The Obama Administration Taking Chrysler And Giving It To The UAW Might Have Been Unconstitutional

And now some of Chrysler’s creditors are suing over the matter.
Here is the full text of the 5th amendment to the Constitution:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

That last clause would seem to address the federal government essentially seizing Chrysler, telling the companies creditors that they’ll be getting little or no money in exchange for their claims on the company’s assets, and then turning around and giving the company to the United Auto Workers union which (if the government’s deal goes through) would have a controlling interest.
Clearly, the Obama administration is not giving Chrysler’s creditors just compensation for what’s being seized. And they should have to. Obama is not King Obama. He cannot simply take what he wants, regardless of how unsympathetic the much-maligned “hedge funds” and “hedge fund managers” may be.
You’d think that Obama, being a “constitutional scholar” and all, would know that the government cannot simply seize property.
Regardless, the Obama administration is in some hot water with this one. A ruling against them would cause the much-heralded Chrysler deal to collapse.
Expect a whole lot of hedge fund-bashing from liberals to erupt any moment now. Because how dare these people expect to be justly compensated for their investments.
Here’s the filing, courtesy of Ed at Hot Air. The crux of the legal argument being made is below:

III. The Taking of Collateral through a Direct or Indirect Use of TARP Authority is Unconstitutional.
13. The Treasury Department relies on TARP as the purported authority to justify the disparate treatment under the 363 Sale, even though TARP was enacted after the Senior Lenders’ liens on the Debtors’ property were already in place. The Supreme Court long ago recognized, however, that a secured creditor’s interest in specific property is protected in bankruptcy under the Fifth Amendment. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 594 (1935). That case involved a Depression-era statute that was intended to help bankrupt farmers avoid losing their land in mortgage foreclosure. The statute in Radford provided that the bankrupt debtor could achieve a release of the security interests either (i) with the lender’s consent, purchasing the property at its then appraised value by making deferred payments for two to six years at statutorily-set interest rates; or (ii) by seeking from the bankruptcy court a stay of the proceedings for up to five years during which time the debtor could use the property by paying a rent set by the court, which payments would be for the benefit of all creditors, with a purchase option at the end of that period. Id. at 856-57.
14. Justice Brandeis noted that the “essence of a mortgage” is the right of the secured party “to insist upon full payment before giving up his security [i.e., the property pledged].” Radford, 295 U.S. at 580. In invalidating the statute, the Court stated that “[t]he bankruptcy power . . . is subject to the Fifth Amendment,” and that the pernicious aspect of this law was its “taking of substantive rights in specific property acquired by the bank prior to the act.” Id. at 589-90 (emphasis added). Thus, Congress could not pass a law that could be used to deny to secured creditors their rights to realize upon the specific property pledged to them or “the right to control meanwhile the property during the period of default.” Id. at 594. That is precisely what the Treasury Department would have Chrysler do here, with respect to the Chrysler Non-TARP Lenders’ property rights that were acquired prior to the enactment of TARP.
15. Relying on purported authority provided by TARP, the Treasury Department is demanding that Chrysler’s assets be stripped away from the coverage of the Senior Lenders’ liens – thereby impairing the rights of the Senior Lenders to realize upon those assets – so that those assets may be put in New Chrysler and used to the benefit of unsecured creditors in this proceeding, who will then be paid much more than the Senior Lenders. But, even assuming that TARP provides the Treasury Department with authority to provide funding to the Debtors and impose the transfer of collateral away from the Senior Lenders, TARP was enacted long after the Senior Lenders contracted with the Debtors and received senior liens on the Debtors’ property. Radford specifically disallowed the use of a law to retroactively alter existing liens on property.
16. Here, the proposed sale of the Debtors’ assets will leave the Senior Lenders with a diluted pool of assets and no further interests in the operating assets covered by their specific liens. The Constitution forbids this application of a law retroactively to undercut the Senior Lenders’ pre-existing property rights in favor or inferior creditors.
17. Finally, that the Treasury Department would take these unconstitutional actions to help the United States address difficult economic times is not an answer. Indeed, the same justification was expressly rejected in Radford, where Justice Brandeis noted that a statute which violated secured creditors’ rights, but which was passed for sound public purposes relating to the Great Depression, could not be saved because “the Fifth Amendment commands that, however great the nation’s need, private property shall not be thus taken even for a wholly public use without just compensation.” Id. at 602.
18. What is really striking here is that what is being proposed by the Sale Motion would strip the Collateral away and allow it to be put to use as new capital in New Chrysler for the benefit of existing and other creditors – even though the Chrysler Non-TARP Lenders have been given no opportunity to realize upon that Collateral to the point of full repayment ahead of at least $14 billion of selectively identified unsecured creditors.