In re Motors Liquidation Co.
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Opinion
15‐2844‐bk(L) In re Motors Liquidation Co.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term 2015
(Argued: March 15, 2016 Decided: July 13, 2016)
Docket Nos. 15‐2844‐bk(L), 15‐2847‐bk(XAP), 15‐2848‐bk(XAP)
IN THE MATTER OF: MOTORS LIQUIDATION COMPANY,
Debtor.
CELESTINE ELLIOTT, LAWRENCE ELLIOTT, BERENICE SUMMERVILLE,
Creditors‐Appellants‐Cross‐Appellees,
SESAY AND BLEDSOE PLAINTIFFS, IGNITION SWITCH PLAINTIFFS, IGNITION SWITCH PRE‐CLOSING ACCIDENT PLAINTIFFS, DORIS POWLEDGE PHILLIPS,
Appellants‐Cross‐Appellees,
GROMAN PLAINTIFFS,
Appellants,
v.
GENERAL MOTORS LLC,
Appellee‐Cross‐Appellant, WILMINGTON TRUST COMPANY,
Trustee‐Appellee‐Cross‐Appellant,
PARTICIPATING UNITHOLDERS,
Creditors‐Appellees‐Cross‐Appellants.1
ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
Before: STRAUB, CHIN, and CARNEY, Circuit Judges.
Appeal from a judgment of the United States Bankruptcy Court for
the Southern District of New York (Gerber, J.), enforcing a ʺfree and clearʺ
provision of a sale order to enjoin claims against a debtorʹs successor corporation
and concluding under the equitable mootness doctrine that assets of the debtorʹs
unsecured creditorsʹ trust would be protected from late‐filed claims. On appeal,
plaintiffs challenge the bankruptcy courtʹs rulings that: (1) it had jurisdiction, (2)
the sale order covered their claims, (3) enforcement of the sale order would not
1 The Clerk of Court is respectfully directed to amend the official caption to conform to the above.
‐ 2 ‐ violate procedural due process, and (4) relief for any late‐filed claims would be
barred as equitably moot.
AFFIRMED, REVERSED, AND VACATED IN PART, AND REMANDED.
GARY PELLER, Washington, D.C., for Creditors‐ Appellants‐Cross‐Appellees Celestine Elliott, Lawrence Elliott, and Berenice Summerville, and Appellants‐Cross‐Appellees Sesay and Bledsoe Plaintiffs.
STEVEN W. BERMAN (Andrew M. Volk, on the brief), Hagens Berman Sobol Shapiro LLP, Seattle, Washington, and Elizabeth J. Cabraser, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, California, and Rachel J. Geman, Lieff Cabraser Heimann & Bernstein, LLP, New York, New York, and Edward S. Weisfelner, David J. Molton, Howard S. Steel, Brown Rudnick LLP, New York, New York, and Sandra L. Esserman, Stutzman, Bromberg, Esserman & Plifka, P.C., Dallas Texas, for Appellants‐Cross‐Appellees Ignition Switch Plaintiffs.
WILLIAM P. WEINTRAUB (Gregory W. Fox, on the brief), Goodwin Procter LLP, New York, New York, for Appellants‐Cross‐Appellees Ignition Switch Pre‐Closing Accident Plaintiffs.
Joshua P. Davis, Josh Davis Law Firm, Houston, Texas, for Appellant‐Cross‐Appellee Doris Powledge Phillips.
‐ 3 ‐ ALEXANDER H. SCHMIDT, Wolf Haldenstein Adler Freeman & Herz LLP, New York, New York, and Jonathan L. Flaxer, Golenbock Eiseman Assor Bell & Peskoe LLP, New York, New York, for Appellants Groman Plaintiffs.
ARTHUR J. STEINBERG (Scott Davidson, on the brief), King & Spalding LLP, New York, New York, and Merritt E. McAlister, King & Spalding LLP, Atlanta, Georgia, and Edward L. Ripley, King & Spalding LLP, Houston, Texas, and Richard C. Godfrey, Andrew B. Bloomer, Kirkland & Ellis LLP, Chicago, Illinois, for Appellee‐Cross‐ Appellant General Motors LLC.
Adam H. Offenhartz, Aric H. Wu, Lisa H. Rubin, Gabriel K. Gillett, Gibson, Dunn & Crutcher LLP, New York, New York, for Trustee‐Appellee‐Cross‐Appellant Wilmington Trust Company. PRATIK A. SHAH, Akin Gump Strauss Hauer & Feld LLP, Washington, D.C., and Daniel H. Golden, Deborah J. Newman, Akin Gump Strauss Hauer & Feld LLP, New York, New York, for Creditors‐Appellees‐Cross‐ Appellants Participating Unitholders.
‐ 4 ‐ CHIN, Circuit Judge:
On June 1, 2009, General Motors Corporation (ʺOld GMʺ), the
nationʹs largest manufacturer of automobiles and the creator of such iconic
American brands as Chevrolet and Cadillac, filed for bankruptcy. During the
financial crisis of 2007 and 2008, as access to credit tightened and consumer
spending diminished, Old GM posted net losses of $70 billion over the course of
a year and a half. The U.S. Department of the Treasury (ʺTreasuryʺ) loaned
billions of dollars from the Troubled Asset Relief Program (ʺTARPʺ) to buy the
company time to revamp its business model. When Old GMʹs private efforts
failed, President Barack Obama announced to the nation a solution ‐‐ ʺa quick,
surgical bankruptcy.ʺ2 Old GM petitioned for Chapter 11 bankruptcy protection,
and only forty days later the new General Motors LLC (ʺNew GMʺ) emerged.
This case involves one of the consequences of the GM bankruptcy.
Beginning in February 2014, New GM began recalling cars due to a defect in their
ignition switches. The defect was potentially lethal: while in motion, a carʹs
ignition could accidentally turn off, shutting down the engine, disabling power
steering and braking, and deactivating the airbags.
2 Remarks on the United States Automobile Industry, 2009 Daily Comp. Pres. Doc. 2 (June 1, 2009).
‐ 5 ‐ Many of the cars in question were built years before the GM
bankruptcy, but individuals claiming harm from the ignition switch defect faced
a potential barrier created by the bankruptcy process. In bankruptcy, Old GM
had used 11 U.S.C. § 363 of the Bankruptcy Code (the ʺCodeʺ) to sell its assets to
New GM ʺfree and clear.ʺ In plain terms, where individuals might have had
claims against Old GM, a ʺfree and clearʺ provision in the bankruptcy courtʹs sale
order (the ʺSale Orderʺ) barred those same claims from being brought against
New GM as the successor corporation.
Various individuals nonetheless initiated class action lawsuits
against New GM, asserting ʺsuccessor liabilityʺ claims and seeking damages for
losses and injuries arising from the ignition switch defect and other defects. New
GM argued that, because of the ʺfree and clearʺ provision, claims could only be
brought against Old GM, and not New GM.
On April 15, 2015, the United States Bankruptcy Court for the
Southern District of New York (Gerber, J.) agreed and enforced the Sale Order to
enjoin many of these claims against New GM. Though the bankruptcy court also
determined that these plaintiffs did not have notice of the Sale Order as required
by the Due Process Clause of the Fifth Amendment, the bankruptcy court denied
‐ 6 ‐ plaintiffs relief from the Sale Order on all but a subset of claims. Finally, the
bankruptcy court invoked the doctrine of equitable mootness to bar relief for
would‐be claims against a trust established in bankruptcy court to pay out
unsecured claims against Old GM (ʺGUC Trustʺ).3
The bankruptcy court entered judgment and certified the judgment
for direct review by this Court.4 Four groups of plaintiffs appealed, as did New
GM and GUC Trust. We affirm, reverse, and vacate in part the bankruptcy
courtʹs decision to enforce the Sale Order against plaintiffs and vacate as
advisory its decision on equitable mootness.
BACKGROUND
I. Bailout
In the final two quarters of 2007, as the American economy suffered
a significant downturn, Old GM posted net losses of approximately $39 billion
and $722 million. General Motors Corp., Annual Report (Form 10‐K) 245 (Mar. 5,
2009). In 2008, it posted quarterly net losses of approximately $3.3 billion, $15.5
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15‐2844‐bk(L) In re Motors Liquidation Co.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term 2015
(Argued: March 15, 2016 Decided: July 13, 2016)
Docket Nos. 15‐2844‐bk(L), 15‐2847‐bk(XAP), 15‐2848‐bk(XAP)
IN THE MATTER OF: MOTORS LIQUIDATION COMPANY,
Debtor.
