In re Motors Liquidation Company, FKA General Motors Corporation, Debtor
v.
General Motors LLC, Appellee. Those Certain Post-Closing Accident Plaintiffs Represented by Butler Wooten & Peak LLP, Denney & Barrett, P.C., Hilliard Martinez Gonzales L.L.P., and Turner & Associates, P.A, ADR Provider - Appellants, Jennifer Lankford, Plaintiff,
Argued: September 24, 2019
Certain
Post-Closing Accident Plaintiffs appeal from a judgment of
the United States District Court for the Southern District of
New York (Furman, J.) affirming the decision of the
bankruptcy court (Glenn, J.) on the issue of
punitive damages. Because General Motors LLC did not
contractually assume liability for punitive damages in its
predecessor's bankruptcy sale, Post-Closing Accident
Plaintiffs may not assert claims for punitive damages based
on the predecessor's conduct. Accordingly, we AFFIRM.
GREGORY W. FOX, William P. Weintraub (on the brief), Goodwin
Procter LLP, New York, New York, for Appellants.
RICHARD C. GODFREY, Andrew B. Bloomer (on the brief),
Kirkland & Ellis LLP, Chicago, Illinois; ERIN E. MURPHY,
C. Harker Rhodes IV (on the brief), Kirkland & Ellis LLP,
Washington, District of Columbia; Arthur J. Steinberg, David
M. Fine, Scott I. Davidson (on the brief), King &
Spalding LLP, New York, New York, for Appellees.
Before: Jacobs, Sack, Hall, Circuit Judges.
DENNIS
JACOBS, Circuit Judge:
The
history of this sprawling bankruptcy is set forth in several
opinions, including the comprehensive opinion of the United
States Bankruptcy Court for the Southern District of New York
(Glenn, J.), which was reviewed and affirmed in
relevant part by the district court (Furman, J.) in
the judgment from which this appeal is taken. In a nutshell,
the 2009 bankruptcy of General Motors Company ("Old
GM") resulted in a sale under 11 U.S.C. § 363 of
the bulk of its assets to a new entity that has continued the
business (the "Sale"). That new entity became
General Motors LLC ("New GM").
There
is a single question on this appeal. New GM assumed the
liability of Old GM with respect to post-Sale accidents
involving automobiles manufactured by Old GM; the claims thus
assumed include those by persons who did not transact
business with Old GM, such as individuals who never owned Old
GM vehicles (but collided with one) and (hypothetical)
persons who bought Old GM cars used after the Sale. The
question on appeal is whether New GM is liable for punitive
damages with respect to such claims. We conclude, as a matter
of contract interpretation, that New GM is not.
The
bankruptcy court ruled New GM cannot be held liable for
punitive damages based on Old GM's conduct for two
reasons: an earlier decision by the bankruptcy court had
resolved this issue and was the law of the case; and the
structure of the Bankruptcy Code's priority scheme
precludes successor liability punitive damages claims in this
case. See In re Motors Liquidation Co.
("July 2017 Decision"), 571 B.R. 565,
575-77 (Bankr. S.D.N.Y. 2017). The district court affirmed on
the same grounds. See In re Motors Liquidation Co.
("May 2018 Decision"), 590 B.R. 39, 61-64
(S.D.N.Y. 2018).
This
appeal was initiated by certain Post-Closing Accident
Plaintiffs represented by multiple law firms
("Appellants"). "Post-Closing Accident
Plaintiffs" is a term of art in these bankruptcy
proceedings; it means plaintiffs asserting claims based on an
accident or incident that occurred on or after the closing
date of the Sale. July 2017 Decision, 571 B.R. at
578. Since filing the Notice of Appeal, some of the
Appellants have settled their lawsuits against New GM or
decided not to pursue this appeal. For res judicata purposes,
it matters that the remaining Appellants are the plaintiffs
in Eason v. General Motors LLC
("Eason"), Case No. 15A-1940-7 (State
Court of Cobb County, Ga.). (The disposition of the case
involving the plaintiff in Reichwaldt v. General Motors
LLC, Case No. 1:16-cv-02171 (N.D.Ga.) is addressed in a
summary order that is issued on the same day as this
opinion.)
