In re Motors Liquidation Co.

• Decision Date: 18 January 2018
• Docket Number: Case No. 09–50026 (MG)
• Parties: IN RE: MOTORS LIQUIDATION COMPANY, f/k/a General Motors Corporation, et al., Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

580 B.R. 319

IN RE: MOTORS LIQUIDATION COMPANY, f/k/a General Motors Corporation, et al., Debtors.

Case No. 09–50026 (MG)

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

Signed January 18, 2018

HILLIARD MARTINEZ GONZALES LLP, Attorneys for the Personal Injury and Wrongful Death Plaintiffs, 719 South Shoreline Boulevard, Corpus Christi, Texas 78401, By: Robert Hilliard, Esq., Rudy Gonzales, Esq. -and- HAGENS BERMAN SOBOL SHAPIRO, LLP, 1918 8th Avenue, Seattle, Washington 98101, By: Steve Berman, Esq., Nick Styant–Brown, Esq.

AKIN GUMP STRAUSS HAUER & FELD LLP, Attorneys for the Participating Unitholders One Bryant Park, New York, NY 10036, By: Deborah Newman, Esq.

GIBSON, DUNN & CRUTCHER, LLP, Attorneys for the GUC Trust, 200 Park Avenue, New York, New York 10166, By: Mitchell A. Karlan, Esq., James L. Hallowell, Esq., Jonathan D. Fortney, Esq., Michael Eggenberger, Esq., Alejandro A. Herrera, Esq.

QUINN, EMANUEL, URQUHART & SULLIVAN, LLP Attorneys for New GM 51 Madison Avenue, New York, New York 10010, By: Susheel Kirpalani, Esq., James C. Tecce, Esq., Julia Beskin, Esq.

MEMORANDUM OPINION AND ORDER REGARDING MOTION TO ENFORCE THE SETTLEMENT AGREEMENT BY AND AMONG THE SIGNATORY PLAINTIFFS AND THE GUC TRUST

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

I. INTRODUCTION ¹

This is a very troubling dispute.

In the years before Old GM filed for chapter 11 protection in June 2009, Old GM manufactured more than 12 million vehicles with seriously defective ignition switches. Hundreds of these vehicles were involved in serious accidents caused by the ignition switch defects, resulting in personal injury, deaths and property damage. Old GM knew about the ignition switch defects, but never disclosed them before or during the bankruptcy case. The facts about the ignition switch defects only became public after New GM issued a series of recall notices in 2014. Public disclosure of the ignition switch defects triggered numerous lawsuits in state and federal courts (including in the bankruptcy court) as injured parties sought to recover damages because of the ignition switch defects. The bar date for filing claims against Old GM expired on November 30, 2009, but since Old GM never disclosed the ignition switch defects, no ignition switch defect-related claims were filed in the bankruptcy case before the bar date expired for personal injury, wrongful death, property damage or economic loss claims.

This Court will have to decide whether late claims based on ignition switch defects should be permitted so many years after the bar date expired in Old GM's bankruptcy. The ability of people who were injured from ignition switch defects before the bankruptcy section 363 sale of assets to New GM closed to recover damages may depend on whether late claims are allowed. The issues are difficult, but as often happens, the parties directly involved in the dispute (attorneys for the potential claimants and for the GUC Trust, as successor to the Old GM for purposes of distribution to unsecured creditors) spent months negotiating a settlement. This Opinion specifically involves the efforts by pre-sale personal injury, wrongful death, property damage and economic loss claimants to enforce the unexecuted Settlement Agreement negotiated with the GUC Trust—the Settlement Agreement would permit late claims to be filed, and establish procedures for the Court to estimate the claims. After months of negotiation, twenty-one drafts of the Settlement Agreement and supporting documentation, a "signed off" by representatives of the Signatory Plaintiffs and Wilmington Trust, and after a two-hour meeting with counsel to New GM, the GUC Trust reversed course and refused to execute the written Settlement Agreement which all parties acknowledged was "final," at least as to form.

In the lead up to those events, New GM's counsel had made it clear in open court for months that New GM would do whatever it could to prevent additional ignition switch defect claims to be filed and allowed in the bankruptcy case. So it is no real surprise that New GM aggressively sought to torpedo any deal between the Signatory Plaintiffs and the GUC Trust; the only surprise to the Court is that, following the two-hour meeting before the Settlement Agreement was to be disclosed in this Court, the GUC Trust switched sides and joined New GM's effort in return for New GM's agreement (not yet approved by the Court) to pay all of the GUC Trust's expenses to fight additional ignition switch defect claims.