CELESTINE ELLIOTT, LAWRENCE ELLIOTT, BERENICE SUMMERVILLE,
Creditors‐Appellants‐Cross‐Appellees,
SESAY AND BLEDSOE PLAINTIFFS, IGNITION SWITCH PLAINTIFFS, IGNITION SWITCH PRE‐CLOSING ACCIDENT PLAINTIFFS, DORIS POWLEDGE PHILLIPS,
Appellants‐Cross‐Appellees,
GROMAN PLAINTIFFS,
Appellants,
v.
GENERAL MOTORS LLC,
Appellee‐Cross‐Appellant, WILMINGTON TRUST COMPANY,
Trustee‐Appellee‐Cross‐Appellant,
PARTICIPATING UNITHOLDERS,
Creditors‐Appellees‐Cross‐Appellants.1
ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
Before: STRAUB, CHIN, and CARNEY, Circuit Judges.
Appeal from a judgment of the United States Bankruptcy Court for
the Southern District of New York (Gerber, J.), enforcing a ʺfree and clearʺ
provision of a sale order to enjoin claims against a debtorʹs successor corporation
and concluding under the equitable mootness doctrine that assets of the debtorʹs
unsecured creditorsʹ trust would be protected from late‐filed claims. On appeal,
plaintiffs challenge the bankruptcy courtʹs rulings that: (1) it had jurisdiction, (2)
the sale order covered their claims, (3) enforcement of the sale order would not
1 The Clerk of Court is respectfully directed to amend the official caption to conform to the above.
‐ 2 ‐ violate procedural due process, and (4) relief for any late‐filed claims would be
barred as equitably moot.
AFFIRMED, REVERSED, AND VACATED IN PART, AND REMANDED.
GARY PELLER, Washington, D.C., for Creditors‐ Appellants‐Cross‐Appellees Celestine Elliott, Lawrence Elliott, and Berenice Summerville, and Appellants‐Cross‐Appellees Sesay and Bledsoe Plaintiffs.
STEVEN W. BERMAN (Andrew M. Volk, on the brief), Hagens Berman Sobol Shapiro LLP, Seattle, Washington, and Elizabeth J. Cabraser, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, California, and Rachel J. Geman, Lieff Cabraser Heimann & Bernstein, LLP, New York, New York, and Edward S. Weisfelner, David J. Molton, Howard S. Steel, Brown Rudnick LLP, New York, New York, and Sandra L. Esserman, Stutzman, Bromberg, Esserman & Plifka, P.C., Dallas Texas, for Appellants‐Cross‐Appellees Ignition Switch Plaintiffs.
WILLIAM P. WEINTRAUB (Gregory W. Fox, on the brief), Goodwin Procter LLP, New York, New York, for Appellants‐Cross‐Appellees Ignition Switch Pre‐Closing Accident Plaintiffs.
Joshua P. Davis, Josh Davis Law Firm, Houston, Texas, for Appellant‐Cross‐Appellee Doris Powledge Phillips.
‐ 3 ‐ ALEXANDER H. SCHMIDT, Wolf Haldenstein Adler Freeman & Herz LLP, New York, New York, and Jonathan L. Flaxer, Golenbock Eiseman Assor Bell & Peskoe LLP, New York, New York, for Appellants Groman Plaintiffs.
ARTHUR J. STEINBERG (Scott Davidson, on the brief), King & Spalding LLP, New York, New York, and Merritt E. McAlister, King & Spalding LLP, Atlanta, Georgia, and Edward L. Ripley, King & Spalding LLP, Houston, Texas, and Richard C. Godfrey, Andrew B. Bloomer, Kirkland & Ellis LLP, Chicago, Illinois, for Appellee‐Cross‐ Appellant General Motors LLC.
Adam H. Offenhartz, Aric H. Wu, Lisa H. Rubin, Gabriel K. Gillett, Gibson, Dunn & Crutcher LLP, New York, New York, for Trustee‐Appellee‐Cross‐Appellant Wilmington Trust Company. PRATIK A. SHAH, Akin Gump Strauss Hauer & Feld LLP, Washington, D.C., and Daniel H. Golden, Deborah J. Newman, Akin Gump Strauss Hauer & Feld LLP, New York, New York, for Creditors‐Appellees‐Cross‐ Appellants Participating Unitholders.
‐ 4 ‐ CHIN, Circuit Judge:
On June 1, 2009, General Motors Corporation (ʺOld GMʺ), the
nationʹs largest manufacturer of automobiles and the creator of such iconic
American brands as Chevrolet and Cadillac, filed for bankruptcy. During the
financial crisis of 2007 and 2008, as access to credit tightened and consumer
spending diminished, Old GM posted net losses of $70 billion over the course of
a year and a half. The U.S. Department of the Treasury (ʺTreasuryʺ) loaned
billions of dollars from the Troubled Asset Relief Program (ʺTARPʺ) to buy the
company time to revamp its business model. When Old GMʹs private efforts
failed, President Barack Obama announced to the nation a solution ‐‐ ʺa quick,
surgical bankruptcy.ʺ2 Old GM petitioned for Chapter 11 bankruptcy protection,
and only forty days later the new General Motors LLC (ʺNew GMʺ) emerged.
This case involves one of the consequences of the GM bankruptcy.
Beginning in February 2014, New GM began recalling cars due to a defect in their
ignition switches. The defect was potentially lethal: while in motion, a carʹs
ignition could accidentally turn off, shutting down the engine, disabling power
steering and braking, and deactivating the airbags.
2 Remarks on the United States Automobile Industry, 2009 Daily Comp. Pres. Doc. 2 (June 1, 2009).
‐ 5 ‐ Many of the cars in question were built years before the GM
bankruptcy, but individuals claiming harm from the ignition switch defect faced
a potential barrier created by the bankruptcy process. In bankruptcy, Old GM
had used 11 U.S.C. § 363 of the Bankruptcy Code (the ʺCodeʺ) to sell its assets to
New GM ʺfree and clear.ʺ In plain terms, where individuals might have had
claims against Old GM, a ʺfree and clearʺ provision in the bankruptcy courtʹs sale
order (the ʺSale Orderʺ) barred those same claims from being brought against
New GM as the successor corporation.
Various individuals nonetheless initiated class action lawsuits
against New GM, asserting ʺsuccessor liabilityʺ claims and seeking damages for
losses and injuries arising from the ignition switch defect and other defects. New
GM argued that, because of the ʺfree and clearʺ provision, claims could only be
brought against Old GM, and not New GM.
On April 15, 2015, the United States Bankruptcy Court for the
Southern District of New York (Gerber, J.) agreed and enforced the Sale Order to
enjoin many of these claims against New GM. Though the bankruptcy court also
determined that these plaintiffs did not have notice of the Sale Order as required
by the Due Process Clause of the Fifth Amendment, the bankruptcy court denied
‐ 6 ‐ plaintiffs relief from the Sale Order on all but a subset of claims. Finally, the
bankruptcy court invoked the doctrine of equitable mootness to bar relief for
would‐be claims against a trust established in bankruptcy court to pay out
unsecured claims against Old GM (ʺGUC Trustʺ).3
The bankruptcy court entered judgment and certified the judgment
for direct review by this Court.4 Four groups of plaintiffs appealed, as did New
GM and GUC Trust. We affirm, reverse, and vacate in part the bankruptcy
courtʹs decision to enforce the Sale Order against plaintiffs and vacate as
advisory its decision on equitable mootness.
BACKGROUND
I. Bailout
In the final two quarters of 2007, as the American economy suffered
a significant downturn, Old GM posted net losses of approximately $39 billion
and $722 million. General Motors Corp., Annual Report (Form 10‐K) 245 (Mar. 5,
2009). In 2008, it posted quarterly net losses of approximately $3.3 billion, $15.5
3For ease of reference, in the context of this appeal, we also refer to Wilmington Trust Company (the administrator of GUC Trust) and the unitholders of GUC Trust collectively and singularly as ʺGUC Trust.ʺ 4 See 28 U.S.C. § 158(d)(2) (providing jurisdiction for courts of appeals to hear appeals if the bankruptcy court certifies that certain conditions are met).