To
confirm appellate jurisdiction, we consider the Notice of
Appeal and conclude that it is (barely) adequate (Part I). We
then consider the merits: contractual assumption (Part II)
and successor liability (Part III). Because New GM did not
contractually assume liability for punitive damages, the
judgment is affirmed.
BACKGROUND
In
2009, Old GM filed for bankruptcy under chapter 11, and took
steps under 11 U.S.C. § 363(f) to sell substantially all
of its assets, "free and clear" of any associated
liabilities, to (the entity that later became) New GM. The
terms of the Sale are governed by a contract (the "Sale
Agreement"), under which New GM assumed a narrow set of
Old GM's liabilities (the "Assumed
Liabilities"). All other liabilities remained with Old
GM.
Prior
to the Sale, interested parties and the general public
received notice of a proposed Sale Agreement; and the
bankruptcy court received and considered hundreds of
objections. In response to some objections, the parties
amended the Sale Agreement for New GM's Assumed
Liabilities to include claims arising out of post-Sale car
accidents involving Old GM vehicles. Having received the
objections and amendments, the bankruptcy court entered an
order on July 5, 2009 approving the terms of the Sale
Agreement (the "Sale Order"). In re General
Motors Corp., 407 B.R. 463 (Bankr. S.D.N.Y. 2009)
(Gerber, J.).
Between
February 2014 and October 2014, New GM recalled certain Old
GM vehicles with alleged defects that could (among other
things) disable critical safety features. The recalls
prompted numerous lawsuits against New GM, including those
seeking punitive damages based on Old GM's design,
manufacture, and sale of the defective vehicles. In response
to these lawsuits, New GM moved in the bankruptcy court to
enforce the "free and clear" provision of the Sale
Order that, in accordance with 11 U.S.C. § 363(f),
extinguishes all liability arising out of Old GM assets other
than Assumed Liabilities.
Since
the 2014 recalls, many questions have arisen about the
breadth of the Sale Order's free and clear provision and
the scope of the Sale Agreement's Assumed Liabilities. In
November 2015, the bankruptcy court resolved some questions
bearing on which claims could proceed against New GM. See
In re Motors Liquidation Co. ("November 2015
Decision"), 541 B.R. 104 (Bankr. S.D.N.Y. 2015)
(Gerber, J.). Relevant to this appeal, the court
considered the extent to which punitive damages are available
to Post-Closing Accident Plaintiffs, and concluded that under
the Sale Agreement, New GM could not be liable for punitive
damages imposed by reason of Old GM's conduct.
Id. at 116-21. This ruling was never appealed.
In July
2017, the bankruptcy court undertook to resolve persistent
issues arising out of the Sale. Among the claimants were the
Appellants, who argued that they were not bound by the
November 2015 Decision (on the punitive damages issue)
because they were not yet party to the bankruptcy court
proceedings. The bankruptcy court applied the November 2015
Decision as the law of the case and ruled that "New GM
cannot be held liable for punitive damages on a contractual
basis." July 2017 Decision, 571 B.R. at 576.
The court went on to consider whether the Sale Order's
free and clear provision could bar the punitive damages
claims of Appellants, who suffered post-Sale injuries.
Id. at 576-77. The court observed that, since Old GM
was deeply insolvent at the time of the Sale, the structure
of the Bankruptcy Code's claim priority scheme would
insulate Old GM from having to pay punitive damages.
Id. at 580 (citing 11 U.S.C. 726(a)(4)). The court
therefore concluded that New GM could not be held liable as a
successor corporation for claims that its predecessor would
never have paid. Id. at 579-80.
Pursuant
to 28 U.S.C. § 158, the district court reviewed the July
2017 Decision and affirmed on both grounds. May 2018
...