Some further background is helpful before reviewing the evidence and arguments in more detail. The Sale Order by which New GM acquired assets of Old GM in the bankruptcy case provides that New GM contractually assumed Old GM's liability for post-sale personal injury, wrongful death and property damages accident claims; but New GM continues to assert that it is not liable for pre-sale accident claims (or for any economic loss claims). Old GM's chapter 11 Plan was confirmed on March 29, 2011, and it discharged Old GM from any debt that arose before confirmation. That discharge would ordinarily cover the pre-sale accident and economic loss claims at issue here. But the discharge depends on constitutionally adequate notice by Old GM, something that clearly was not done by Old GM. The reason New GM is fighting so hard in this Court is that the confirmed chapter 11 Plan obligates New GM to issue additional New GM common stock to the GUC Trust if allowed unsecured claims exceed a $35 billion threshold. If substantial late claims based on ignition switch defects are allowed against Old GM, even though New GM is not directly liable for those claims, New GM is likely to have to issue additional new shares to the GUC Trust which could pay those claims pro rata —indeed, the Movants contend that New GM will have to issue additional shares that are worth more than $1 billion.

On July 13, 2016, the Second Circuit reversed an earlier decision by the bankruptcy court which had concluded that the Sale Order and confirmed Plan barred claims arising from the defective ignition switch against Old GM or New GM (except for post-sale personal injury, wrongful death and property damages accident claims for which New GM contractually agreed to assume liability). The Second Circuit reversed, holding that because parties with vehicles with ignition switch defects were denied constitutional due process, they were known creditors and were not given actual notice of Old GM's bankruptcy; therefore, they were not bound by the Sale Order.

Additionally, despite the fact that the bankruptcy court found that the confirmed Plan had been substantially consummated, the Second Circuit held that the claims of creditors against Old GM arising from the ignition switch defects were not necessary equitably moot. The Plan included the aforementioned "accordion" feature, obligating New GM to issue additional New GM common stock if allowed unsecured claims exceed $35 billion. Allowed unsecured claims are currently slightly below that threshold, but substantial additional unsecured claims for holders of ignition switch defect claims may require New GM to provide substantial additional value available for creditor distribution.

Upon Judge Gerber's retirement in January 2016, all Motors Liquidation matters pending in the bankruptcy court were transferred to me. Following several court conferences with counsel for parties-in-interest, the Court entered an Order to Show Cause on December 13, 2016 identifying five so-called "2016 Threshold Issues" that counsel and the Court identified as requiring resolution by the Court following remand from the Circuit. The fifth issue was whether Ignition Switch Plaintiffs and/or Non–Ignition Switch Plaintiffs satisfy the requirements for authorization to file late proofs of claim against the GUC Trust and/or whether such claims are equitably moot. The parties indicated that discovery, briefing and an evidentiary hearing were likely required to resolve the late claims issue unless it could be resolved by settlement. Counsel requested some time to try to agree on a schedule. Over the course of many months, Signatory Plaintiffs' counsel reported that they were making substantial progress in negotiating a settlement of the late claims issue with the GUC Trust.

On December 18 and 19, 2017, the Court conducted a trial on the narrow issue of whether the unexecuted Settlement Agreement between the Signatory Plaintiffs and the GUC Trust, negotiated by the parties' highly sophisticated counsel over nearly three months, with twenty-one drafts, and dozens of pages of supplemental documents, is enforceable. As explained below, the Court finds that the evidence at trial unmistakably establishes that the GUC Trust and its counsel acted in bad faith in reversing course and backing out of the Settlement Agreement.² The trial testimony of the GUC Trust's witnesses was not credible—the trial testimony was contradicted by the witnesses' own documents and prior statements.

During trial, counsel for New GM compared the GUC Trust's refusal to execute the Settlement Agreement to a case of cold feet before marriage. The Court finds no basis for that comparison to these facts, as it became quite clear during trial that there was no indication of cold feet, or that the parties would go forward without signing the Settlement Agreement. On the contrary, the GUC Trust essentially jilted the Signatory Plaintiffs at the last minute in favor of an alternative, purportedly more attractive, agreement with New GM (that requires Court approval that may not be forthcoming). In other words, the evidence points more squarely, if anything, to a case of last-minute infidelity. The GUC Trust's dishonesty—or bad faith—is not lost on this Court.³

No party truly disputes that, by the end of the negotiations, on or around August 14, 2017, all of the parties to the Settlement Agreement had agreed to all of the material terms of their settlement, and the parties all ...