By Pamela C. Maloney, J.D.
The Old GM bankruptcy trust (the GUC Trust) has submitted for approval by a New York bankruptcy court a new settlement agreement pursuant to which the GUC Trust would pay $15 million to resolve ignition switch claims by a proposed class of GM vehicle owners and lessees who are seeking (i) economic losses related to Old GM’s alleged concealment of safety defects in ignition switches, side airbags, and power steering; and (ii) personal injury and wrongful death claims against the GUC Trust related to Old GM vehicles that were subject to recalls for alleged safety defects. The settlement also could cost the reorganized New GM up to $1billion in stock depending upon the estimation the bankruptcy court assigns to all remaining claims (In re Motors Liquidation Co., May 3, 2018).
General Motors bankruptcy filing. In 2009, General Motors Corp. (Old GM) filed for bankruptcy and entered into a sale agreement to sell certain assets to a newly-created entity that subsequently became General Motors LLC (New GM). The sale agreement, as approved by the bankruptcy court, provided that if the bankruptcy court allowed for general unsecured claims against the sellers of more than $35 billion, New GM would be required to issue new common stock to cover the claims, up to 30 million new shares if the amount allowed by the court exceeded $42 billion. The court subsequently approved the debtors’ Chapter 11 plan, which created the GUC Trust as the successor to Old GM for purposes of distribution of its assets to its general unsecured creditors.
Ignition switch recalls. In 2014, New GM issued several recalls involving millions of vehicles containing an ignition switch defect. Following the recalls, numerous lawsuits were filed, including those filed by the three sets of plaintiffs involved in the present case, all of whom had asserted economic loss or personal injury/wrongful death claims for vehicles involved in particular recalls over the ignition switch defect and certain other defects. These cases were consolidated before the court handling the multi-district litigation. New GM sought to enjoin these lawsuits against it by filing motions to enforce the sale order. After various proceedings, the present plaintiffs moved for authority to file late proofs of claim, and subsequently provided the GUC Trust with proffers of evidence indicating that the amount of damages for their claims, which if found to be general unsecured claims, would exceed the threshold limit necessary to trigger New GM’s obligation to issue additional shares. The plaintiffs and the GUC Trust disagreed over various issues regarding whether the plaintiffs could bring the late proofs of claim against the GUC Trust and whether the Trust’s assets could satisfy these claims.
For months, negotiations took place among the parties. After there had been 21 drafts of the settlement agreement, which was signed off on by the signatory plaintifs and the Wilmington Trust (the administrator and trustee of the GUC Trust), the GUC Trust met separately with New GM (not a party to the negotiations), after which the GUC Trust informed the other parties that it had reversed its position and would not execute the agreement. Instead, New GM and the GUC Trust entered into a "forbearance agreement" pursuant to which New GM would pay all of the GUC Trust’s expenses to fight additional ignition switch defect claims. In January 2018, the bankruptcy court determined that the settlement agreement submitted by the GUC Trust was unenforceable on the ground that the agreement was not fully executed because the parties had reserved the right not to be bound by the proposed settlement [see Products Liability Law Daily’s January 22, 2018 analysis]. Following that ruling, the GUC Trust retained new counsel, and after terminating the forbearance agreement with New GM, the GUC Trust, the participating unitholders, the designated and lead counsel for the ignition switch and certain non-ignition switch plaintiffs, and counsel for certain pre-closing accident plaintiffs resumed good faith, arm’s-length negotiations that led to the current settlement agreement.
Provisions of settlement agreement. The proposed settlement agreement submitted for approval by the bankruptcy court consists of three components, each of which would be considered in successive stages: (i) establishing notice procedures; (ii) approving the settlement agreement as proposed; and (iii) estimating class members’ claims. Upon entry of the settlement order by the bankruptcy court, the GUC Trust agrees to pay the proposed class $15 million. Pursuant to the third component of the proposed settlement agreement, the GUC Trust agrees to seek entry of a claims estimate order which would estimate the aggregate allowed general unsecured claims against the GUC Trust, and which could trigger New GM’s obligation under the 2009 sale agreement to issue up to 30 million new common shares if the estimated amount allowed by the court exceeds $42 billion.
In exchange for the consideration paid by the GUC Trust, the members of the proposed class agree to waive and released any rights or claims against the GUC Trust and its administrator, among others. However, nothing in the settlement agreement is intended to waive any claims against New GM or to be an election of remedies against New GM; nor does the settlement agreement, or any payments made in connection with the settlement agreement, represent full satisfaction of any claims against Old GM, unless and until all claims are paid in full from every available source (provided, however, that in no event shall any class member be permitted to seek any further payment or compensation from the GUC Trust with respect to their claims or otherwise), other than from the settlement amount and the adjustment shares.
In urging the court to approve the settlement agreement, the GUC Trust stated that this new agreement will substantially reduce costs and the expenditure of resources, eliminate the risk of uncertain litigation outcomes, and prevent further delay in distributions of remaining GUC Trust Assets, without disturbing the recovery expectations of other creditors and unitholders. In addition, the settlement agreement establishes a streamlined process for allowing the claims of the proposed class and provides class members a source of recovery from the settlement amount and the adjustment shares.
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. and GUC Trust.
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
MainStory: TopStory SettlementAgreementsNews MotorVehiclesNews MotorEquipmentNews NewYorkNews
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