Elliott, et al. v. General Motors LLC (In the Matter of: Motors Liquidation Co.)

Elliott v. General Motors LLC (In re Motors Liquidation Co.), Case Nos. 15-2844, 15-2847, 15-2848 (2d Cir. N.Y. July 13, 2016).
The Second Circuit Court of Appeals determined that the debtor, General Motors Corporation ("Old GM"), had an obligation to provide notice to vehicle owners with defects of which Old GM knew or should have known, and held that the injunctions in the bankruptcy court's sale order did not prevent the vehicle owners from pursuing these claims against General Motors LLC ("New GM"), the purchaser of Old GM's operating assets. - 1. Jurisdiction: The bankruptcy court had subject matter jurisdiction to interpret and enforce its own orders, including jurisdiction to enforce an injunction issued as part of a section 363 sale order, and jurisdiction to determine whether the sale order injunction covers independent claims. - 2. Successor Liability Claims: (a) Claims resulting from accidents before the sale closing are tort claims covered by the bankruptcy court's sale order. (b) Economic loss claims arising from pre-petition defects were also covered by the sale order as contingent claims even though the defects were only revealed five years later. (c) Independent claims relating to New GM's post-closing conduct are not subject to the sale order. (d) Claims by purchasers of used cars after the sale closing without knowledge of the defects are also not subject to the sale order because the purchasers had no contact or relationship with Old GM. - 3. Procedural Due Process: (a) Because Old GM knew or should have known about the defects, it should have provided direct mail notice to the vehicle owners. Mere publication notice was insufficient. (b) Had proper notice been provided, the vehicle owners may have been able to obtain a different result in the sale order. Therefore, enforcement of the sale order against vehicle owners without knowledge of the defect would violate procedural due process, and the vehicle owners cannot be bound by the terms of the sale order. - 4. Equitable Mootness and Justiciability: The Second Circuit reversed the bankruptcy court's holding that equitable mootness barred claims by the vehicle owners against the trust established to pay unsecured claims against Old GM. Because none of these claims had actually been brought against Old GM or the trust, the Second Circuit determined that there was no case or controversy regarding claims against Old GM and the bankruptcy court's ruling on equitable mootness was a non-justiciable matter.
Procedural context:
On direct appeal from the United States Bankruptcy Court for the Southern District of New York. The bankruptcy court had issued a ruling that it (1) had jurisdiction to enforce a sale order it had issued selling substantially all operating assets from Old GM to New GM and barring successor liability claims, (2) holding that certain product defect claims brought against New GM were successor liability claims that were barred by the sale order, while other claims alleging independent actions by New GM were not barred, (3) enforcement of the sale order would not violate procedural due process even though the claimants did not receive proper notice because the claimants were not prejudiced by the lack of notice, and (4) any claims against Old GM or the trust established to pay Old GM's unsecured claims would fail for equitable mootness.
After Old GM filed for bankruptcy, it sought entry of a sale order approving a sale of substantially all operating assets from Old GM to New GM and barring successor liability claims, among other things. The bankruptcy court ultimately approved the sale order after extensive, but expedited, proceedings. Years later, New GM admitted that Old GM had sold vehicles with an ignition switch defect rendering the vehicles unsafe and, allegedly, reducing the vehicles' resale value. Further, plaintiffs alleged Old GM knew or should have known about the defects before the petition date, and had a duty to notify the vehicle owners of the defects and their right to assert claims in the Old GM bankruptcy case. Four categories of claims were asserted against New GM: (1) claims relating to vehicles involved in pre-petition accidents, (2) economic loss claims alleging damages as a result of the ignition switch defects, (3) claims alleging damages for independent actions taken (or not taken) by New GM after the sale, and (4) claims by those who purchased used cars with the defects after the sale order.

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