United States: Products Liability Plaintiffs Prevented From Seeking Recovery Against New GM Because The Bankruptcy Court Found Their Claims Were Not Assumed By New GM

On April 15, 2016, the Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") halted the attempt of plaintiffs who were injured in an accident involving a General Motors vehicle to seek recourse against General Motors LLC ("New GM") in state court, finding that New GM did not assume liability for the plaintiffs' claims. This decision provides yet another reminder to tort victims of the obstacles they face when attempting to seek redress for injuries resulting from GM vehicles as a result of the far-reaching orders issued during the General Motors bankruptcy that impede the pursuit of such claims.

Background

This matter arose in the context of a state court action in Fulton County, Georgia,¹ where Marlos L. Chenault and Shayrika L. Chenault (the "Plaintiffs") filed a lawsuit in October 2012 alleging damages resulting from a January 29, 2011 single car accident. The rear tire of the Chenaults' 2005 GMC Denali experienced a tread separation, leading to the car hitting the guardrail and rolling over. Mr. Chenault was paralyzed from the waist down in the accident.² The Plaintiffs claim that they intended to name New GM as a defendant in the Fulton County action but mistakenly named "General Motors Corporation" ("Old GM").³ Litigation ensued over whether a default judgment should, or could, be entered against New GM and whether the Plaintiffs' claims were void because they sued Old GM in violation of the bankruptcy stay.

The state court sought guidance from the Bankruptcy Court that presided over the General Motors bankruptcy case, asking Plaintiffs "to seek a ruling . . . regarding the nature of the relationship between General Motors Corporation and General Motors LLC, whether or not the claims herein survive or are barred for any reason, and whether or not the bankruptcy stay applies in this case."⁴

On March 2, 2016, the Plaintiffs filed their Motion for Determination of Applicability of Automatic Stay with the Bankruptcy Court.⁵ The Plaintiffs asserted that, after the 363 sale, New GM assumed liability to third parties for products liability claims arising after the closing date of July 10, 2009 (the "Closing Date") from all products that were manufactured before that date, including their claims.⁶ The Plaintiffs sought an order that their claims "survive[d] the sale of General Motors Corporation's assets to General Motors LLC and are not barred."⁷

The Plaintiffs also argued that the automatic stay did not apply because they did not purport to have a claim against Old GM and the Fulton County litigation did not implicate Old GM's assets.⁸ The Plaintiffs attempted to explain their mistaken inclusion of Old GM, noting that they meant to name New GM in their complaint.⁹

New GM objected to the Plaintiffs' motion, arguing, inter alia, that the Plaintiffs had improperly attempted to re-frame the issues raised by the state court, asserting that "[t]he State Court asked whether Old GM and New GM were the same entity for purposes of determining whether the defendant defaulted by not answering the Complaint. It did not ask Movants' question as to which of the two separate entities might ultimately be liable . . . ."¹⁰ New GM also zeroed in on the Plaintiffs' statement in the underlying state court case that "New GM was the 'successor in interest' to Old GM."

Regardless, New GM contended that it had not assumed liability for the Plaintiffs' claims. Rather, it asserted that "[w]ith respect to claims based on successor liability," the Bankruptcy Court held that Old GM had the legal basis under section 363(f) of the Bankruptcy Code to sell its assets "free and clear" of successor liability claims.¹¹ New GM also cited to a December 4, 2015 judgment of the Bankruptcy Court, wherein the court described the types of allegations that could not be asserted against New GM, including claims "that New GM is the successor of Old GM . . . ."¹² Finally, New GM asserted that because the automatic stay was in effect, the alleged claims against Old GM were barred and void ab initio.¹³

In reply, the Plaintiffs reiterated their argument that "no judgment has been sought or entered against Old GM" and that "they have argued only that New GM agreed to be subject to suit for claims such as these."¹⁴ The Plaintiffs attempted to clarify their use of "successor in interest" language, asserting that they were referring to their understanding that New GM agreed to be subject to suit for post-closing date products liability claims related to pre-closing date manufactured products, rather than claiming that New GM was the successor in interest of Old GM.¹⁵

The Bankruptcy Court's Opinion

On April 15, 2016, the Bankruptcy Court held that the Plaintiffs' filing of their state court claims against Old GM violated the automatic stay because the bankruptcy case was still open.¹⁶ The court did not apparently credit the Plaintiffs' claim of mistake.

