By Leah S. Poniatowski, J.D.
The federal district court presiding over the GM ignition switch litigation proceedings revisited a prior ruling and determined that successor liability claims against New GM cannot advance in states where New York law applies because there was no demonstration of continuity of ownership, a necessary element under New York law. Additionally, successor liability claims from Virginia and Texas were also dismissed (In re General Motors LLC Ignition Switch Litigation, April 25, 2018, Furman, J.).
"Old GM" filed for Chapter 11 bankruptcy in June 2009, and the bankruptcy court approved the sale of most of its assets to a government-created corporate entity that eventually became "New GM." New GM acquired the assets "free and clear" of most of Old GM’s liabilities, including "rights or claims based on any successor or transferee liability." Old GM retained assets and liabilities not expressly assumed by New GM. Old GM eventually was dissolved pursuant to the Chapter 11 plan, with the remaining assets and liabilities transferred to a trust (the GUC Trust). Creditors with unsecured claims against Old GM were allowed to bring them against the GUC Trust until early February 2012, after which no further claims were allowed except for those that amended a prior claim or were otherwise considered timely by the bankruptcy court.
In a prior ruling, the district court determined that successor liability claims filed against New GM with respect to the ignition switch liability lawsuits could not proceed in jurisdictions where Delaware or Maryland law governed and dismissed those claims [see Products Liability Law Daily’s December 20, 2017 analysis]. However, the court had denied GM’s summary judgment motion over the remaining eight states governed by New York law, which included claims from Texas and Virginia. New GM filed the present motion for reconsideration.
The court in the present matter noted that the court in the prior ruling had overlooked the fact that during the asset sale between Old GM to New GM, the New GM stock received by Old GM were "earmarked for Old GM’s creditors" and, thus, did not convey any power over board appointments. Pursuant to New York law, in order to establish successor liability against a corporation, there must be evidence there was continuity of ownership between the Old GM and the New GM shareholders. The form and substance of the asset sale reflected that there was no continuity. First, at the time of the sale, a defined contribution plan did not hold any shares in New GM; a new equity incentive plan was developed after the sale and was of a limited scope. Second, New GM’s assumption of responsibility for Old GM’s health and welfare benefit plan, which owned NEW GM stock immediately after the asset sale, did not reflect continuity in ownership because health and welfare benefits "do not constitute ownership." Therefore, New GM’s motion for partial reconsideration was granted.
The case is No. 14-MD-2543 (JMF).
Attorneys: Elizabeth J. Cabraser (Lieff Cabraser Heimann & Bernstein, LLP) for Marie Mazzocchi. Allan Pixton (Kirkland & Ellis LLP) for General Motors LLC and General Motors Holding, LLC.
Companies: General Motors LLC; General Motors Holding, LLC; Delphi Automotive PLC
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