In re Motors Liquidation Co.

• Decision Date: 09 November 2015
• Docket Number: Case No.: 09–50026 REG Jointly Administered
• Citation: 541 B.R. 104
• Parties: In re Motors Liquidation Company, et al., f/k/a General Motors Corp., et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

541 B.R. 104

In re Motors Liquidation Company, et al., f/k/a General Motors Corp., et al., Debtors.

Case No.: 09–50026 REG Jointly Administered

United States Bankruptcy Court, S.D. New York.

Signed November 9, 2015

KING & SPALDING LLP, Counsel for General Motors LLC (New GM), 1185 Avenue of the Americas, New York, New York 10036, By: Arthur J. Steinberg, Esq. (argued), Scott Davidson, Esq.

KIRKLAND & ELLIS LLP, Counsel for General Motors LLC (New GM), 300 North LaSalle, Chicago, IL 60654, By: Richard C. Godfrey, Esq., Andrew B. Bloomer, Esq.

GOODWIN PROCTER LLP, Counsel for Post-Closing Ignition Switch Accident Plaintiffs, The New York Times Building, 620 Eighth Avenue, New York, New York 10018, By: William P. Weintraub, Esq. (argued), Gregory W. Fox, Esq.

BROWN RUDNICK, Designated Counsel in the Bankruptcy Case for the Ignition Switch Plaintiffs and Certain Non-Ignition Switch Plaintiffs, Seven Times Square, New York, New York 10036, By: Edward S. Weisfelner, Esq. (argued), Howard S. Steel, Esq.

STUTZMAN, BROMBERG, ESSERMAN & PLIFKA, P.C., Designated Counsel in the Bankruptcy Case for the Ignition Switch Plaintiffs and Certain Non-Ignition Switch Plaintiffs, 2323 Bryan Street, Suite 2200, Dallas, Texas 75201, By: Sander L. Esserman, Esq.

HAGENS BERMAN SOBOL SHAPIRO LLP, Co-Lead Counsel in the MDL Proceeding for the Ignition Switch Plaintiffs and Certain Non-Ignition Switch Plaintiffs, 1918 Eighth Avenue, Suite 3300, Seattle, WA 98101, By: Steve W. Berman, Esq. (argued)

LIEFF CABRASER HEIMANN & BERNSTEIN, LLP, Co-Lead Counsel in the MDL Proceeding for the Ignition Switch Plaintiffs and Certain Non-Ignition Switch Plaintiffs, 275 Batter Street, 29th Floor, San Francisco, CA 94111, By: Elizabeth J. Cabraser, Esq.

GARY PELLER, ESQ., Counsel for the Sesay, Elliott and Bledsoe Plaintiffs and Plaintiffs Tina Farmer and Momoh Kanu, 600 New Jersey Avenue, N.W., Washington, DC 20001, By: Gary Peller, Esq.

ANTHONY LAW FIRM, P.A., Counsel for Plaintiffs James and Reda Moore, 250 Magnolia Street, Spartanburg, South Carolina, By: Kenneth C. Anthony, Jr.Esq., K. Jay Anthony, Esq.

CUTRUZZULA & NALDUCCI, Counsel for Estate of William Rickard, 3300 Grant Building, 310 Grant Street, Pittsburgh, PA 15219, By: Julianne Cutruzzula Beil, Esq.

DECISION ON IMPUTATION, PUNITIVE DAMAGES, AND OTHER NO-STRIKE AND NO-DISMISSAL PLEADINGS ISSUES

ROBERT E. GERBER, UNITED STATES BANKRUPTCY JUDGE:

Table of Contents

Findings of Fact...109

1. Background...109

2. Facts Relevant to Imputation...110

3. Facts Relevant to Punitive Damages...111

The Bankruptcy Court's Role on These Motions...113

Discussion...113

I. The Imputation Issue...114

II. The Punitive Damages Issue...116

A. The Post–Closing Accident Plaintiffs' Three Pathways...117

(1) Pathway # 1: Assumption of Claims for Punitive Damages...117

(2) Pathway # 2: Information “Inherited” by New GM...121

(3) Pathway # 3: Information Obtained by New GM after the Sale...122

B. New GM's Four Contexts...122

(1) Personal Injuries in Post-sale Accidents Involving Vehicles Manufactured by Old GM...122

(2) Personal Injuries in Post–Sale Accidents Involving Vehicles Manufactured by New GM...123

(3) Non–Product Liabilities Claims (in both personal injury and economic loss complaints) involving vehicles manufactured by Old GM “and/or” New GM...123

(4) Assertedly Independent Claims that Are In Reality Retained Liabilities of Old GM...125

III. Particular Allegations in Marked Pleadings...126

A. The Bellwether Actions Complaints...126

(1) Pink—“Allegations that wrongly assert New GM is the successor of Old GM”...126

(2) Orange—“Allegations related to punitive damages, which were not assumed by New GM”...127

(3) Blue—“[A]llegations seeking to impute wholesale Old GM's knowledge to New GM”...127

(4) Green—“[A]llegations involving Claims that are Old GM Retained Liabilities”...128

(5) Yellow—“[A]llegations based on New GM's conduct relating to a supposed failure to warn after the vehicle sale”...129

