By Kathleen Bianco, J.D.
A federal bankruptcy court tasked with resolving certain threshold issues arising out of the sale of the bulk of the assets of General Motors Corp (Old GM) by General Motors LLC (New GM) issued rulings on three of five issues identified by the parties. In so ruling, the court determined that: (1) only plaintiffs with the Ignition Switch Defect in a Subject Vehicle are Ignition Switch plaintiffs; (2) used car purchasers must abide by the Sale Order to the same extent as the original vehicle owner; and (3) claims for punitive damages against New GM, based on Old GM conduct, are barred under the Bankruptcy Code’s priority scheme (In re: Motors Liquidation Co., f/k/a General Motors Corp., July 12, 2017, Glenn, M).
After General Motors filed for Chapter 11 bankruptcy in June 2009, the company used Bankruptcy Code Sec. 363 to sell its assets "free and clear" of Old GM’s liabilities to a new entity, New GM, and thereby avoid a protracted traditional bankruptcy reorganization. The "free and clear" provision contained in the bankruptcy court’s sale order barred all successor liability claims against New GM except for those liabilities the new entity contractually assumed, which included claims for "Product Liabilities" arising out of accidents or incidents occurring on or after the closing date of the sale. The scope of the "free and clear" provision has been contested over the years with various guidelines being set related to claims involving ignition switch defects. The bankruptcy court has been tasked with resolving a set of five threshold issues regarding claims asserted against New GM involving vehicles manufactured by Old GM. Following the filing of numerous briefs and two days of oral arguments, the court has resolved three of the five threshold issues.
Ignition Switch Plaintiffs. The first issue addressed by the court was what constitutes an Ignition Switch Plaintiff for purposes of the sale order. A plaintiff whose wife died following an automobile accident caused by an ignition switch failure in a 2004 Pontiac Grand Am argued that he should be considered an Ignition Switch Plaintiff because he alleged a defect in the ignition switch of a vehicle. The court disagreed, finding the plaintiffs proposed interpretation to be overly broad, instead determining that "Ignition Switch Plaintiff" includes only plaintiffs asserting economic losses arising from the Ignition Switch Defect in specific vehicles identified in NHTSA Recall No. 14v047. This conclusion is in line with the opinion of the U.S. Court of Appeals for the Second Circuit.
Used car purchasers. The second issues involves whether used car purchasers without the ignition defect are bound by the sales order. Plaintiffs contend that used car purchasers are "unknown" or "future" claimants, who are not bound by the Sale Order because they had not yet purchased their vehicle on the sale’s closing date and had no prior relationship with Old GM. Plaintiffs based their argument on the premise that parties holding future claims are unidentifiable and cannot be provided notice of the bankruptcy; therefore, their claims cannot be discharged by a bankruptcy court order. While the court acknowledged this precedent, there was an important distinction that the plaintiffs overlooked related to the relationship between Old GM and the vehicle’s prior owner(s). Thus, the court determined that used car owner’s stand in the shoe of the predecessors in interest and are bound by the sale order.
Punitive damages. The final issue addressed in this proceeding related to claims for punitive damages filed by post-closing accident plaintiffs against New GM based on the conduct of Old GM. Because the Bankruptcy Code priority scheme would have shielded Old GM from punitive damage claims, as its successor, New GM also is shielded from such claims.
The case is No. 09-50026 (MG).
Attorneys: Donald F. Baty, Jr. (Honigman Miller Schwartz and Cohn LLP) and David R. Berz (Weil Gotshal & Manges, LLP) for Motors Liquidation Co. Mitchell A. Karlan (Gibson Dunn & Crutcher LLP) for Wilmington Trust Co. Brian Shoichi Masumoto, (Office of the United States Trustee) for United States Trustee.
Companies: Motors Liquidation Co.; Wilmington Trust Co.
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