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From Products Liability Law Daily, November 7, 2014

Trial date set for first GM ignition switch case; GM responds to consolidated complaints

By John W. Scanlan, J.D.

Litigation in the General Motors ignition switch controversy will go to trial beginning with a personal injury/wrongful death suit on January 11, 2016, in the U.S. District Court for the Southern District of New York, which is handling nationwide litigation in the matter, the lead counsel for the plaintiffs in the MDL announced. The judge set the trial date the day after General Motors, LLC (New GM or GM) filed a brief in another court, the U.S. Bankruptcy Court for the Southern District of New York, on its motions to enforce the sale order and injunction related to the sale in bankruptcy of the assets of General Motors Corp. (Old GM). GM said in its brief that it was not liable to the complainants and that they had violated the sale order and injunction by bringing their economic loss complaints (In re Motors Liquidation Co., November 5, 2014).

Background. Old GM filed for Chapter 11 bankruptcy in 2009. New GM, a new entity, was created, and New GM acquired most of Old GM’s assets in a sale under Sec. 363 of the Bankruptcy Code. In 2014, various cases began to be brought against New GM, alleging that many GM vehicles contained defective ignition switches that made the cars less safe and less valuable and resulted in economic loss to their owners. Claims regarding other defects were also filed against the company. Multi-district litigation (MDL) 2543 was created to address the ignition switch cases; the complaint noted that in addition to the wrongful death and personal injury complaints, there were about 130 ignition switch and non-ignition switch cases consolidated in the MDL. In October, lead plaintiffs in the MDL filed two consolidated complaints against New GM, a pre-sale consolidated complaint on behalf of plaintiffs who were asserting economic damages for vehicles purchased before the bankruptcy sale, and a post-sale consolidated complaint for plaintiffs asserting economic damages for vehicles purchased after the sale. In response, GM filed the present brief, in which it asserted that plaintiffs in the pre-sale consolidated complaint should have their complaint dismissed in its entirety if they lose their due process claim because the claims were “unequivocally” barred by the sale order and injunction, as should plaintiffs in the pre-closing accident cases. GM stated that aside from the due process issue, its brief largely addressed the post-sale consolidated complaint.

Due process was not violated. GM asserted that the plaintiffs’ due process rights were not violated when they received notice by publication rather than direct mail notice of the Sec. 363 sale because they had received adequate notice and they could not demonstrate that they had been prejudiced by receiving notice by publication. The standard for due process is flexible based upon the facts and circumstances, GM said, and the notice process approved by the court at the time had to be examined in light of the “extreme circumstances” facing Old GM. The plaintiffs were “unknown creditors” because at the time of the filing, the company knew that some unknown number of vehicle owners might someday assert claims against it, for which Old GM established warranty and litigation reserves. Although some GM personnel were aware that there had been some incidents prior to the sale, the “mere possibility of purported claims” did not make these claims known to Old GM, nor did the fact that some suits have been filed make other individuals with similar but unfiled claims into known creditors.

GM observed that there had been extensive news coverage of the bankruptcy of Old GM in the weeks between the date the petition was filed and the sale date; under these circumstances, notice by publication for vehicle owners who might bring claims was appropriate. Attempting to notify every buyer directly would have cost Old GM millions of dollars more but would not have changed the outcome of the sale. The court approved the content of GM direct mail notice and publication notice, and no one challenged the content of the notices or to whom they would be given.

Furthermore, the plaintiffs had not been prejudiced by the lack of direct notice because the sales agreement and sale order and injunction would not have been altered if every one of the plaintiffs had received direct notice, GM asserted. Pre-petition accident claimants who had filed claims as of the bankruptcy petition filing date against Old GM could not maintain their claims against New GM because New GM did not assume those liabilities, and there was no credible argument that the economic loss plaintiffs in the present actions would have done any better. GM pointed out that a coalition of parties representing Old GM vehicle owners had made similar arguments when they objected to the sale motion based on lack of due process and for New GM’s not assuming all vehicle owner liabilities, and the court had already rejected those arguments. New GM had agreed to assume responsibility for limited categories of liabilities and refused additional liabilities, and both Old GM and New GM were clear at the sale hearing that New GM would be shielded from all successor liability claims; the court agreed when it approved the sale.

Remedies. Even if the plaintiffs could prove that they were deprived of due process by Old GM as a result of inadequate notice, the remedy would be to allow the plaintiffs to recover from Old GM, not New GM, the company argued. GM stated that the GUC Trust, which was the successor to Old GM, held $1.1 billion assets as of June 30, 2014, to settle remaining claims against Old GM. GM further argued that setting aside the sale order and injunction five years later was not viable, and that partial revocation would run contrary to established public policy and the Bankruptcy Code, and was also prohibited by the terms of the sale order and injunction. The court found that New GM was a good faith purchaser; therefore, New GM was entitled to the protections the Code gives to good faith purchasers of debtors’ assets, including the finality of the sale order and protection from successor liability claims.

