Like many other distress investors, when the U.S. government bought General Motors out of its bankruptcy case in 2009, it insisted on a §363 sale, transferring substantially all of the assets of General Motors to it free and clear of all liens, claims, encumbrances and interests, including product liability claims and claims of tort victims. In the years following that 363 Sale, the successor company, or “New GM,” admitted that there was a serious defect in the ignition switches used in certain models dating back to years prior to the bankruptcy sale. Moreover, it became clear that senior executives of New GM, who were also senior GM executives before and during the bankruptcy case, knew of the defect before the 363 Sale. This latter development was the focus of a billion dollar assault on the GM 363 Sale Order by plaintiffs asserting (1) claims for economic loss relating to the replacement of the defective ignition switches by New GM, and (2) claims for injury, even death, due to accidents allegedly caused by the defect.
After some procedural litigation in multiple courts, ultimately, New GM sought enforcement of the GM 363 Sale Order in the court that entered the order in 2009.1 There was no doubt that the provisions of the GM 363 Sale Order barred the plaintiffs from making claims against New GM. Despite the broad challenge to the GM 363 Sale Order, the court declined to reconsider the impact of §363 on successor liability generally, and instead focused on whether the order was obtained with constitutionally sufficient due process to sustain enforcing the order against these potential claimants. Navigating fundamental concepts of due process, prejudice, knowledge and equitable mootness, the court determined that (1) there were failures of due process, (2) only owners of affected vehicles were prejudiced, and (3) the GM 363 Sale Order was overly broad insofar as its provisions purportedly protected the actions of New GM taken after the bankruptcy sale.
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