In re Motors Liquidation Co.

• Decision Date: 13 April 2010
• Docket Number: Adversary No. 09 Civ. 6818(NRB),Bankruptcy No. 09 Bk 50026(REG)
• Citation: 428 B.R. 43
• Parties: In re MOTORS LIQUIDATION COMPANY, et al. f/k/a General Motors Corp., et al., Debtors. Callan Campbell, et al., Appellants, v. Motors Liquidation Company, et al. (f/k/a General Motors Corporation), et al., Appellees.
• Court: U.S. District Court — Southern District of New York

428 B.R. 43 In re MOTORS LIQUIDATION COMPANY, et al. f/k/a General Motors Corp., et al., Debtors. Callan Campbell, et al., Appellants, v. Motors Liquidation Company, et al. (f/k/a General Motors Corporation), et al., Appellees. Bankruptcy No. 09 Bk 50026(REG). Adversary No. 09 Civ. 6818(NRB). United States District Court, S.D. New York. April 13, 2010.

MEMORANDUM & ORDER

NAOMI REICE BUCHWALD, District Judge.

On June 1, 2009, facing financial distress so severe that liquidation of the company was an imminent threat, and following extended negotiations with the United States Department of Treasury regarding the financing and sale of the company's assets, General Motors Corporation and certain of its affiliates (collectively, "GM" or "Debtors") commenced cases under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. Simultaneously, GM moved for approval of the sale of substantially all of its assets to a United States Treasury-sponsored purchaser, NGMCO, Inc. (the "Purchaser" or "New GM"), pursuant to section 363 of title 11, United States Code (hereinafter, the "Bankruptcy Code"), (the "363 Motion" or "363 Transaction"). As the underlying transaction and instant appeal involve the interplay of certain provisions of the Bankruptcy Code, a brief sketch of this statutory landscape is warranted at the outset.

Section 363 of the Bankruptcy Code describes the rights and powers of the trustee or debtor-in-possession with respect to the use, sale or lease of property of the bankruptcy estate. See 3 Collier on Bankruptcy ¶ 363.01 (15th ed. rev.2009). Specifically, section 363(b) authorizes the sale of property of the estate other than in the ordinary course of business, subject to notice and hearing requirements. See id. at ¶ 363.02. Section 363(f) permits the sale of estate property "free and clear" of an interest in the property under certaincircumstances. See id. at ¶ 363.06. Finally, section 363(m) limits the scope of appellate review of unstayed section 363 sale orders to the issue of the purchaser's good faith—generally mooting appeals brought on other grounds and thus protecting good faith purchasers from the effects of reversal or modification on appeal once the sale has closed. See id. at ¶ 363.11.

Appellants here ("Appellants" or "Campbell Appellants") are five products liability claimants whose contingent claims arise from injuries sustained prior to Debtors' chapter 11 filing and 363 Motion. These injuries allegedly involve GM vehicles. Prepetition, Appellants had each commenced litigation proceedings against GM in various state and federal courts. Appellees are the Debtors, including Motors Liquidation Company, the Purchaser (collectively, "MLC"), and the United States on behalf of the Department of Treasury ("USA," or, together with MLC, "Appellees"). In the Bankruptcy Court, Appellants objected to Debtors' 363 Motion, arguing (i) that section 363(f) of the Bankruptcy Code does not authorize a sale "free and clear" of potential post-Closing in personam products liability claims against New GM and, further, (ii) that the Bankruptcy Court lacked subject matter jurisdiction to enjoin post-Closing disputes between, inter alia, products liability claimants and New GM.¹ On July 5, 2009, the Bankruptcy Court approved the 363 Transaction over the objections of Appellants and others. That Transaction has since closed and been consummated.

Presently before the Court is an appeal from the Bankruptcy Court's Sale Order. The appeal is directed specifically to the provisions authorizing the sale of the Purchased Assets "free and clear" of Appellants' existing products liability claims and enjoining any successor liability claims they may have against New GM. For the reasons discussed below, the appeal is denied as moot, and the judgment of the Bankruptcy Court is affirmed.

BACKGROUND²

To preserve the going-concern value of GM's assets and business, and consistent with the over $19 billion in financing provided by the Treasury, Debtors filed the 363 Motion to approve the sale of substantially all of GM's assets, and the assumption of certain contracts and leases and their assignment, to the Treasury-sponsored Purchaser for over $90 billion in consideration. MLC Br. 8, Appellants Br. 7. The Purchaser would acquire the subject assets, assume certain specified liabilities, and not assume other liabilities that were not deemed "commercially necessary for the viability ... [of] New GM." See,e.g., MLC CD-141 (July 1, 2009 Hr'g Tr. 135:16-20, Dkt. No. 3205).

