Elliott v. General Motors LLC
829 F.3d 135
| 2d Cir. | 2016Background
- Old GM filed Chapter 11 on June 1, 2009 and sold substantially all operating assets to New GM in a § 363 "free and clear" sale that closed July 10, 2009; New GM (majority-owned by Treasury) assumed only specified liabilities.
- Old GM remained in bankruptcy as Motors Liquidation Company (MLC) and established a GUC Trust to pay unsecured claims; a November 30, 2009 bar date and later distributions followed.
- Beginning February 2014 New GM disclosed a long‑standing defective ignition switch that could disable engines/airbags; many claims (personal injury and economic loss) related to conduct predating the § 363 sale.
- Plaintiffs sued New GM asserting successor liability; New GM moved in bankruptcy to enforce the Sale Order’s liability shield and enjoin those claims.
- The bankruptcy court enforced the Sale Order in part (but found notice inadequate and preserved "independent" claims), and held relief against GUC Trust equitably moot; the court certified the orders for direct appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Bankruptcy court jurisdiction to interpret/enforce Sale Order | Bankruptcy court lacked power to enjoin non‑bankruptcy successor claims | Bankruptcy court has "arising in" jurisdiction to interpret/enforce its own sale orders under § 363 and § 105 | Court: Bankruptcy court had jurisdiction to interpret and enforce the Sale Order |
| Scope of § 363 "free and clear" (successor liability) | Sale Order should not bar claims that were unknown or not tied to Old GM’s ownership of assets | Sale Order’s broad language bars successor liability claims tied to Old GM’s ownership | Court: Sale Order bars pre‑closing accident claims and economic‑loss claims that flowed from Old GM’s ownership; it does not bar claims based on New GM’s independent post‑closing misconduct or claims by post‑closing used‑car purchasers |
| Procedural due process (adequacy of notice) | Plaintiffs were entitled to direct notice because Old GM knew or should have known of the ignition defect; publication notice was inadequate | The sale had to be quick; plaintiffs were contingent/unknown creditors so publication was sufficient; even if notice inadequate, no prejudice because sale would have closed anyway | Court: Old GM knew or should have known; direct notice was required; because the lack of notice could have affected negotiation of the Sale Order, enforcement as to ignition‑related claims violated due process (reversed enforcement for those claims) |
| Equitable mootness re: GUC Trust relief | Plaintiffs did not seek relief from GUC Trust in bankruptcy; court should not rule on moot hypotheticals | New GM argued claims belong to Old GM estate/GUC Trust and relief would be inequitable now | Court: Bankruptcy court’s equitable‑mootness ruling was advisory (no actual controversy regarding GUC Trust claims) and was vacated |
Key Cases Cited
- Travelers Indem. Co. v. Bailey, 557 U.S. 137 (Bankruptcy court may interpret and enforce its prior orders)
- In re Lionel Corp., 722 F.2d 1063 (2d Cir. 1983) (standards for § 363 sales and court review)
- In re Chateaugay Corp., 10 F.3d 944 (2d Cir. 1993) (doctrine and factors for equitable mootness)
- Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950) (due‑process standard for notice reasonably calculated to inform interested parties)
- Mennonite Bd. of Missions v. Adams, 462 U.S. 791 (1983) (publication notice inadequate when creditor is known or readily ascertainable)
- In re Trans World Airlines, Inc., 322 F.3d 283 (3d Cir. 2003) (§ 363 can bar successor obligations that relate to ownership/use of sold assets)