‐ 7 ‐ billion, $2.5 billion, and $9.6 billion. Id. In a year and a half, Old GM had
managed to hemorrhage over $70 billion.
The possibility of Old GMʹs collapse alarmed many. Old GM
employed roughly 240,000 workers and provided pensions to another 500,000
retirees. Id. at 19, 262. The company also purchased parts from over eleven
thousand suppliers and marketed through roughly six thousand dealerships. A
disorderly collapse of Old GM would have far‐reaching consequences.
After Congress declined to bail out Old GM, President George W.
Bush announced on December 19, 2008 that the executive branch would provide
emergency loans to help automakers ʺstave off bankruptcy while they develop
plans for viability.ʺ5 In Old GMʹs case, TARP loaned $13.4 billion on the
condition that Old GM both submit a business plan for long‐term viability to the
President no later than February 17, 2009 and undergo any necessary revisions
no later than March 31, 2009. If the President found the business plan
unsatisfactory, the TARP funds would become due and payable in thirty days,
rendering Old GM insolvent and effectively forcing it into bankruptcy.
5 Remarks on the American Auto Industry, 44 Weekly Comp. Pres. Doc. 1569 (Dec. 19, 2008).
‐ 8 ‐ On March 30, 2009, President Obama told the nation that Old GMʹs
business plan was not viable.6 At the same time, the President provided Old GM
with another $6 billion loan and sixty more days to revise its plan along certain
parameters. President Obama also reassured the public:
But just in case thereʹs still nagging doubts, let me say it as plainly as I can: If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warranty will be safe. In fact, it will be safer than itʹs ever been, because starting today, the United States Government will stand behind your warranty.7
As the President stood behind the reliability of GM cars, pledging another $600
million to back all warranty coverage, bankruptcy remained a stark possibility.8
II. Bankruptcy
The federal aid did not succeed in averting bankruptcy. Old GM
fared no better in the first quarter of 2009 ‐‐ posting on May 8, 2009 a $5.9 billion
net loss. General Motors Corp., Quarterly Report (Form 10‐Q) 57 (May 8, 2009).
6 Remarks on the United States Automobile Industry, 2009 Daily Comp. Pres. Doc. 2 (Mar. 30, 2009) [hereinafter ʺMarch 30, 2009 Presidential Remarksʺ]. 7 March 30, 2009 Presidential Remarks, supra note 6, at 3. 8 See Office of the Press Secʹy, White House, Obama Administrationʹs New Warrantee Commitment Program (Mar. 30, 2009); see also Office of the Press Secʹy, White House, Obama Administration New Path to Viability for GM & Chrysler (Mar. 30, 2009); Steven Rattner, Overhaul: An Insiderʹs Account of the Obama Administrationʹs Emergency Rescue of the Auto Industry 299 (2010).
‐ 9 ‐ But enteering bank kruptcy po osed a uniq que set of p problems: Old GM ssought to
restructture and beecome pro ofitable aga ain, not to shut down n; yet if Olld GM
lingered d in bankru uptcy too long, operrating expeenses wou uld accumu ulate and
consum mer confideence in thee GM brand d could deeteriorate, leaving Old GM no
alternattive but to liquidate a and close o once and ffor all. On n June 1, 20009, with th hese
risks in mind, Old d GM petittioned for Chapter 11 bankrup ptcy protecction in thee
United States Ban nkruptcy C Court for th he Southerrn District of New Yo ork.
A. A Mech hanics of th he § 363 Sa ale
Thee same day y, Old GM filed a mo otion to selll itself to N New GM (also
dubbed d ʺVehicle A Acquisition n Holding gs LLCʺ or ʺNGMCO O, Inc.ʺ), co omplete wiith a
103‐pag ge draft salle agreemeent and 30‐page prop posed salee order.
Through this p proposed sa ale, Old G GM was atteempting n not a
traditio onal Chapteer 11 reorg ganization n, but a tran o 11 U.S.C. nsaction pursuant to
§ 363 ‐‐ a less com mmon way of effectin ng a bankru uptcy. Seee, e.g., In ree Lionel Corrp.,
d 1063, 106 722 F.2d 66‐70 (2d C Cir. 1983) (explaining g the history of § 3633). The usu ual
Chapterr 11 reorga anization ffollows sett procedurres: the com mpany entering
bankrup ptcy (the ʺdebtorʺ) fi files a reorg ganization n plan discllosing to creditors ho ow
they wiill be treateed, asks th hose credito ors to votee to accept the plan, aand then
‐ 10 ‐ emerges from bankruptcy with its liabilities restructured along certain
parameters. See 11 U.S.C. §§ 1121‐1129.9 This jostling can take years.10 In
contrast, in a § 363 sale of substantially all assets, the debtor does not truly
ʺreorganize.ʺ Instead, it sells its primary assets to a successor corporation, which
immediately takes over the business. See Fla. Depʹt of Revenue v. Piccadilly
Cafeterias, Inc., 554 U.S. 33, 37 n.2 (2008). As evidenced by the GM bankruptcy, a
§ 363 sale can close in a matter of weeks.
The proposed sale was, in effect, a complex transaction made
possible by bankruptcy law. GMʹs sale would proceed in several parts. First,
Old GM would become a ʺdebtor‐in‐possessionʺ under the Code. See 11 U.S.C.
§ 1101. Where a trustee might otherwise be appointed to assert outside control of
the debtor, id. § 1104, a debtor‐in‐possession continues operating its business, id.
§§ 1107, 1108. See In re Smart World Techs., LLC, 423 F.3d 166, 174 n.10 (2d Cir.
9 See generally Evan F. Rosen, Note, A New Approach to Section 363(f)(3), 109 Mich. L. Rev. 1529, 1538‐39 (2011) (ʺHowever, unlike sales pursuant to the standard Chapter 11 plan confirmation process, 363(f) Sales occur without the benefit of the Chapter 11 Safeguards ‐‐ the disclosure, notice, voting, and priority safeguards . . . to protect secured creditors.ʺ). 10 See Jacob A. Kling, Rethinking 363 Sales, 17 Stan. J.L. Bus. & Fin. 258, 262 (2012) (ʺA plan of reorganization must be submitted to a vote of creditors and equity holders after furnishing them with a disclosure statement, a process that can take years.ʺ (footnote omitted)).
‐ 11 ‐ 2005) (ʺIn a chapter 11 case, . . . the debtor usually remains in control of the estate
as the ʹdebtor in possession.ʹʺ). Still in control, Old GM could seek the
bankruptcy courtʹs permission to sell portions of its business. See 11 U.S.C. §
363(b)(1).
Second, there would be New GM, a company owned predominantly
by Treasury (over sixty percent). As proposed, New GM would acquire from
Old GM substantially all of its business ‐‐ what one might commonly think of as
the automaker ʺGM.ʺ But New GM would not take on all of Old GMʹs liabilities.
The Code allows a § 363 sale ʺfree and clear of any interest in such property.ʺ
11 U.S.C. § 363(f). The proposed sale order provided that New GM would
acquire Old GM assets ʺfree and clear of all liens, claims, encumbrances, and
other interests of any kind or nature whatsoever, including rights or claims based
on any successor or transferee liability.ʺ J. App. 276. Other than a few liabilities
that New GM would assume as its own, this ʺfree and clearʺ provision would act
as a liability shield to prevent individuals with claims against Old GM from
suing New GM. Once the sale closed, the ʺbankruptcyʺ would be done: New
GM could immediately begin operating the GM business, free of Old GMʹs debts.
‐ 12 ‐ Third d, Old GM M would rem main. Thee proposed d sale wou uld leave O Old
GM witth some asssets, inclu uding $1.17 75 billion in n cash, intterests in th he Saturn
brand, a and certain n real and personal p property. Old GM w would also o receive
consideeration from m New GM M, includin ng a prom mise to repaay Treasurry and
Canadia an governm ment loans used to fi finance thee business through b bankruptcy y
and a teen‐percentt equity sta ake in New w GM. Old d GM wou uld retain, however, the
bulk of its old liab bilities.
