According to the Associated Press, the U.S. Supreme Court has taken the extremely rare step of issuing a stay on the sale of Chrysler to Fiat, after three Indiana state pension and construction funds petitioned for the delay pending an appeal of a lower court decision. Justice Ruth Bader Ginsburg said that the sale is “stayed pending further order.” The Obama administration had urged the court to reject the request.

This is a reasonable delay to protect fundamental rights.

  • Time for consideration: Though the Court’s action to temporarily delay the sale of Chrysler to a government-funded shell corporation does not address the merits of the case, it does give the judicial process something it has not had up to this point: time to consider the case. At every step of the way until now, the courts have hastily passed on this case involving fundamental rights to give the government license to push through a sale that strains the seams of constitutionality and legality. That rush, in the face of serious legal issues, is unseemly, contrary to due process, and unbefitting “a nation of laws, not men.” This temporary delay is the first step toward any court actually considering the merits of the stay and the case.
  • Time to address the rule of law: Under the Second Circuit’s ruling, the government is free to seize private property to further its agenda. In effect, it left no limits to the federal government’s power under the TARP statute, because no party would have the ability to challenge any action that the government claims was related to the TARP. If the Supreme Court allows that ruling to stand, it will have a major impact on the economy and, in particular, on companies big enough to be bailed out by the government. Like so many of the Bush and Obama Administration’s economic interventions, this bailout could backfire by unsettling investors and raising the cost of capital to all businesses.
  • Reason for hope? But there is reason for optimism this afternoon. The stay issued by Justice Ginsburg is temporary, giving the Justices another day or two to consider whether to allow the case to go forward. Stays of this kind are rare, especially in non-capital cases. It indicates, at the least, that one or more justices are inclined to grant a longer stay. At this point, all bets are off; the Court could issue an order at any time either granting the stay or authorizing the sale of Chrysler.
  • The Constitution matters: Too often, the Supreme Court defers to the government on economic policy rather than enforce the Constitution’s limits on government powers. This is because only four Justices on the Court today adhere to the Constitution as it was originally written. The rest allow their personal preferences to influence their decisions, leading to an ever-larger and more powerful federal government. That’s why it is crucially important the President nominate judges who follow the law as it was written, not as they think it should be. Otherwise, there is no hope that the federal government will continue to respect the rights of its citizens and the limits of its own power.

Click here for more on Bailouts, Abusive Bankruptcies, And the Rule of Law by Andrew M. Grossman