Dana Asks Out of Chap. 11 Lawsuit Shield

The bankrupt auto-parts maker hopes to strengthen its restructuring position by erasing a $70 million claim.

In an unusual move, Dana Corp. has asked a judge to lift the Chapter 11 automatic protection against litigation so it can attempt to reverse a $70 million claim.

The bankrupt auto-parts maker was sued in 2002 by engineering company Microtherm, which claimed that Dana had violated Texas’ Deceptive Trade Practice Act through the sale of allegedly defective heat sensors, according to published accounts. A jury found in Microtherm’s favor, and the court awarded it $43.9 million.

Dana reportedly appealed the decision 10 days before it sought bankruptcy protection in March 2006; the company also placed a $25 million appeal bond to freeze collection on the judgment. Once Dana sought bankruptcy protection, the case stalled because of the automatic stay on litigation for companies operating under Chapter 11.

Last August, Microtherm filed a $70.8 million claim against Dana, consisting of a $45.8 million unsecured claim and a $25 million secured claim, according to published accounts; that action, too, is on hold.

Dana has now filed papers in U.S. Bankruptcy Court in Manhattan, seeking a suspension of the automatic stay so it can appeal the original judgment. The company reportedly maintains that by winning, it could erase Microtherm’s claim and strengthen its restructuring position.

Judge Burton R. Lifland is expected to consider Dana’s motion to lift the automatic stay at a hearing on May 23.

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