Fourth, Old GM M would liiquidate. T quidation is not Though liq
y part of a formally a § 363 salee, the sale w would resu ult in two GM comp panies. Old d
GM wo ould disban nd: it wou uld renamee itself ʺMo otors Liquidation Co ompanyʺ aand
arrangee a plan forr liquidatio on that add dressed ho ow its rem bilities would maining liab
be paid. See 11 U.S.C. § 112 29(a)(11). T Thus, whille New GM M would q quickly em merge
from ba ankruptcy to operatee the GM b business, O Old GM wo ould remain in
bankrup ptcy and u undergo a traditional, lengthy liquidation n process.
B. B Sale Order
One day after O Old GM filled its mottion, on June 2, 2009,, the
bankrup ptcy courtt ordered O Old GM to provide n notice of th he proposeed sale ord der.
Old GM M was requ uired to sen nd direct m mail noticee of its pro oposed salee order to
‐ 13 ‐ numerous interested parties, including ʺall parties who are known to have
asserted any lien, claim, encumbrance, or interest in or on [the to‐be‐sold assets],ʺ
and to post publication notice of the same in major publications, including the
Wall Street Journal and New York Times. J. App. 385‐86. The sale notice specified
that interested parties would have until June 19, 2009 to submit to the
bankruptcy court responses and objections to the proposed sale order.
The bankruptcy court proceeded to hear over 850 objections to the
proposed sale order over the course of three days, between June 30 and July 2,
2009. On July 5, 2009, after addressing and dismissing the objections, the
bankruptcy court approved the § 363 sale. In re General Motors Corp. (ʺGMʺ), 407
B.R. 463 (Bankr. S.D.N.Y. 2009) (Gerber, J.). Among those objections were
arguments against the imposition of a ʺfree and clearʺ provision to bar claims
against New GM as the successor to Old GM made by consumer organizations,
state attorneys general, and accident victims.
Next, the bankruptcy court issued the Sale Order, which entered
into effect the final sale agreement between Old GM and New GM (the ʺSale
Agreementʺ). In the Sale Agreement, New GM assumed fifteen categories of
liabilities. As relevant here, New GM agreed to assume liability for accidents
‐ 14 ‐ after the closing date for the § 363 sale and to make repairs pursuant to express
warranties issued in connection with the sale of GM cars ‐‐ two liability
provisions present in the initial draft sale agreement. The Sale Agreement also
provided a new provision ‐‐ resulting from negotiations among state attorneys
general, the GM parties, and Treasury during the course of the sale hearing ‐‐
that New GM would assume liability for any Lemon Law claims.11 With these
exceptions, New GM would be ʺfree and clearʺ of any and all liabilities of Old
GM.
On July 10, 2009, the § 363 sale officially closed, and New GM began
operating the automaker business. As a matter of public perception, the GM
bankruptcy was over ‐‐ the company had exited bankruptcy in forty days.12
11 The Sale Agreement defined ʺLemon Lawsʺ as ʺstate statute[s] requiring a vehicle manufacturer to provide a consumer remedy when such manufacturer is unable to conform a vehicle to the express written warranty after a reasonable number of attempts, as defined in the applicable statute.ʺ J. App. 1676. 12 See, e.g., Bill Vlasic, G.M. Vow to Slim Includes Top Ranks, N.Y. Times (July 10, 2009) (ʺGeneral Motors . . . emerged from bankruptcy on Friday . . . .ʺ); John D. Stoll & Neil King Jr., GM Set to Exit Bankruptcy, Wall Street Journal (July 10, 2009) (ʺThe new General Motors Co. is poised to exit Chapter 11 protection as soon as Friday morning, and to emerge as a leaner, more focused company after only 40 days in bankruptcy court.ʺ).
‐ 15 ‐ C. C Liquiidation of f Old GM
Mean nwhile, Olld GM rem mained in b bankruptcy y. Over th he next sev veral
years, th he bankruptcy courtt managed d the process of satisffying liabillities that
remaineed with Olld GM (i.e., not taken n on by Neew GM).
The b bankruptcy y court sett Novembeer 30, 20099 as the ʺbaar dateʺ forr
any ind dividual orr entity to fi file a prooff of claim ‐‐‐ that is, to o assert a cclaim as to o
Old GM Mʹs remaining assets.. Old GM filed its firrst Chapteer 11 liquid dation plan n on
August 31, 2010, a and amend ded it on D December 88, 2010 and d again on n March 299,
The propossed plan prrovided ho 2011. T ow claims against Olld GM wo ould be paiid:
d claims, otther prioriity claims, and environmental claims maade by the secured
ment woulld be paid in full; un governm nsecured cllaims (claiims withou ut an
assuran nce of paym ment, such h as in the fform of a llien on pro operty) wo ould not.
Instead, under the plan, O Old GM w would estab blish GUC C Trust, wh hich
would b be adminisstered by tthe Wilmin ngton Trusst Compan ny. Once G GUC Trustt
(and oth her like tru usts) was eestablished d, Old GM M would disssolve.
GUC C Trust wou uld hold ccertain Old d GM assetts ‐‐ includ ding New G GM
stock an nd stock w warrants th hat could be used to p purchase sshares at fi fixed pricess,
along w with other fi financial in nstrumentts. Credito ors with un nsecured cclaims agaiinst
‐ 16 ‐ Old GM would receive these New GM securities and ʺunitsʺ of GUC Trust (the
value of which would be pegged to the residual value of GUC Trust) on a pro
rata basis in satisfaction of their claims. The Sale Agreement also imposed an
ʺaccordion featureʺ to ensure that GUC Trust would remain adequately funded
in the event that the amount of unsecured claims grew too large. The accordion
feature provided that if ʺthe Bankruptcy Court makes a finding that the
estimated aggregate allowed general unsecured claims against [Old GMʹs]
estates exceed $35 [billion], then [New GM] will . . . issue 10,000,000 additional
shares of Common Stock . . . to [Old GM].ʺ J. App. 1699.
On March 29, 2011, the bankruptcy court confirmed this liquidation
plan. GUC Trust made quarterly distributions of its assets thereafter. The initial
distribution released more than seventy‐five percent of the New GM securities.
On February 8, 2012, the bankruptcy court ordered that no further
claims against Old GM and payable by GUC Trust would be allowed unless the
claim amended a prior claim, was filed with GUC Trustʹs consent, or was
deemed timely filed by the bankruptcy court. As of March 31, 2014, GUC Trust
had distributed roughly ninety percent of its New GM securities and nearly 32
million units of GUC Trust; the expected value of unsecured claims against Old
‐ 17 ‐ GM totaled roughly $32 billion, not enough to trigger the accordion feature and
involve New GM in the bankruptcy. The GM bankruptcy that began five years
earlier appeared to be approaching its end.
III. Ignition Switch Defect
On February 7, 2014, New GM first informed the National Highway
Traffic Safety Administration (ʺNHTSAʺ) that it would be recalling, among other
vehicles, the 2005 Chevrolet Cobalt. A defect in the ignition switch could prevent
airbags from deploying.
A later congressional staff report, which followed four days of
testimony by New GM CEO Mary Barra before committees of the House of
Representatives and Senate, described what could happen by referring to an
actual tragic accident caused by the defect:13 In October 2006, three teenagers
13 Staff of H. Comm. on Energy & Commerce, 113th Cong., Report on the GM Ignition Switch Recall: Review of NHTSA 1 (Sept. 16, 2014); Examining Accountability and Corporate Culture in Wake of the GM Recalls: Hearing Before the Subcomm. on Consumer Prot., Prod. Safety, & Ins. of the S. Comm. on Commerce, Sci., & Transp., 113th Cong. (2014); The GM Ignition Switch Recall: Investigation Update: Hearing Before the Subcomm. on Oversight & Investigations of the H. Comm. on Energy & Commerce, 113th Cong. (2014); Examining the GM Recall and NHTSAʹs Defect Investigation Process: Hearing Before the Subcomm. on Consumer Prot., Prod. Safety, & Ins. of the S. Comm. on Commerce, Sci., & Transp., 113th Cong. (2014) [hereinafter ʺApril 2, 2014 Senate Hearingʺ]; The GM Ignition Switch Recall: Why Did It Take So Long?: Hearing Before the Subcomm. on Oversight & Investigations of the H. Comm. on Energy & Commerce, 113th Cong. (2014).
