General Motors LLC—the New GM—is subject to a multitude of lawsuits stemming from its alleged wrongdoings and the alleged wrongdoings of its predecessor, General Motors Corp.—the Old GM—which sold its assets to New GM pursuant to a §363 “free and clear” sale in bankruptcy in 2009. The Second Circuit court previously held that certain plaintiffs could not be barred by the “free and clear” provisions of the 2009 sale order (a decision the U.S. Supreme Court elected not to review). Following the denial of its petition for certiorari, the New GM is attempting to resurrect its principal defense against these lawsuits, arguing that the tort claims brought against New GM are barred on a new theory based on a recent Second Circuit decision in In re Tronox, 855 F.3d 84 (2d Cir. 2017). In that case, the issue was whether individual claimants could pursue certain claims against Kerr-McGee, which had settled with the liquidation trust established as part of the Tronox bankruptcy. In Tronox, the appellate court barred individual plaintiffs from pursuing claims against Kerr-McGee, stating that the Bankruptcy Code prevented individual creditors from pursuing claims against a third party that are truly aimed at recovering “estate” assets. While Tronox may be a recent development in the Second Circuit, the theory has been previously adopted in the successor liability context in the Third Circuit. In In re Emoral, 740 F.3d 875 (3d Cir. 2014), the court held that prepetition personal injury claims that relied upon the “mere continuation” theory of successor liability constituted causes of action that were property of the bankruptcy estate and thus eligible for settlement, release and discharge as part of the bankruptcy proceeding. See Corinne Ball, “'Emoral': Third Circuit Provides Comfort to Distressed Purchasers,” NYLJ (April 24, 2014).

The Sale Order and Claims Against New GM

In 2009 the Old GM underwent a restructuring process pursuant to Chapter 11 of the Bankruptcy Code. As part of the process, the bulk of the assets of the Old GM were sold to a successor entity, New GM. The June 5, 2009 order authorizing the sale included a “free and clear” provision, designed to insulate New GM from liability for claims against Old GM.

Years after the sale, in February 2014, New GM initiated product recalls for an ignition switch defect on cars manufactured by Old GM with potentially fatal consequences. By the time the Old GM underwent the bankruptcy sale process, engineers had already resolved the defect for new cars, which was first discovered as early as 2001. However, the ignition switch issue did not become widely known to the public until New GM initiated product recalls. This prompted the filing of a multitude of class action lawsuits naming New GM as a defendant. There were two general types of claimants (1) the non-ignition switch plaintiffs (e.g., those plaintiffs alleging economic losses relating to the reduction of the resale value of the affected cars or unpaid time off to get the necessary repairs) and (2) the ignition switch plaintiffs suing New GM with respect to actual accidents that took place prior to the 2009 sale. New GM responded to these lawsuits by moving to enforce the 2009 sale order, and arguing that the order absolved New GM of liability because it authorized the sale of Old GM's assets “free and clear of liens, claims, encumbrances, and interests.”

The argument was first considered by the bankruptcy court in April of 2014. The bankruptcy court ruled that New GM could only be sued for its own wrongful conduct related to the ignition switch defects so long as those claims did not in any way rely on any acts or conduct by Old GM, and that the other claimants were barred pursuant to the sale order. See Corinne Ball, “Successor Liability: GM Sale Vulnerable on Due Process Failures,” NYLJ (June 25, 2015). The plaintiffs appealed the bankruptcy court's ruling enforcing the sale order directly to the Second Circuit.