In re Old Carco LLC

• Citation: 593 B.R. 182
• Decision Date: 01 November 2018
• Docket Number: Case No. 09-50002 (SMB) Jointly Administered
• Parties: IN RE: OLD CARCO LLC, et al., Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

593 B.R. 182

IN RE: OLD CARCO LLC, et al., Debtors.

Case No. 09-50002 (SMB) Jointly Administered

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

Signed November 1, 2018

SULLIVAN & CROMWELL LLP, 125 Broad Street, New York, New York 10004, Brian D. Glueckstein, Esq., Of Counsel

Attorneys for FCA US LLC, COLE SCHOTZ P.C., 1325 Avenue of the Americas, 19th Floor, New York, New York 10019, Mark Tsukerman, Esq., Of Counsel

BEASLEY, ALLEN, CROW, METHVIN, PORTIS & MILES, P.C., P.O. Box 4160, Montgomery, Alabama 36103, J. Parker Miller, Esq. (pro hac vice ), Stephanie Monplaisir, Esq. (pro hac vice ), Of Counsel

Attorneys for Frankie Overton, as Executor, of the Estate of Sue Ann Graham; and, Scott Graham, as legal guardian of J.G., a minor child

MEMORANDUM DECISION GRANTING IN PART AND DENYING IN PART FCA US LLC'S MOTION TO ENFORCE THE SALE ORDER

STUART M. BERNSTEIN, United States Bankruptcy Judge

This case, which arises out of a fatal motor vehicle accident, involves the clash between Alabama law, which limits the recovery in wrongful death actions to punitive damages, and the terms of a Court-approved section 363 sale, which excludes the defendant's liability for punitive damages. FCA US LLC f/k/a/ Chrysler Group LLC ("New Chrysler") moves to enforce the Court's Order (I) Authorizing the Sale of Substantially All of the Debtors' Assets Free and Clear of All Liens, Claims, Interests and Encumbrances, (II) Authorizing the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection Therewith and Related Procedures and (III) Granting Related Relief , dated June 1, 2009 (the "Sale Order")¹ (ECF Doc. # 3232) asserting, inter alia , that certain claims alleged in the Complaint filed in the Circuit Court of Jefferson County, Alabama ("Alabama State Court") on October 17, 2017 in a case styled Overton v. Chrysler Group LLC , No. 01-CV-2017-904376.00 ("Complaint ")² are barred by the limitation on punitive damages. For the reasons that follow, New Chrysler's motion is granted in part and denied in part.

BACKGROUND

A. The Bankruptcy Sale

On April 30, 2009, Old Carco LLC f/k/a Chrysler LLC ("Old Chrysler") filed these chapter 11 cases. That same day, Old Chrysler and New Chrysler entered into a Master Transaction Agreement (the "MTA")³ by which New Chrysler agreed to purchase substantially all of the assets of Old Chrysler. The Bankruptcy Court approved the transaction set forth in the MTA, as amended, and the sale closed on June 10, 2009 ("Closing Date" or "Closing").

The Sale Order authorized the transfer of the purchased assets "free and clear of all Claims except for Assumed Liabilities" (as defined in the MTA) and free of successor liability. (Sale Order ¶ 9.) It stated, in pertinent part:

Except for the Assumed Liabilities expressly set forth in the Purchase Agreement or described therein or Claims against any Purchased Company, none of the Purchaser, its successors or assigns or any of their respective affiliates shall have any liability for any Claim that (a) arose prior to the Closing Date, (b) relates to the production of vehicles prior to the Closing Date or (c) otherwise is assertable against the Debtors or is related to the Purchased Assets prior to the Closing Date.... Without limiting the foregoing, the Purchaser shall not have any successor, derivative or vicarious liabilities of any kind or character for any Claims ... now existing or hereafter arising, asserted or unasserted, fixed or contingent, liquidated or unliquidated.

(Sale Order ¶ 35 (emphasis added); see also id . ¶¶ 39, 42.)

Section 2.09 of the MTA enumerated, "for the avoidance of doubt," certain "Excluded Liabilities" that New Chrysler did not assume. They included "all Product Liability Claims arising from the sale of Products or Inventory prior to the Closing." (MTA § 2.09(i).) The MTA broadly defined an excluded Product Liability Claim as:

any Action arising out of, or otherwise relating to in any way in respect of claims for personal injury, wrongful death or property damage resulting from exposure to, or any other warranty claims, refunds, rebates, property damage, product recalls, defective material claims, merchandise returns and/or any similar claims, or any other claim or cause of action, whether such claim is known or unknown or asserted or unasserted with respect to, Products or items purchased, sold, consigned, marketed, stored, delivered, distributed or transported by [Old Chrysler].

(MTA Definitions Addendum, at p. 90, as amended by Amendment No. 1 to MTA, at ¶ 36.)