Specifically, the over $90 billion in consideration to GM consisted of: a section 363(k) credit bid equal to the amount of indebtedness owed to the Purchaser as of the closing under certain credit facilities defined in the MPA (the UST Credit Facilities and the DIP Facility) less the amount of indebtedness under the DIP Facility; the cancellation of warrants issued by GM to the Treasury; the issuance by the Purchaser to the Debtors of 10% of the common stock of the Purchaser as of the closing; the issuance by the Purchaser to the Debtors of warrants to purchase up to an additional 15% of the shares of common stock of the Purchaser; and the assumption by the Purchaser of certain Assumed Liabilities (a defined term in the parties' agreement and proposed Sale Order), which removed tens of billions of dollars of claims against the Debtors from the chapter 11 cases. Sale Op., 407 B.R. at 482.

Following notice and hearing, numerous objections to the 363 Transaction were served and considered but no other offers of any kind were received by GM, no alternative to the Sale was proffered, nor was it argued that the sale was not in GM's best interest. Id. at 494.³ Indeed, the Bankruptcy Court found that the only alternative to an immediate sale was liquidation. Only the United States Treasury was prepared to finance Debtors' chapter 11 administration, and their DIP financing was expressly conditioned upon GM's seeking and obtaining expedited approval of the 363 Transaction. Id. at 480. As the Bankruptcy Court found, liquidation would have been "a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates"—since, in the event of liquidation, creditors such as Appellants and other objectors who were trying to increase their incremental recoveries "would get nothing." Id. at 474.

Furthermore, the Bankruptcy Court found, and Appellants do not dispute, that the 363 Transaction, as contemplated by the Master Sale and Purchase Agreement and the Amended and Restated Master Sale and Purchase Agreement (collectively, the "MPA"), see Appellants Br., App. B, was the product of good-faith negotiations between Debtors and their key stakeholders, including the Treasury and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the "UAW"). Id. at 494-95; see also Tr. 33:17 (Appellants' counsel conceding that the Purchaser was a purchaser in good faith).

The allocation of certain liabilities, such as contingent products liability claims based on accidents or losses already sustained (the "Existing Products Claims," which include those of Appellants here) and potential products liability claims based on accidents or losses not yet sustained but projected to arise in the future (the "Future Products Claims"), was preliminarily determined during the initial rounds of negotiations. It was agreed that the assets would be sold free and clear ofsuch liabilities, but that, should the Purchaser later agree to assume more of certain liabilities, including the products claims, there would be no downward adjustment in the consideration received by the Debtors. See Appellants Br. 5-7 (discussing "politically sensitive" liabilities). Negotiations continued following the filing of the 363 Motion and, prior to the Sale Hearing, the MPA was amended to provide that (i) New GM would indemnify GM's dealer network for any Existing or Future Products Claims successfully asserted against the dealers, Sale Op., 407 B.R. at 505 n. 110, and (ii) New GM would assume liability for all Future Products Claims that arose post-Closing, regardless of whether the vehicle involved was manufactured pre-Closing. Id. at 481-82. However, the transfer of the Purchased Assets was to remain free and clear of any Existing Products Claims.

The agreement between the Debtors and the Purchaser, as embodied in the MPA and the Sale Order itself, made clear that the Purchaser would not pursue the 363 Transaction unless the assets were sold free and clear of those liabilities the Purchaser had not agreed to assume, including the Existing Products Claims of Appellants here:

The Purchaser would not have entered into the MPA and would not consummate the 363 Transaction (i) if the sale of the Purchased Assets was not free and clear of all liens, claims, encumbrances, and other interests (other than Permitted Encumbrances), including rights or claims based on any successor or transferee liability or (ii) if the Purchaser would, or in the future could, be liable for any such liens, claims, encumbrances, and other interests, including rights or claims based on any successor or transferee liability, other than, in each case, the Assumed Liabilities. The Purchaser will not consummate the 363 Transaction unless [the Bankruptcy Court] expressly orders that none of the Purchaser, ... or the Purchased Assets will have any liability whatsoever with respect to. any liens, claims, encumbrances, and other interests, including rights or claims based on any successor or transferee liability, ... other than as expressly provided herein or in agreements made by the Debtors and/or the Purchaser on the record at the Sale Hearing or in the MPA.

Appellants Br., App. B (Sale Order) ¶ DD (emphasis added). Furthermore, section 7.1 of the MPA expressly provided:

The respective

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