The court also deemed it to be "abundantly clear" that New GM was not a "successor in interest" to Old GM, based upon the record in the General Motors' bankruptcy case and the court's prior decisions.¹⁷ The court pointed out that it had, on numerous occasions, "prohibited plaintiffs from alleging that New GM is the successor to Old GM" because such allegations are "proscribed by the Sale Order, April Decision and June Judgment."¹⁸

Finally, the court found that, based on the allegations in the Plaintiffs' complaint, "New GM did not assume liability" for the Plaintiffs' claims.¹⁹ The court explained that while New GM did, indeed, assume certain liabilities of Old GM under the Sale Order and Agreement, including product liabilities "defined as, among other things, liabilities to third parties for component parts of motor vehicles 'manufactured, sold or delivered by Sellers,'" the plaintiffs' claims did not fall under this definition.²⁰ The Plaintiffs alleged that the tire that caused the accident was designed by Old GM (an allegation which New GM disputed)²¹, but the court found this allegation insufficient, holding that because the Plaintiffs did "not allege that the tire was 'manufactured, sold or delivered by' Old GM," their claims did not "raise Product Liabilities assumed by New GM" and their successor liability claims were thus barred by the Sale Order.²²

It is unclear whether the Plaintiffs will seek appellate review, as the period for filing a notice of appeal has not yet passed.²³

Conclusion

The Bankruptcy Court's recent decision reaffirms the importance of naming the correct defendant when pursuing claims involving GM products. Because Old GM's bankruptcy case is still open, suing Old GM, even by inadvertence, may be a violation of the automatic stay. The Bankruptcy Court's decision also reaffirms that, as it interprets the Sale Order and Agreement, the Bankruptcy Court believes that New GM did not assume liability for products that Old GM "designed"; rather, only for products that Old GM "manufactured, sold or delivered." Whether the court's reliance on the specific language of the Sale Order would hold up upon appellate scrutiny remains to be seen.

Footnotes

1. The Fulton County matter is styled Chenault v. Continental AG, et al., No. 12EV016009J.

2. Compl. for Damages at 4, Chenault v. Cont'l Ag, No. 12EV016009J (Ga. State Ct. Oct. 18, 2012).

3. Order Staying Motion for Default Judgment and Directing Parties to Bankruptcy Court at 1, Chenault, No. 12EV016009J (Ga. State Ct. Sept. 28, 2015).

4. Id. at 2.

5. See Motion for Determination of Applicability of Automatic Stay, In re Motors Liquidation Co., No. 09-50026 (Bankr. S.D.N.Y. Mar. 2, 2016), ECF No. 13611.

6. Id.

7. Id. at 7-8.

8. Id. at 6.

9. Id.

10. Id. at 2-3.

11. See Motion for Determination, supra note 5, at 8.

12. Id. at 9.

13. Id. at 14-15.

14 .Reply to General Motors LLC's Objection to Motion for Determination of Applicability of Automatic Stay at 2, In re Motors Liquidation Co., No. 09-50026 (Bankr. S.D.N.Y. Apr. 7, 2016), ECF No. 13617.

15. Id. at 5.

16. Memorandum Opinion and Order Determining That the Automatic Stay Applies to State Court Action at 10, In re Motors Liquidation Co., No. 09-50026, (Bankr. S.D.N.Y. Apr. 15, 2016), ECF No. 13618.

17. Id. at 9.

18. Id. at 9-10.

19. Id. at 10.

20. Id.

21. Id. at 11.

22. Memorandum Opinion, supra note 17.

23. See Fed. R. Bankr. P. 8002.

This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.