‐ 18 ‐ were riding in a 2005 Chevrolet Cobalt when the driver lost control and the car
careened off the side of the road. The vehicle flew into a telephone utility box
and several trees. The airbags did not deploy, and two of the teenagers died.
From February until October 2014, New GM would issue over 60
recalls, with the number of affected vehicles in the United States alone
surpassing 25 million. New GM hired attorney Anton Valukas of the law firm
Jenner & Block to investigate; he did so and prepared an extensive report (the
ʺValukas Reportʺ).14
In 1997, Old GM sold three out of ten cars on the road in North
America. See General Motors Corp., Annual Report (Form 10‐K) 60 (Mar. 20, 1998).
Engineers began developing a new ignition switch that could be used in multiple
vehicles across the GM brand, first by setting technical specifications for the
switch and then by testing prototypes against those specifications.
Throughout testing, which lasted until 2002, prototypes consistently
failed to meet technical specifications. In particular, a low amount of torque
14Plaintiffs and New GM each extensively cite and quote to the Valukas Report as an account of the underlying facts regarding the ignition switch defect, and we do as well.
‐ 19 ‐ could cause the ignition switch to switch to ʺaccessoryʺ or ʺoff.ʺ15 A low torque
threshold on an ignition switch would mean that little force ‐‐ perhaps even the
bump of a stray knee ‐‐ would be needed to rotate the key in the switch from the
ʺonʺ position to the ʺaccessoryʺ or ʺoffʺ position.
Near the end of testing, an engineer commented on the ignition
switchʹs lingering problems in an email: he was ʺtired of the switch from hell.ʺ J.
App. 9696. Three months later, in May 2002, the ignition switch was approved
for production, despite never having passed testing.
In the fall of 2002, Old GM began producing vehicles with the faulty
ignition switch. Almost immediately, customers complained of moving stalls,
sometimes at highway speeds ‐‐ instances where the engine and power steering
and braking cut off while the car was in motion, leaving drivers to manually
maneuver the vehicle, that is, without assistance of the carʹs power steering and
braking systems.
Despite customer complaints, and grumblings in the press, Old GM
classified the moving stall as a ʺnon‐safety issue.ʺ Id. at 9711. As Valukas put it,
ʺon a scale of 1 (most severe) to 4 (least severe) . . . the problem could have been
15 Torque is a measure of twisting force ‐‐ it is generated, for example, when one twists off the cap of a soda bottle or tightens a bolt with a wrench.
‐ 20 ‐ designated a severity level 1 safety problem, [but] it was not.ʺ Id. Instead, the
moving stall was assigned a severity level of 3. Old GM personnel considered
the problem to be a matter of customer satisfaction, not safety. These personnel
apparently also did not then fully realize that when a car shuts off, so does its
airbags. But as early as August 2001, at least some Old GM engineers understood
that turning off the ignition switch could prevent airbags from deploying.
Complaints about the ignition switch continued. Between 2004 and
2005, NHTSA began asking questions about engine stalls. In 2005, several media
outlets also reported on the stalls. See, e.g., Jeff Sabatini, Making a Case for Keyless
Ignitions, N.Y. Times (June 19, 2005). Senior attorneys studied the stalls, but
considered the risk to be ʺremote[].ʺ J. App. 9734. At the same time, Old GMʹs
product investigations unit recreated the ignition switchʹs issues by using only a
heavy keychain to generate torque. Finally, in December 2005, Old GM issued a
bulletin to dealers, but not to customers, warning them that ʺlow ignition key
cylinder torqueʺ could cause cars to turn off. Id. at 9740. The bulletin did not
mention that, as a result, cars could stall on the road.
Then came reports of fatalities. In late 2005 through 2006, news of
deaths from airbag non‐deployments in crashes where airbags should have
‐ 21 ‐ deployed reached the desks of Old GMʹs legal team. Around April 2006, Old GM
engineers decided on a design change of the ignition switch to increase the
torque. Old GM engineers did so quietly, without changing the ignition switchʹs
part number, a change that would have signaled that improvements or
adjustments had been made.
In February 2007, a Wisconsin state trooperʹs report made its way
into the files of Old GMʹs legal department: ʺThe two front seat airbags did not
deploy. It appears that the ignition switch had somehow been turned from the
run position to accessory prior to the collision with the trees.ʺ Id. at 9764.
NHTSA similarly brought to Old GMʹs attention reported airbag non‐
deployments. See Transportation Research Center, Indiana University, On‐Site
Air Bag Non‐Deployment Investigation 7 (Apr. 25, 2007, rev. Mar. 31, 2008). As
more incidents with its cars piled up, Old GM finally drafted an updated bulletin
to dealers warning them of possible ʺstalls,ʺ but never sent it out.
Old GM internally continued to investigate. By May 2009, staff had
figured out that non‐deployment of airbags in these crashes was attributable to a
sudden loss of power. They believed that one of the two ʺmost likely
explanation[s] for the power mode signal change was . . . a problem with the
‐ 22 ‐ Ignition Switch.ʺ J. App. 9783. By June 2009, Old GM engineers had
implemented a change to the ignition key, hoping to fix the problem once and for
all. One engineer lamented that ʺ[t]his issue has been around since man first
lumbered out of [the] sea and stood on two feet.ʺ Id. at 9781.
Later, the Valukas Report commented on the general attitude at Old
GM. For eleven years, ʺGM heard over and over from various quarters ‐‐
including customers, dealers, the press, and their own employees ‐‐ that the carʹs
ignition switch led to moving stalls, group after group and committee after
committee within GM that reviewed the issue failed to take action or acted too
slowly. Although everyone had responsibility to fix the problem, nobody took
responsibility.ʺ J. App. 9650.
The Valukas Report recounted aspects of GMʹs corporate culture.
With the ʺGM salute,ʺ employees would attend action meetings and literally
cross their arms and point fingers at others to shirk responsibility. With the ʺGM
nod,ʺ employees would (again) literally nod in agreement to endorse a proposed
plan, understanding that they and others had no intention of following through.
Finally, the Report described how GM employees, instead of taking action,
would claim the need to keep searching for the ʺroot causeʺ of the moving stalls
‐ 23 ‐ and airbag non‐deployments. This ʺsearch for root cause became a basis for
doing nothing to resolve the problem for years.ʺ Id. at 9906.
Indeed, New GM would not begin recalling cars for ignition switch
defects until February 2014. Soon after New GMʹs initial recall, individuals filed
dozens of class actions lawsuits, claiming that the ignition switch defect caused
personal injuries and economic losses, both before and after the § 363 sale
closed.16 New GM sought to enforce the Sale Order, invoking the liability shield
to hold New GM ʺfree and clearʺ of various claims. This meant that when it
came to Old GM cars New GM would pay for post‐closing personal injuries,
make repairs, and follow Lemon Laws, but nothing else. The amount of
purportedly barred liabilities was substantial ‐‐ an estimated $7 to $10 billion in
economic losses, not to mention damages from pre‐closing accidents.
IV. Proceedings Below
On April 21, 2014, Steven Groman and others (the ʺGroman
Plaintiffsʺ) initiated an adversary proceeding against New GM in the bankruptcy
court below, asserting economic losses arising from the ignition switch defect.
16 Those class actions are consolidated before a district judge in the United States District Court for the Southern District of New York. See In re General Motors LLC Ignition Switch Litigation, No. 14‐MD‐2543 (S.D.N.Y.) (Furman, J.).
‐ 24 ‐ The same day, New GM moved to enforce the Sale Order to enjoin those claims,
as well as claims in other ignition switch actions then being pursued against New
Other plaintiffs allegedly affected by the Sale Order included classes
of individuals who had suffered pre‐closing injuries arising from the ignition
switch defect (ʺPre‐Closing Accident Plaintiffsʺ), economic losses arising from the
ignition switch defect in Old GM cars (ʺIgnition Switch Plaintiffsʺ), and damages
arising from defects other than the ignition switch in Old GM cars (ʺNon‐Ignition
Switch Plaintiffsʺ).17 Included within the Ignition Switch Plaintiffs were
individuals who had purchased Old GM cars secondhand after the § 363 sale
closed (ʺUsed Car Purchasersʺ).
