June 23 (Bloomberg) -- Chrysler Group LLC, created out of the best assets from its bankrupt predecessor, can’t make new cars until it gets needed tools tied up in legal disputes, a lawyer told a judge in charge of the reorganization.

The streamlined carmaker, created two weeks ago, may need mediation to resolve disputes over access to tools, Frank Oswald, a Chrysler lawyer from Togut, Segal & Segal LLP, told U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan today. Oswald was updating Gonzalez at a hearing on disputes over “cure costs,” or amounts owed to suppliers to resolve contracts signed before Chrysler’s bankruptcy.

“We don’t want to have a situation where, after rushing to get the sale closed in 42 days, Newco is unable to start up production because we don’t have necessary parts,” Oswald said, referring to the new Chrysler entity.

Of 500 objections to Chrysler’s proposed cure amounts, only 70 remain unresolved, Oswald said in an interview after the hearing. He said he doesn’t know of specific tools Chrysler Group is missing. Oswald said lawsuits may need to be filed “to the extent that there are recalcitrant suppliers.”

One tool dispute was resolved after Chrysler sued Logghe Stamping Co. on June 4. The automaker demanded in the lawsuit to be recognized as the owner of the tools immediately, saying they were property of Chrysler’s estate.

Deliver the Tools

According to court documents filed June 9, the parties reached an agreement under which Logghe will cooperate with Chrysler to deliver the tools, and Chrysler will reimburse Logghe for $10,000 to move them. The automaker also will pay the company $62,488 to resolve a claim against Chrysler.

A group led by Fiat SpA completed the purchase of most Chrysler assets on June 10, forming the world’s sixth-largest carmaker. Chrysler, based in Auburn Hills, Michigan, filed for bankruptcy on April 30. The remaining assets not sold to Fiat, including eight manufacturing facilities, are being liquidated under Chapter 11 of the bankruptcy code under the name of “Old CarCo LLC.”

Separately, Chrysler’s unsecured creditors said in court documents that they seek permission to hire Pachulski, Stang Ziehl & Jones LLP as their so-called conflicts counsel to represent it when their primary law firm, Kramer Levin Naftalis & Frankel LLP, may have conflicts of interest.

Five members of the committee resigned after the sale to Fiat, according to the filing. The five are Ohio Module Manufacturing Co., Pension Benefit Guaranty Corp., Zanetti Chrysler Jeep Dodge, Cummins Inc. and Magna International.

The committee added six members: the International Union of the United Automobile, Aerospace & Agricultural Implement Workers of America, or UAW, Continental Automotive Systems Inc., AutoNation Inc., Darcars Imports Inc., Desiree Sanchez and Patricia Pascale.

Pachulski’s proposed billing rates are as much as $850 an hour for partners, and as low as $295 an hour for associates.

A hearing on the request is scheduled for July 16.

The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net.

Last Updated: June 23, 2009 17:59 EDT