Burton v. Chrysler Group, LLC (In re Old Carco LLC)

492 B.R. 392
CourtUnited States Bankruptcy Court, S.D. New York
DecidedJune 26, 2013
DocketCase No. 09-50002 (SMB) (Jointly Administered); Adv. Proc. No. 13-01109 (SMB)
StatusPublished
Cited by15 cases

This text of 492 B.R. 392 (Burton v. Chrysler Group, LLC (In re Old Carco LLC)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Burton v. Chrysler Group, LLC (In re Old Carco LLC), 492 B.R. 392 (N.Y. 2013).

Opinion

Chapter 11

MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS THE SECOND AMENDED COMPLAINT

STUART M. BERNSTEIN, United States Bankruptcy Judge:

The plaintiffs own vehicles that were manufactured and sold by the debtors, Old Careo LLC and twenty four of its affiliates (“Old Careo” or the “Debtors”). They allege that their vehicles suffer from a design flaw known as “fuel spit back.” They commenced this class action in Delaware state court against Chrysler Group LLC (“New Chrysler”), the purchaser of Old Carco’s assets, seeking relief for this design flaw under a variety of theories. Following removal to Delaware District Court, New Chrysler moved to dismiss plaintiffs’ Second Amended Complaint (“SAC”) pursuant to Federal Rule of Civil Procedure 12(b)(6) arguing that the claims are barred by the Sale Order entered in the Chrysler bankruptcy case. (See 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 (“Sale Order”) (ECF Main Case1 Doc. # 3232).)

[395]*395The Delaware District Court transferred the dispute to this Court solely to determine the effect of the Sale Order on the plaintiffs’ claims. The Court concludes that with two exceptions the Sale Order bars any claims based on a breach of a duty that existed as of the time of the June 10, 2009 closing. The exceptions relate to claims for the repair or replacement of parts under warranties that accompanied the purchase of the vehicles when new or were acquired under extended service contracts (collectively, the “Repair Warranty”) and any “Lemon Law” claims arising under non-bankruptcy law.2 Conversely, the Sale Order obviously does not bar claims concerning vehicles manufactured or sold by New Chrysler after the closing or injuries resulting from the breach of any duties that arose under non-bankruptcy law after the closing. The Court leaves the determination of the legal sufficiency of those claims to the Delaware District Court.

BACKGROUND

A. The Facts

This lawsuit concerns the “fuel spit-back problem,” a design flaw which causes fuel to spill out of the filler tube during refueling. (See Class Action Second Amended Complaint, dated Aug. 21, 2012 (“SAC”), at ¶ 2 (ECF Doc. # 1, Part 52).) Chrysler owners began to complain about the problem in the fall of 2001, and as a result, Old Careo issued a safety defect recall in 2002, and a second safety recall for the 2005 MY Durango in 2005. (SAC ¶¶ 3-4.) In February 2007, owners of other model year Jeeps complained, and in January 2009, a further safety recall was issued involving other Durango model vehicles. (SAC ¶¶ 5-6.)

After the bankruptcy sale described in the next section of this decision, New Chrysler took steps to address the problem. In September 2009, it sent a Technical Service Bulletin (“TSB”) to its dealers advising them that consumers were continuing to experience “fuel spit back problems,” and explaining various steps that might be required if a customer brought in his or her Chrysler product with this complaint. (SAC ¶ 7.)

In August 2010, the National Highway Traffic Safety Administration (“NHTSA”) opened an investigation regarding complaints of “fuel spit-back problems” in 2007 and 2008 Jeep Wranglers. (SAC ¶ 8.) The NHTSA advised New Chrysler that the same problem had been found in 2005 and 2006 Jeep Wranglers. (SAC ¶ 8.) In response, New Chrysler admitted that (1) the 2005 through 2010 Jeep Wrangler model vehicles included the same or similar fuel system components, including the fuel tank assembly and inlet check valve, (SAC ¶ 9), (2) the 2005 through 2008 Du-rango model vehicles were appropriate peer vehicles with the same or similar fuel tank assemblies and inlet check valves, (SAC ¶ 9), and (3) there were 542,650 Jeep Wranglers and 266,315 Durangos with the same or similar fuel system assemblies and inlet check valves. (SAC ¶ 10.)

On February 11, 2011, New Chrysler issued Chrysler TSB No. 14-001-11 (the “February 2011 TSB”).3 The latter extended a lifetime warranty to owners of 2007 and 2008 Jeep Wranglers (approxi[396]*396mately 135,000 vehicles). (SAC ¶ 11.) The February 2011 TSB provided that if the customer experienced the “fuel spit back problem,” the servicer should replace the fuel tank and install a new fuel pump and Level Unit O-ring. (Plaintiffs’ Opposition, Ex. C.) The February 2011 TSB was not a safety recall, did not advise current owners of a flaw, safety defect or hazard, and the customer had to complain about the problem in order to take advantage of the extended warranty. (SAC ¶ 11.)

In addition, New Chrysler issued Chrysler TSB No. 14-001-12, on January 20, 2012 (the “January 2012 TSB”), which was slightly more detailed but essentially extended the same lifetime warranty to the owners of 2006-2008 Durangos and 2007-2008 Aspens.4 That same month, New Chrysler sent a letter to the owners of certain Dodge Durango vehicles advising them that because of the “fuel spit back problems,” their vehicles would now have a lifetime warranty for certain fuel system parts. In the event a problem developed, a Chrysler dealership would repair their vehicle. (SAC ¶ 15.)5

B. The Sale to New Chrysler

In the meantime, on April 30, 2009, the Debtors filed chapter 11 petitions in this Court. In a well-publicized transaction, they entered into a Master Transaction Agreement (“MTA”) agreeing to sell substantially all of their assets free and clear of all claims and liabilities (other than “Assumed Liabilities”), whenever arising, to New Careo Acquisition LLC, later renamed Chrysler Group LLC ( i.e., New Chrysler). See Shatzki v. Abrams, No. 1:09cv02046 LJO DLB, 2010 WL 148183, at *1 (E.D.Cal. Jan. 12, 2010); Cooper v. Daimler AG, No. 1:-09-CV-2507-RWS, 2009 WL 4730306, at *1 (N.D.Ga. Dec. 3, 2009); Ricks v. New Chrysler Group, LLC (In re Old Carco LLC), Adv. No. 12-09801(SMB), 2013 WL 1856330, at *2 (Bankr.S.D.N.Y. May 2, 2013). The transaction closed on June 10, 2009 (the “Closing Date”), the Debtors ceased operations and New Chrysler took over the operations of the “Chrysler” automotive business. Ricks, 2013 WL 1856330, at *2.

The MTA specified the liabilities that New Chrysler assumed. (See MTA § 2.08 (“Purchaser shall assume, effective as of the Closing, and shall timely perform and discharge in accordance with their respective terms, the Assumed Liabilities and no others.” (Emphasis added).))6 The Assumed Liabilities included “all Liabilities pursuant to product warranties (including extended services contracts purchased from one of the Debtors), product returns and rebates on vehicles sold by Sellers prior to the Closing.” (MTA § 2.08(g), as modified by Amendment No. 1 to Master Transaction Agreement, dated May 31, 2009 (“Amendment No. 1 ”), at ¶ 14.)7

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Cite This Page — Counsel Stack

Bluebook (online)
492 B.R. 392, Counsel Stack Legal Research, https://law.counselstack.com/opinion/burton-v-chrysler-group-llc-in-re-old-carco-llc-nysb-2013.