On appeal, several orders are before us. First, the Non‐Ignition
Switch Plaintiffs filed a motion, asserting, among other things, that the
bankruptcy court lacked jurisdiction to enforce the Sale Order. On August 6,
2014, the bankruptcy court denied that motion. In re Motors Liquidation Co.
(ʺMLC Iʺ), 514 B.R. 377 (Bankr. S.D.N.Y. 2014) (Gerber, J.).
17 On August 1, 2014, New GM filed motions to enforce the Sale Order against the Pre‐Closing Accident Plaintiffs and Non‐Ignition Switch Plaintiffs, who entered the bankruptcy proceedings later.
‐ 25 ‐ Second, after receiving further briefing and hearing oral argument
on the motion to enforce, on April 15, 2015 the bankruptcy court decided to
enforce the Sale Order in part and dismiss any would‐be claims against GUC
Trust because relief would be equitably moot. In re Motors Liquidation Co. (ʺMLC
IIʺ), 529 B.R. 510 (Bankr. S.D.N.Y. 2015) (Gerber, J.). The bankruptcy court first
determined plaintiffs lacked notice consistent with procedural due process. Id. at
540‐60. In particular, the bankruptcy court found that the ignition switch claims
were known to or reasonably ascertainable by Old GM prior to the sale, and thus
plaintiffs were entitled to actual notice, as opposed to the mere publication notice
that they received. Id. at 556‐60. The bankruptcy court found, however, that
with one exception plaintiffs had not been ʺprejudicedʺ by this lack of notice ‐‐
the exception being claims stemming from New GMʹs own wrongful conduct in
concealing defects (so‐called ʺindependent claimsʺ). Id. at 560‐74. In other
words, the bankruptcy court held that New GM could not be sued ‐‐ in
bankruptcy court or elsewhere ‐‐ for ignition switch claims that otherwise could
have been brought against Old GM, unless those claims arose from New GMʹs
own wrongful conduct. Id. at 574‐83.
‐ 26 ‐ In the same decision, the bankruptcy court addressed arguments by
GUC Trust that it should not be held as a source for relief either. Applying the
factors set out in In re Chateaugay Corp. (ʺChateaugay IIIʺ), 10 F.3d 944 (2d Cir.
1993), the bankruptcy court concluded that relief for any late claims against GUC
Trust was equitably moot, as the plan had long been substantially consummated.
MLC II, 529 B.R. at 583‐92. Finally, the bankruptcy court outlined the standard
for any future fraud on the court claims. Id. at 592‐97. With these issues
resolved, the bankruptcy court certified its decision for appeal to this Court
pursuant to 28 U.S.C. § 158. Id. at 597‐98.
Third, the bankruptcy court issued another decision after the parties
disagreed on the form of judgment and other ancillary issues. On May 27, 2015,
the bankruptcy court clarified that the Non‐Ignition Switch Plaintiffs would be
bound by the judgment against the other plaintiffs, but would have seventeen
days following entry of judgment to object. In re Motors Liquidation Co. (ʺMLC
IIIʺ), 531 B.R. 354 (Bankr. S.D.N.Y. 2015) (Gerber, J.). The bankruptcy court left
open the question of whether Old GM knew of other defects.
On June 1, 2015, the bankruptcy court entered judgment against all
plaintiffs and issued an order certifying the judgment for direct appeal.
‐ 27 ‐ Following briefing by the Non‐Ignition Switch Plaintiffs, on July 22, 2015, the
bankruptcy court rejected their objections to the judgment.
New GM, GUC Trust, and the four groups of plaintiffs described
above ‐‐ the Groman Plaintiffs, Ignition Switch Plaintiffs, Non‐Ignition Switch
Plaintiffs, and Pre‐Closing Accident Plaintiffs ‐‐ appealed.18 We turn to these
appeals.
DISCUSSION
The Code permits a debtor to sell substantially all of its assets to a
successor corporation through a § 363 sale, outside of the normal reorganization
process. Here, no party seeks to undo the sale of Old GMʹs assets to New GM, as
executed through the Sale Order.19 Instead, plaintiffs challenge the extent to
which the bankruptcy court may absolve New GM, as a successor corporation, of
Old GMʹs liabilities. See generally 3 Collier on Bankruptcy ¶ 363.02[2] (Alan N.
18 On appeal, the Non‐Ignition Switch Plaintiffs are joined by certain ignition switch and pre‐closing accident plaintiffs and call themselves the ʺElliot, Sesay, and Bledsoe Plaintiffs.ʺ That group also represents two other appellants captioned above: Berenice Summerville and Doris Powledge Phillips. For ease of reference, in the context of this appeal, we will continue to call the group the ʺNon‐Ignition Switch Plaintiffs.ʺ 19 Indeed, the bankruptcy courtʹs opinion in GM, 407 B.R. 463, which approved the § 363 sale, has been reviewed on appeal has three times: a stay pending appeal was denied in In re General Motors Corp., No. M 47(LAK), 2009 WL 2033079 (S.D.N.Y. July 9, 2009), and the opinion was affirmed in In re Motors Liquidation Co., 428 B.R. 43 (S.D.N.Y. 2010), and in In re Motors Liquidation Co., 430 B.R. 65 (S.D.N.Y. 2010).
‐ 28 ‐ Resnick & Harry J. Sommer eds., 16th ed. 2013) [hereinafter ʺCollier on
Bankruptcyʺ] (noting that ʺuse of a section 363 sale probably reached its zenithʺ
with the GM bankruptcy). In particular, they dispute whether New GM may use
the Sale Orderʹs ʺfree and clearʺ provision to shield itself from claims primarily
arising out of the ignition switch defect and other defects.
The decisions below generate four issues on appeal: (1) the
bankruptcy courtʹs jurisdiction to enforce the Sale Order, (2) the scope of the
power to sell assets ʺfree and clearʺ of all interests, (3) the procedural due process
requirements with respect to notice of such a sale, and (4) the bankruptcy courtʹs
ruling that would‐be claims against GUC Trust are equitably moot.
I. Jurisdiction
We first address the bankruptcy courtʹs subject matter jurisdiction.
New GM argued below that successor liability claims against it should be
enjoined, and the bankruptcy court concluded as a threshold matter that it had
jurisdiction to enforce the Sale Order. See MLC I, 514 B.R. at 380‐83. The Non‐
Ignition Switch Plaintiffs challenge jurisdiction: (1) as a whole to enjoin claims
against New GM, (2) with respect to independent claims, which stem from New
GMʹs own wrongful conduct, and (3) to issue a successive injunction. We review
‐ 29 ‐ de novo rulings as to the bankruptcy courtʹs jurisdiction. See In re Petrie Retail,
Inc., 304 F.3d 223, 228 (2d Cir. 2002).
First, as to jurisdiction broadly, ʺ[t]he jurisdiction of the bankruptcy
courts, like that of other federal courts, is grounded in, and limited by, statute.ʺ
Celotex Corp. v. Edwards, 514 U.S. 300, 307 (1995); see 28 U.S.C. § 1334. Bankruptcy
courts may exercise jurisdiction, through referral from the district court, over
three broad categories of proceedings: those ʺarising under title 11ʺ of the Code,
those ʺarising in . . . a case under title 11,ʺ and those ʺrelated to a case under title
11.ʺ 28 U.S.C. § 157(a). Proceedings ʺarising under title 11, or arising in a case
under title 11,ʺ are deemed ʺcore proceedings.ʺ Stern v. Marshall, 564 U.S. 462,
476 (2011) (quoting 28 U.S.C. § 157(b)). In those proceedings, bankruptcy courts
retain comprehensive power to resolve claims and enter orders or judgments.
See In re Millenium Seacarriers, Inc., 419 F.3d 83, 96 (2d Cir. 2005).
ʺ[T]he meaning of the statutory language ʹarising inʹ may not be
entirely clear.ʺ Baker v. Simpson, 613 F.3d 346, 351 (2d Cir. 2010). At a minimum,
a bankruptcy courtʹs ʺarising inʺ jurisdiction includes claims that ʺare not based
on any right expressly created by [T]itle 11, but nevertheless, would have no
‐ 30 ‐ existence outside of the bankruptcy.ʺ Id. (quoting In re Wood, 825 F.2d 90, 97 (5th
Cir. 1987)).
