492 B.R. 392
Bankr. S.D.N.Y.2013Background
- Plaintiffs (owners of used Dodge Durangos and Jeep Wranglers made by Old Carco) allege a pre‑existing design defect called “fuel spit back” and sued New Chrysler (the purchaser of Old Carco’s assets) in a class action asserting failure to warn, breach of warranties, and related claims.
- Old Carco filed Chapter 11 and on June 10, 2009 sold substantially all assets to New Chrysler under an MTA and Sale Order that carved out a limited set of "Assumed Liabilities" (notably limited written product repair warranties, certain extended service contracts, narrow Lemon Law coverage for vehicles manufactured within five years of closing, and certain post‑closing accident product liability claims) and expressly excluded other pre‑closing product liability and successor liabilities.
- Post‑closing, New Chrysler issued Technical Service Bulletins (TSBs) in 2011–2012 that extended a lifetime repair warranty for certain model years and described repair procedures for the fuel system; plaintiffs rely on the TSBs as creating duties post‑closing.
- Delaware District Court transferred the matter to the Southern District of New York to resolve whether the Sale Order bars plaintiffs’ claims; this Court adjudicated that question on New Chrysler’s Rule 12(b)(6) motion to dismiss the Second Amended Complaint.
- The Court held that, except for (1) claims seeking repair/replacement relief under the limited Repair Warranty (including extended service contracts) and (2) Lemon Law claims within the Sale Order’s carve‑out, the Sale Order bars all claims premised on duties that existed as of the June 10, 2009 closing; claims based on post‑closing duties (e.g., obligations New Chrysler assumed by issuing TSBs or claims by post‑closing purchasers) are not barred by the Sale Order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Effect of Sale Order on pre‑closing defect claims | Sale Order cannot cut off claims where injury occurs after closing; plaintiffs had contingent pre‑closing claims | Sale Order bars pre‑closing product liability and successor claims except narrow Assumed Liabilities | Held: Sale Order bars pre‑closing claims except Repair Warranty and Lemon Law carve‑outs; post‑closing claims not barred |
| Whether New Chrysler assumed implied warranties (merchantability/fitness) | Public statements and the Sale filings show New Chrysler agreed to honor warranties and thus assumed implied warranties | MTA and Sale Order limited assumed warranty obligations to Repair Warranty (parts & labor); excluded consequential damages and broader implied warranty liabilities | Held: Implied warranty claims for pre‑closing vehicles dismissed except to the extent they seek Repair Warranty relief or fall within Lemon Law carve‑out |
| Legal effect of TSBs (2011–2012) — did they create new duties? | TSBs created post‑closing duties and extended remedies for affected owners | TSBs do not retroactively broaden Sale Order’s exclusion of pre‑closing liabilities, but New Chrysler may voluntarily assume obligations by issuing TSBs | Held: Claims based on duties New Chrysler voluntarily assumed via TSBs are not barred by the Sale Order; Court did not decide sufficiency of such claims on the merits |
| Applicability of Grumman Olson / due process to bar Sale Order defense | Grumman Olson prevents sale order from cutting off successor liability for injuries after closing where plaintiffs had no notice | Grumman Olson distinguishable because plaintiffs (or predecessors) had pre‑closing relationship with Old Carco and pre‑existing defect was contemplated | Held: Grumman Olson not controlling here; pre‑existing contingent claims were within parties’ contemplation and Sale Order can bar them subject to carve‑outs |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard — plausibility required)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard explained)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (courts may consider documents incorporated by reference on a Rule 12(b)(6) motion)
- In re Grumman Olson Indus., Inc., 445 B.R. 243 (Bankr. S.D.N.Y. 2011) (sale order could not bar successor liability where plaintiffs had no pre‑closing relationship or notice)
- United States v. LTV Corp. (In re Chateaugay Corp.), 944 F.2d 997 (2d Cir. 1991) (contingent claims within contemplation of parties can be treated as pre‑petition claims)
- Schumacher v. Richards Shear Co., 59 N.Y.2d 239 (1983) (circumstances when successor may have duty to warn predecessor’s customers)