New York (HedgeCo.Net) – American auto parts maker Delphi has been given the green light to proceed with their suit against hedge fund Appaloosa Management.

U.S. Bankruptcy Judge Robert Drain denied a request by Appaloosa yesterday to dismiss the fraud and breach of contract lawsuit that Delphi had waged against them. Delphi is attempting to collect the $2.55 billion that was originally promised to them by Appaloosa as part of their plan to exit Chapter 11.

While Judge Drain did disregard some of Delphi’s complaints, sources say he rejected the arguments of Appaloosa, including the one that stated the agreement with Delphi only allows for damages of up to $250 million.

The money was part of a bigger, $6.1 billion refinancing strategy that was promised to Delphi through various investors. After $2 billion was granted by former parent company General Motors, Appaloosa got weary of the deal and cited an overdependence on GM. One day before the deadline to walk away, Appaloosa did just that, even though Delphi had attained the rest of the financing needed to solidify the deal.

The lawsuit is scheduled to go to trial next year.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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