A bankruptcy courtʹs decision to interpret and enforce a prior sale
order falls under this formulation of ʺarising inʺ jurisdiction. An order
consummating a debtorʹs sale of property would not exist but for the Code, see 11
U.S.C. § 363(b), and the Code charges the bankruptcy court with carrying out its
orders, see id. § 105(a) (providing that bankruptcy court ʺmay issue any order,
process, or judgment that is necessary or appropriate to carry out the provisions
of this titleʺ). Hence, a bankruptcy court ʺplainly ha[s] jurisdiction to interpret
and enforce its own prior orders.ʺ Travelers Indem. Co. v. Bailey, 557 U.S. 137, 151
(2009); see Millenium Seacarriers, 419 F.3d at 96 (ʺA bankruptcy court retains post‐
confirmation jurisdiction to interpret and enforce its own orders, particularly
when disputes arise over a bankruptcy plan of reorganization.ʺ (quoting Petrie
Retail, 304 F.3d at 230)). That is what happened here. The bankruptcy court first
interpreted the ʺfree and clearʺ provision that barred successor liability claims ‐‐
a provision that was integral to resolving Old GMʹs bankruptcy ‐‐ and then
determined whether to enforce that provision.
‐ 31 ‐ Second, the Non‐Ignition Switch Plaintiffs specify that the
bankruptcy court lacked jurisdiction over independent claims. Even though the
bankruptcy court ultimately did not enjoin independent claims, we address this
argument because it implicates subject matter jurisdiction. In any event, the
argument is misguided. The Sale Order, on its face, does not bar independent
claims against New GM; instead, it broadly transfers assets to New GM ʺfree and
clear of liens, claims, encumbrances, and other interests . . . , including rights or
claims . . . based on any successor or transferee liability.ʺ J. App. 1621. By
making the argument that the bankruptcy court could not enjoin independent
claims through the Sale Order, the Non‐Ignition Switch Plaintiffs already assume
that the bankruptcy court indeed has jurisdiction to interpret the Sale Order to
determine whether it covers independent claims and to hear a motion to enforce
in the first place.
Third, the Non‐Ignition Switch Plaintiffs argue that the bankruptcy
court lacked power to issue a so‐called successive injunction. In certain parts of
the Sale Order, the bankruptcy court had included language that successor
liability claims would be ʺforever prohibited and enjoined.ʺ J. App. 1649. But
New GM was not seeking an injunction to stop plaintiffs from violating that
‐ 32 ‐ prior injunction; New GM wanted the bankruptcy court to confirm that the Sale
Order covered these plaintiffs. In other words, New GM ʺdid not seek a new
injunction but, rather, ʹ[sought] to enforce an injunction already in place.ʹʺ In re
Kalikow, 602 F.3d 82, 93 (2d Cir. 2010) (quoting In re Texaco Inc., 182 B.R. 937, 945
(Bankr. S.D.N.Y. 1995)). In such situations, bankruptcy courts have jurisdiction
to decide a ʺmotion s[eeking] enforcement of a pre‐existing injunction issued as
part of the bankruptcy courtʹs sale order.ʺ Petrie Retail, 304 F.3d at 230.
Accordingly, we agree that the bankruptcy court had jurisdiction to
interpret and enforce the Sale Order. See MLC I, 514 B.R. at 380‐83.
II. Scope of ʺFree and Clearʺ Provision
We turn to the scope of the Sale Order. The Sale Order transferred
assets from Old GM to New GM ʺfree and clear of liens, claims, encumbrances,
and other interests . . . , including rights or claims . . . based on any successor or
transferee liability.ʺ J. App. 1621. The bankruptcy court did not explicitly
address what claims were covered by the Sale Order.20
20 The bankruptcy court mentioned, however, that claims based on New GMʹs ʺindependently wrongful, and otherwise actionable, conductʺ could not be categorized as claims that could be assumed by New GM or retained by Old GM via the Sale Order. MLC II, 529 B.R. at 583. But the bankruptcy court did not explicitly address whether it still considered those claims to be covered by the Sale Order.
‐ 33 ‐ We a address thee scope of tthe Sale O Order becau use it impllicates our
procedu ural due process ana alysis that ffollows. Iff the Sale O Order coveers certain n
claims, then we w would havee to consid der whetheer plaintiffssʹ due proccess rightss are
d by apply violated ying the ʺfrree and cleearʺ clause to those claims. If th he Sale Orrder
did not cover certtain claimss, howeverr, then thosse claims ccould not b be enjoined d by
ng the Salee Order an enforcin nd due process conceerns would d not be im mplicated. We
interpreet the Sale Order de n novo to dettermine wh hat claimss are barred d. See In ree
Duplan Corp., 212 F.3d 144, 151 (2d Cir. 2000); seee also Petriie Retail, 3004 F.3d at 2229
where enfo (noting instance w orcement fi first requirred interprretation of prior ordeer).
A. A Appllicable Law w
The C Code allow ws the trusstee or deb btor‐in‐posssession to ʺuse, sell, or
lease, otther than iin the ordiinary coursse of busin ness, propeerty of the estate.ʺ 11
U.S.C. § § 363(b)(1). A sale pu ursuant to § 363(b) m may be maade ʺfree an nd clear off
any inteerest in succh properttyʺ if any ccondition o on a list of condition ns is met. IId.
§ 363(f). ʺYet the Code doess not defin ne the conccept of ʹinteerest,ʹ of w which the
propertty may be sold free a and clear,ʺ 3 Collier on n Bankrupttcy ¶ 363.006[1], nor d does
it expreess the exteent to whicch ʺclaimsʺʺ fall withiin the amb bit of ʺinterrests.ʺ
‐ 34 ‐ New GM asserts that In re Chrysler LLC, 576 F.3d 108, 126 (2d Cir.
2009), resolved that successor liability claims are interests. New GM Br. 75.21 But
Chrysler was vacated by the Supreme Court after it became moot during the
certiorari process and remanded with instructions to dismiss the appeal as moot.
See Ind. State Police Pension Tr. v. Chrysler LLC, 558 U.S. 1087 (2009). The Supreme
Court vacated Chrysler pursuant to United States v. Munsingwear, Inc., 340 U.S. 36,
41 (1950), which ʺprevent[s] a judgment, unreviewable because of mootness,
from spawning any legal consequences.ʺ See Russman v. Bd. of Educ. of Enlarged
City Sch. Dist., 260 F.3d 114, 121‐22 n.2 (2d Cir. 2001) (ʺ[V]acatur eliminates an
appellate precedent that would otherwise control decision on a contested
question throughout the circuit.ʺ). We had not addressed the issue before
Chrysler, and now that case is no longer controlling precedent.22 See 576 F.3d at
124 (ʺWe have never addressed the scope of the language ʹany interest in such
property,ʹ and the statute does not define the term.ʺ).
21 New GM also cites a non‐precedential summary order on this issue. See Douglas v. Stamco, 363 F. Appʹx 100 (2d Cir. 2010). 22 When the bankruptcy court determined that successor liability claims could constitute interests, Chrysler had not yet been vacated. See GM, 407 B.R. at 505 (ʺChrysler is not distinguishable in any legally cognizable respect.ʺ).