By Stipulation and Order, dated Nov. 19, 2009, the parties amended section 2.08(h) to the MTA to expand the scope of Assumed Liabilities relating to Product Liability Claims. (ECF Doc. # 5988.) As amended, New Chrysler assumed liability for post-Closing accidents involving vehicles manufactured and sold by Old Chrysler before the Closing, but the assumption expressly excluded liability for punitive damages. Under the amendment ("Amendment No. 4"), Assumed Liabilities included:

(i) all Product Liability Claims arising from the sale after the Closing of Products or Inventory manufactured by Sellers or their Subsidiaries in whole or in part prior to the Closing and (ii) all Product Liability Claims arising from the sale on or prior to the Closing of motor vehicles ... solely to the extent such Product Liability Claims (A) arise directly from motor vehicle accidents occurring on or after Closing, (B) are not barred by any statute of limitations, (C) are not claims including or related to any alleged exposure to any asbestos-containing material or any other Hazardous Material and (D) do not include any claim for exemplary or punitive damages .

(MTA, Amendment No. 4, ¶ 1 (emphasis added).)⁴

Finally, the Sale Order acknowledged New Chrysler's obligation to comply with the National Transportation and Motor Vehicle Safety Act ("NTMVSA"), as applicable to the business of New Chrysler after the Closing, and New Chrysler further

agreed to assume as Assumed Liabilities under the Purchase Agreement and this Sale Order the Debtors' notification, remedy and other obligations under 49 U.S.C. §§ 30116 through 30120 of the NTMVSA relating to vehicles manufactured by the Debtors prior to the Closing Date that have a defect related to motor vehicle safety or do not to [sic] comply with applicable motor vehicle safety standards prescribed under the NTMVSA. The Purchaser shall not otherwise be liable for any failure by the Debtors to comply with the provisions of the NTMVSA.

(Sale Order ¶ EE.) Aside from any obligations that the NTMVSA might impose relating to safety concerns, New Chrysler did not undertake a contractual obligation to repair any defects in cars manufactured by Old Chrysler, Grimstad v. FCA US LLC (In re Old Carco LLC ), Adv. Pro. No. 16–01204 (SMB), 2017 WL 1628888, at *4 (Bankr. S.D.N.Y. Apr. 28, 2017), except to the extent required by the factory or extended warranties, and in those cases, New Chrysler's obligation was limited to the cost of parts and labor.⁵

Burton v. Chrysler Grp., LLC (In re Old Carco LLC ), 492 B.R. 392, 398 (Bankr. S.D.N.Y. 2013).

B. The Complaint

On October 17, 2017, Frankie Overton ("Overton"), as administrator of the estate of Sue Ann Graham (the "Decedent"), and Scott Graham ("Graham," and together with Overton, the "Plaintiffs"), as legal guardian of the Decedent's minor son, J.G., filed the Complaint in Alabama State Court against, among others, New Chrysler.⁶ The subject of the Complaint is a car accident that occurred in Alabama on June 10, 2016. The Decedent and J.G. were riding as passengers in a 2002 Jeep Liberty (the "Jeep" or "Vehicle") when a vehicle driven by defendant Rodericus Obyran Carrington struck the Jeep causing it to overturn. (Complaint ¶ 24.) The Decedent sustained fatal injuries; J.G. sustained non-fatal injuries as well as mental and emotional injuries. (Id. ¶¶ 26, 27.)

The Plaintiffs brought claims in Alabama State Court pursuant to the Alabama Extended Manufacturer's Liability Doctrine ("AEMLD")⁷ and under theories of negligence and wantonness. (See Complaint ¶¶ 29-34, 41-59.) The claims directed at New Chrysler alleged that the proximate cause of the Plaintiffs' injuries was the defective design, manufacture and sale of the Vehicle, (id . ¶¶ 27, 31, 45, 52), or alternatively, the failure to warn or recall the Vehicle despite New Chrysler's knowledge of the defective condition. (Id. ¶¶ 32, 47, 56.) The Complaint alleged in numerous places that New Chrysler, among others, designed, manufactured and sold the Vehicle, (Complaint ¶¶ 25, 30, 42, 50, 51), but this is not plausible. The Vehicle was apparently manufactured and sold in or around 2002, and New Chrysler did not come into existence until the 2009 sale transaction.

Overton sought damages under the Alabama Wrongful Death Act ("AWDA," and collectively with its predecessors, the "Wrongful Death Act") as a result of the death of the Decedent (the "Overton Claims"). (See Complaint at pp. 8, 11, 14-15.) Graham, on behalf of J.G. who survived the accident, sought compensatory damages on all of his claims and punitive damages with respect to claims based on New Chrysler's post-Closing conduct (the "Graham Claims"). (Id. at pp. 8, 12, 15.)

C. Proceedings in Alabama

After the Complaint was filed, New Chrysler removed the action to the United States District Court for the Northern District of Alabama, and moved to sever claims and transfer venue and for partial dismissal. See Overton v. Chrysler Grp. LLC , No. 2:17-cv-01983(RDP), 2018 WL 847772, at *1 (N.D. Ala. Feb. 13, 2018) (" Overton "). The Plaintiffs moved to remand the action back to Alabama State Court. Id.

Initially, the District Court ruled that it had subject matter jurisdiction under 28 U.S.C. § 1334 over the Overton Claims because the action required the interpretation and enforcement of the Bankruptcy Court's order approving Amendment No. 4. Id. , at *5 ; see Travelers Indem. Co. v. Bailey , 557 U.S. 137, 151, ...