended. But if the TARP can be used to bail out industry more generally (and auto makers in particular, either through their financing arm or whatever), the idea would be that any participant in an industry eligible for bailout funds would be within the zone of interests to dispute how those funds were distributed.

Strange. But standing law is always strange.

And anyway, Toyota might want the US to bail out GM.  But if it didn’t, why go to a kangaroo American court? When one can always go to the WTO.

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Comments (7)

1. Posted by JKB on December 16, 2008 @ 8:11 | Permalink

The non-Detroit firms could have an easier way to be a thorn in the side of this deal. They could protest contract awards to the Big 3 for government vehicles under the Buy American Act. You'd have run a deep analysis to see which company used more US made parts and sourced raw materials but the next big purchase of GSA fleet vehicles could be Toyotas.

That would be a sweet slap upside the head for Depression economics.

2. Posted by Paul A'Barge on December 16, 2008 @ 8:30 | Permalink

Dude, Toyota is beating the big 3 like a drum now. Why would they have to sue?

With the exception of trucks (utility, i.e. F150 ... Ford), Toyota is going to hand the big 3 their ass day in and day out, bailout or not.

Besides, if the Big 3 go down, all the suppliers go down and those suppliers supply Toyota also. The off-shore-now-on-shore car manufacturers are worried about that.

I hardly think they want to make things worse for themselves by challenging a bailout which is not going to work anyway because GM can not help but fail no matter how much bailout money it gets and Chrysler is too small to worry about anyway.

3. Posted by ME on December 16, 2008 @ 8:38 | Permalink

The only problem with this idea is that Toyota and Nissan are on record as saying that the big 3 should be bailed out to help avoid failure of suppliers that they all share.

4. Posted by David Zaring on December 16, 2008 @ 9:01 | Permalink

JKB - that Buy American claim could be part of the WTO complaint, probably, but interesting.

Paul - It's always worth suing. Always.

ME - Yeah, and I've linked to that story, but note that this applies to any foreign manufacturer, a miffed Daimler, a Ferrari unhappy with our Iraq policies, it's a long list.

5. Posted by non represented american on December 16, 2008 @ 10:45 | Permalink

If we were still a nation of laws and had a govt that respected the rule of law and the Constitution then a lawsuit by the free auto makers may be a good plan.

However, they must know that the govt (the permanent institutional bureaucracy, the leaders of both parties, and the lawyer's guild) have decided that it is more important to get their tribute from the unions than to listen to the peons.

Look for the free auto makers to be audited, sued and unionized to death during the next frew years.

6. Posted by taxpayer on December 16, 2008 @ 11:43 | Permalink

The optimal case for transplants like Toyota is if the Big 3 continue to limp along, having never addressed their costs and thus continuing to make uncompetitive cars. The Big 3 are much more likely to actually fix themselves in a true chapter 11, which would entail much tougher and more extensive restructuring decisions than Congress would ever force them to make (even before involving politics).

e.g., Congress would never have the stomach to force factory closings in congressionally sensitive districts, reworking the UAW labor deals (particularly the benefit packages), jettisoning the retiree packages.

Thus, the transplants might in fact favor a bailout, which would force fewer necessary changes on the Big 3.

7. Posted by ME on December 17, 2008 @ 7:04 | Permalink

David, I understand where you are coming from and it's a real possibility. But if Daimler wants to sue the big 3 they had better figure out what to do with their 19.9% stake in Chrysler first. Lets not forget that Ford isn't asking for anything. So they don't even fit into this conversation unless they ask for something after Obama comes in.

The real issue is the suppliers. All the companies that have plants in the US use the same suppliers that the big 3 do. If the big 3 all fail, some of those suppliers fail too and then all the other car companies with a US presence get hurt too. So, it's in their best interest to stay out of the way for now.

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