B. The MDL Complaint...129

(1) Blue—“[N]amed plaintiffs and plaintiff classes/subclasses asserting claims based on Old GM vehicles”...129

(2) Yellow—“[A]llegations based on Old GM conduct that support claims for Retained Liabilities”...132

(3) Pink—“[C]laims alleging that New GM committed fraud in connection with Old GM's bankruptcy”...133

(4) Orange—[C]laims alleging plaintiffs are entitled to contractual damages as third-party beneficiaries of the Sale Agreement.”...136

C. The States Complaints...136

(1) Yellow—Allegations based on Old GM conduct...136

(2) Blue—Allegations relating to vehicles manufactured by Old GM...138

D. The Peller Complaints...139

(1) Blue—Allegations Involving Old GM manufactured vehicles...139

(2) Green—Claims Premised on Old GM conduct...140

(3) Yellow—Claims Seeking “to automatically impute Old GM's knowledge to New GM”...141(4) Pink—Claims Seeking Punitive Damages from New GM with respect to Old GM manufactured vehicles....141

E. Other Complaints...141

(1) “Failure to Recall/Retrofit Vehicles”...141

(2) “Negligent Failure to Identify Defects or Respond to Notice of a Defect”...141

(3) “Negligent Infliction of Economic Loss and Increased Risk”...142

(4) “Civil Conspiracy”...142

(5) “Section 402B—Misrepresentation by Seller”...142

(6) Claims Based on Pre–Sale Accidents...143

Conclusion...143

In this contested matter in the chapter 11 case of Debtor Motors Liquidation Company, previously known as General Motors Corporation (“Old GM”), the Court once again has to address litigation brought against General Motors LLC (“New GM”), the buyer of Old GM's assets in a free-and-clear sale. After having entered a judgment, dated June 1, 2015 (the “Judgment”),¹implementing its April 2015 decision²addressing the litigation flowing from New GM's announcement of a defect (the “Ignition Switch Defect”) in ignition switches installed in certain GM branded cars, the Court now must determine the extent to which the April Decision and Judgment bar particular claims (and particular allegations) in complaints in other courts in which claims are asserted against New GM.

In particular—and acting in a “gatekeeper” function in which the Court does not decide nonbankruptcy issues involving the merits of plaintiffs' claims³—the Court here must decide:

(1) the extent to which knowledge of New GM personnel who came over from Old GM may be imputed to New GM; whether the contents of documents generated by Old GM personnel and delivered to New GM under the 363 Sale may be deemed, for notice purposes, to be documents of which New GM may be found to have notice as a matter of nonbankruptcy (agency or other) law; and related issues with respect to imputation, including, most significantly, where arguments for imputation should be decided (the “Imputation Issue”);

(2) the extent to which claims for punitive damages may be based on Old GM knowledge or conduct in actions in which the assertion against New GM of compensatory damages claims is permissible (the “Punitive Damages Issue”); and

(3) the extent to which (by reason of the first two issues or other matters) allegations in particular complaints run afoul of the April Decision and Judgment, and thus must be stricken before affected actions may proceed.

For reasons described below, the plaintiffs (and especially the States of California and Arizona) read the limitations of the Judgment too narrowly; while most of their claims can properly be asserted, a much smaller number of the factual allegations underpinning those claims can't be, at least in the absence of material amendments to those complaints. Conversely, New GM reads the limitations of the Judgment too broadly, and the plaintiffs can assert considerably more in the way of claims and allegations than New GM contends—though the Court expresses no view on the extent to which claims and allegations that pass muster under the April Decision and Judgment are otherwise actionable under nonbankruptcy law.

For reasons set forth below, the Court rules:

(1) Under the April Decision and Judgment, knowledge of New GM personnel, whenever acquired, may be imputed to New GM. But knowledge of Old GM personnel may not be imputed to New GM except on assumed Product Liabilities Claims or to the extent that it can be shown (e.g.,because it is the knowledge of the same employee or because it was communicated to a New GM employee) that New GM had such knowledge too. Likewise, to the extent, as a matter of nonbankruptcy law, that knowledge may be imputed as a consequence of documents in a company's files, documents in New GM's files may be utilized as a predicate for such knowledge, even if they first came into being before the sale from Old GM to New GM. By reason of the Court's limited “gatekeeper” role, allegations of that knowledge or notice, even if alleged in general terms, can pass through the “gate,” with nonbankruptcy courts determining the extent to which they have been alleged sufficiently specifically to warrant findings of imputation.

(2) The Court cannot agree with the plaintiffs' contentions that the Sale Agreement unambiguously provides that New GM assumed punitive damages obligations. At best, it is ambiguous. And to the extent the Sale Agreement is ambiguous, the indicia of intent strongly come down against New GM's assumption of punitive damages obligations premised on anything other than its own knowledge and conduct. Thus New GM did not contractually assume liability for punitive damages based on Old GM knowledge or conduct. Nor is New GM liable for punitive damages based on Old GM conduct under other theories, such as by operation of law as a result of New GM's assumption of certain liabilities for compensatory damages. Consequently, under the April Decision and Judgment, punitive damages may not be premised on Old GM knowledge or conduct, or anything else that took place at Old GM. Punitive damages may be sought against New GM to the extent—but only the extent—they are based on New GM knowledge and conduct alone.⁴

(3) Though more than a few of the allegations New GM attacks are

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