Retained/assumed liabilities. Claims asserted in the consolidated complaints are retained liabilities of Old GM, not assumed liabilities of New GM, according to GM’s brief. The post-sale consolidated complaint alleges economic loss claims related to Old GM vehicles and parts sold after the sale, which are barred by the sale order and injunction; the alleged loss of value to vehicles sold by New GM based upon the recall of 27 million vehicles, many of which were manufactured prior to 2009 and which are likewise barred; and remedies based in large part on the conduct of GM, which is also barred. New GM could not be held liable for Old GM’s conduct directly or on a theory of successor liability, the brief said. The sale order specified that New GM was not a successor to Old GM; although the brief noted that the post-sale consolidated complaint had not explicitly alleged successor liability, but many of their claims were transparently disguised successor liability claims. Plaintiffs who had purchased used Old GM vehicles after the sale should have no greater rights than the original owner of the vehicle, GM asserted. GM has no obligation to the owner of an Old GM vehicle if the claim does not fall under the list of assumed liabilities.

Warranty claims. GM asserted that it did not assume any implied warranties or any implied obligations under statutory or common law, but only the so-called “glove-box warranty” under which it would cover repairs and replacement parts, not economic losses; furthermore, the glove-box warranty was for a limited time and has since expired. The sale agreement specifically stated that the retained liabilities of Old GM included those arising out of any implied warranty or implied obligation under statutory or common law, except for those arising under state Lemon Laws which were assumed by New GM. In addition, claims based on the Magnuson-Moss Warranty Act could not be brought against New GM regarding Old GM vehicles or parts; the only express warranty assumed by New GM were the now-expired glove-box warranties, and all other express warranty claims were retained by Old GM under the sale agreement.

Design defect claims. The plaintiffs’ claims based on design defects in vehicles designed, manufactured, and sold by Old GM were also barred by the sale order and injunction, according to GM. It noted that in a small number of cases an original, defective ignition switch that was manufactured by Old GM may have been installed unknowingly by a dealer or other party when the vehicle was repaired. GM said that it initiated a recall to ensure that this would not be a problem, and asserted that a vehicle owner whose vehicle was repaired prophylactically would “obviously” have no design defect claim. It also asserted that dealers and other third parties were not agents of GM and these repairs could not be attributed to it.

Claims in contract, tort, or otherwise. Various tort-based claims were not assumed by New GM, the company stated. The sale agreement barred claims based upon “contract, tort, or any other basis;” this would include claims for “common-law fraud, fraudulent concealment, fraudulent misrepresentation, tortious interference with contract, violations of consumer protection statutes, unjust enrichment, and similar theories,” GM said. Also barred were fraud and consumer protection statute claims that were based on conduct by Old GM. The brief argued that the plaintiff’s unjust enrichment claims were not credible because about 65 percent of the named plaintiffs owned pre-sale vehicles that were sold by Old-GM and then purchased post-sale on the secondary market; New GM received no benefit from the sale of used Old GM vehicles, but bore all of the costs of the recalls of those vehicles. In addition, GM asserted that was there was no private cause of action for failure to recall, and any such claim would not have been assumed by New GM anyway.

Fraud on the court. Finally, GM argued that the plaintiffs had failed to establish the basis for their “fraud on the court” claims. This is a limited remedy only for the “most egregious misconduct, and requires a showing of an unconscionable plan or scheme which is designed to improperly influence the court in its decision.” This claim is based on an alleged fraud by an officer of the court perpetrated upon the judicial process itself, not just on other litigants. GM asserted that the plaintiffs’ claim was in fact merely a recast formulation of their due process argument. It concluded by stating that the court had found in its sale order and injunction that neither Old GM nor New GM had entered the sale agreement or conducted the sale for the purpose of hindering, delaying, or defrauding present or future creditors.

The case number is 09-50026 (REG).

Attorneys: Bob Hilliard (Hilliard Munoz Gonzales LLP), Cassandra P. Miller (Edelman, Combs, Latturner & Goodwin LLC), and Elaine T. Byszewski (Hagens Berman Sobol Shapiro LLP) for plaintiffs. Andrew Baker Bloomer (Kirkland & Ellis LLP), Lawrence A. Slovensky (King & Spalding LLP), and Linsey W. West (Dinsmore & Shohl LLP) for General Motors LLC, General Motors Co., and General Motors Holding, LLC. Michael T. Navigato (Bochte, Kuzniar & Navigato, LLP) for Don McCue Chevrolet, Inc. Ilana Volkov (Cole, Schotz, Meisel, Forman & Leonard, PA) for DPH-DAS LLC. Melissa M. Merlin (Husch Blackwell Sanders, LLP) for Continental Automotive Systems U.S., Inc. Colleen Mary Kilfoyle (Dickstein Shapiro LLP), and Olivia Adendorff (Gibson Dunn Crutcher LLP) for General Motors Corporation and Delphi Automotive PLC. Johnnie E. Brown (Pullin Fowler Flanagan Brown & Poe) for Ramey Chrysler-Plymouth-Dodge, Inc. Ashley Willis Ward (Stites & Harbison, PLLC) for Stoneridge, Inc.

Companies: General Motors LLC; General Motors Co.; General Motors Holding, LLC; Don McCue Chevrolet, Inc.; DPH-DAS LLC; Continental Automotive Systems U.S., Inc.; General Motors Corporation and Delphi Automative PLC; Ramey Chrysler-Plymouth-Dodge, Inc.; Stoneridge, Inc.

MainStory: TopStory ClassActLitigationNews MotorVehiclesNews MotorEquipmentNews NewYorkNews

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