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In re Motors Liquidation Co.

United States Court of Appeals, Second Circuit

November 19, 2019

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 ...


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