New GM not shielded from liability for failure to warn claims arising from its own conduct under bankruptcy sale order
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Thursday, June 8, 2017

New GM not shielded from liability for failure to warn claims arising from its own conduct under bankruptcy sale order

By Kathleen Bianco, J.D.

A federal bankruptcy court ruled that certain product liability claims arising from a non-ignition switch-related defect in a 2004 Chevrolet Suburban could move forward in the appropriate nonbankruptcy court. In so ruling, the court determined that the "free and clear" provision in the bankruptcy court’s sale order did not permit General Motors LLC (New GM) to avoid potential liability for certain post-sale, non-ignition switch-related product liability claims based exclusively on New GM’s conduct following consummation of its purchase of the assets of General Motor Corp. (Old GM) (In re: Motors Liquidation Co., f/k/a General Motors Corp., June 6, 2017, Glenn, M).

The administrator of the estate of a minor child killed in a rollaway accident involving a 2004 Chevrolet Suburban filed suit against New GM, alleging that the automatic transmission in the subject vehicle was defective because it could be moved from Park to Neutral when the ignition switch was in the ACC position, without depressing the brake, allowing the vehicle to roll from a parked position. The estate asserted various causes of action under the Connecticut Product Liability Law, including failure to recall or retrofit and failure to warn, based on conduct of Old GM and conduct by New GM. New GM filed a motion in the bankruptcy court to enforce the Sale Order to bar the estate’s claim, along with other similar claims, in nonbackruptcy court.

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. At issue in this action is a non-ignition switch claim arising from an accident occurring after the close of the sale, but involving a vehicle manufactured by Old GM. New GM challenged the claims, arguing that they were precluded under the "free and clear" provision and the subsequent rulings on its applicability.

Rulings. At the onset, the Bankruptcy Court noted that its role in this matter was not to determine whether the plaintiff’s complaint was properly pleaded or whether the plaintiff’s action should succeed on its merit, but to ascertain whether the claims should get through the "gate," under the sale order and the court’s prior decisions. Essentially the court stated that, "if the complaint violates an enforceable provision of the sale order, it may not proceed as currently drafted. If it does not violate the sale order, the complaint "passes through the gate" for the appropriate nonbankruptcy court to decide whether it is actionable." Pursuant to this standard, the court concluded that the plaintiff’s failure to warn claims based on the conduct of Old GM were valid under the terms of the sale agreement because they were part of the Assumed Liabilities accepted by New GM. The failure to recall or retrofit claims based on the conduct of Old GM were not valid under the terms of the sale order because such claims were not a part of the Assumed Liabilities within the agreement. However, the same claims based on the post-sale conduct of New GM were permitted to move forward because they were found to have been outside the scope of the "free and clear" provision because they were independent claims that did not exist until well after the sale order was entered in 2009. Consequently, the bankruptcy court granted New GM’s motion in part and denied it in part, and ruled that non-ignition switch plaintiffs were not barred from asserting independent claims against new GM.

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. a/k/a GMC Truck Division a/k/a Automotive Market Research a/k/a NAO Fleet Operations a/k/a National Car Rental a/k/a GM Corp. a/k/a National Car Sales a/k/a GM Corp.-GM Auction Department f/k/a General Motors Corp. Mitchell A. Karlan (Gibson Dunn & Crutcher LLP) for Wilmington Trust Co.

Companies: Motors Liquidation Co. a/k/a GMC Truck Division a/k/a Automotive Market Research a/k/a NAO Fleet Operations a/k/a National Car Rental a/k/a GM Corp. a/k/a National Car Sales a/k/a GM Corp.-GM Auction Department f/k/a General Motors Corp.; Wilmington Trust Co.; GUC Trust

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