‐ 35 ‐ Rather than formulating a single precise definition for ʺany interest
in such property,ʺ courts have continued to address the phrase ʺon a case‐by‐case
basis.ʺ In re PBBPC, Inc., 484 B.R. 860, 867 (B.A.P. 1st Cir. 2013). At minimum,
the language in § 363(f) permits the sale of property free and clear of in rem
interests in the property, such as liens that attach to the property. See In re Trans
World Airlines, Inc., 322 F.3d 283, 288 (3d Cir. 2003). But courts have permitted a
ʺbroader definition that encompasses other obligations that may flow from
ownership of the property.ʺ 3 Collier on Bankruptcy ¶ 363.06[1]. Sister courts
have held that § 363(f) may be used to bar a variety of successor liability claims
that relate to ownership of property: an ʺinterestʺ might encompass Coal Act
obligations otherwise placed upon a successor purchasing coal assets, In re Leckie
Smokeless Coal Co., 99 F.3d 573, 581‐82 (4th Cir. 1996), travel vouchers issued to
settle an airlineʹs discrimination claims in a sale of airline assets, Trans World
Airlines, 322 F.3d at 288‐90, or a license for future use of intellectual property
when that property is sold, FutureSource LLC v. Reuters Ltd., 312 F.3d 281, 285 (7th
Cir. 2002). See generally Precision Indus., Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d
537, 545 (7th Cir. 2003) (ʺ[T]he term ʹinterestʹ is a broad term no doubt selected by
Congress to avoid ʹrigid and technical definitions drawn from other areas of the
‐ 36 ‐ law.ʹʺ (quoting Russello v. United States, 464 U.S. 16, 21 (1983))). In these
instances, courts require ʺa relationship between the[] right to demand . . .
payments from the debtors and the use to which the debtors had put their
assets.ʺ Trans World Airlines, 322 F.3d at 289.
We agree that successor liability claims can be ʺinterestsʺ when they
flow from a debtorʹs ownership of transferred assets. See 3 Collier in Bankruptcy
¶¶ 363.06[1], [7]; Trans World Airlines, 322 F.3d at 289. But successor liability
claims must also still qualify as ʺclaimsʺ under Chapter 11. Though § 363(f) does
not expressly invoke the Chapter 11 definition of ʺclaims,ʺ see 11 U.S.C. § 101(5),
it makes sense to ʺharmonizeʺ Chapter 11 reorganizations and § 363 sales ʺto the
extent permitted by the statutory language.ʺ Chrysler, 576 F.3d at 125; see Lionel,
722 F.2d at 1071 (ʺ[S]ome play for the operation of both § 363(b) and Chapter 11
must be allowed for.ʺ).23 Here, the bankruptcy courtʹs power to bar ʺclaimsʺ in a
quick § 363 sale is plainly no broader than its power in a traditional Chapter 11
reorganization. Compare 11 U.S.C. § 363(f) (ʺfree and clear of any interest in such
23 Although Chrysler was vacated on grounds of mootness, it still ʺconstitute[s] persuasive authority.ʺ Anderson v. Rochester‐Genesee Regʹl Transp. Auth., 337 F.3d 201, 208 n.5 (2d Cir. 2003). Both our Circuit and the Third Circuit have continued to cite Chrysler favorably. See In re N. New Eng. Tel. Operations LLC, 795 F.3d 343, 346, (2d Cir. 2015); In re Jevic Holding Corp., 787 F.3d 173, 188‐89 (3d Cir. 2015).
‐ 37 ‐ propertyʺ), with § 1141(c) (ʺfree and clear of all claims and interestsʺ). We thus
consider what claims may be barred under Chapter 11 generally.
Section 101(5) defines ʺclaimʺ as any ʺright to payment, whether or
not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,
or unsecured.ʺ 11 U.S.C. § 101(5). A claim is (1) a right to payment (2) that arose
before the filing of the petition. See Pension Ben. Guar. Corp. v. Oneida Ltd., 562
F.3d 154, 157 (2d Cir. 2009). If the right to payment is contingent on future
events, the claim must instead ʺresult from pre‐petition conduct fairly giving rise
to that contingent claim.ʺ In re Chateaugay Corp. (ʺChateaugay Iʺ), 944 F.2d 997,
1005 (2d Cir. 1991) (internal quotation marks omitted).
This Court has not decided, however, ʺthe difficult case of pre‐
petition conduct that has not yet resulted in detectable injury, much less the
extreme case of pre‐petition conduct that has not yet resulted in any tortious
consequence to a victim.ʺ Id. at 1004. Chateaugay I considered a hypothetical
bankrupt bridge building company, which could predict that out of the 10,000
bridges it built, one would one day fail, causing deaths and other injuries. Id. at
‐ 38 ‐ 1003. If that bridge did fail, the individuals might have tort claims resulting from
pre‐petition conduct, namely the building of the bridge.
Recognizing these claims would engender ʺenormous practical and
perhaps constitutional problems.ʺ Id. Thus, ʺʹclaimʹ cannot be extended to
include . . . claimants whom the record indicates were completely unknown and
unidentified at the time [the debtor] filed its petition and whose rights depended
entirely on the fortuity of future occurrences.ʺ Lemelle v. Universal Mfg. Corp., 18
F.3d 1268, 1277 (5th Cir. 1994); see In re Chateaugay Corp. (ʺChateaugay IVʺ), 53 F.3d
478, 497 (2d Cir. 1995) (stating that, in ʺcommon sense,ʺ ʺclaimʺ is ʺnot infiniteʺ).
To avoid any practical and constitutional problems, courts require some
minimum ʺcontact,ʺ Chateaugay I, 944 F.2d at 1003‐04, or ʺrelationship,ʺ
Chateaugay IV, 53 F.3d at 497, that makes identifiable the individual with whom
the claim does or would rest.
To summarize, a bankruptcy court may approve a § 363 sale ʺfree
and clearʺ of successor liability claims if those claims flow from the debtorʹs
ownership of the sold assets. Such a claim must arise from a (1) right to payment
(2) that arose before the filing of the petition or resulted from pre‐petition
conduct fairly giving rise to the claim. Further, there must be some contact or
‐ 39 ‐ relation nship betw ween the deebtor and tthe claiman nt such thaat the claim mant is
identifia able.
B. B Appllication
We a apply thesee principlees to: (1) prre‐closing accident cclaims, (2)
econom mic loss claiims arising g from thee ignition sswitch defeect or otheer defects, (3)
indepen ndent claim ms relating g only to N New GMʹs conduct, aand (4) Useed Car
Purchassersʹ claim ms. The ban nkruptcy ccourt assum med that th he Sale Orrderʹs broaad
languag ge suggestted that all of these claims fell w within thee scope of tthe ʺfree an nd
clearʺ p provision. We hold, h however, tthat the firrst two setss of claimss are covered
by the S Sale Orderr but that th he latter tw wo sets of claims aree not.
First,, the pre‐cllosing acciident claim ms clearly ffall within n the scope of
the Salee Order. T Those claim ms directly relate to tthe ownersship of thee GM
automa akerʹs busin ness ‐‐ Old d GM builtt cars with h ignition sswitch defeects. And
those pllaintiffsʹ cllaims are p properly th hought of aas tort claiims that arrose beforee the
filing off the petition; indeed d, the claim ms arise fro om acciden nts that occurred pree‐
closing involving Old GM ccars.24
24 4 To th he extent tha at Pre‐Closiing Acciden nt Plaintiffss assert claiims arising after thee petition bu ut before th he § 363 salee closing, n no party on appeal sug ggests that w we treat claims in this timeframe differently. In any ev vent, those cclaims are ccontingent on
‐ 40 ‐ Second, the economic loss claims arising from the ignition switch
defect or other defects present a closer call. Like the claims of Pre‐Closing
Accident Plaintiffs, these claims flow from the operation of Old GMʹs automaker
business. These individuals also, by virtue of owning Old GM cars, had come
into contact with the debtor prior to the bankruptcy petition. Yet the ignition
switch defect (and other defects) were only revealed some five years later.
GUC Trust thus asserts that there was no right to payment prior to
the petition. We disagree. The economic losses claimed by these individuals
were ʺcontingentʺ claims. 11 U.S.C. § 101(5). That is, the ignition switch defect
was there, but was not yet so patent that an individual could, as a practical
matter, bring a case in court. The contingency standing in the way was Old GM
telling plaintiffs that the ignition switch defect existed. In other words, Old GMʹs
creation of the ignition switch defect fairly gave rise to these claims, even if the
claimants did not yet know. See Chateaugay I, 944 F.2d at 1005.
Third, however, the independent claims do not meet the Codeʹs
limitation on claims. By definition, independent claims are claims based on New
GMʹs own post‐closing wrongful conduct. Though the parties do not lay out the
the accident occurring and ʺresult from pre‐petition conduct fairly giving rise to [a] contingent claim.ʺ Chateaugay I, 944 F.2d at 1005 (internal quotation marks omitted).
‐ 41 ‐ whole universe of possible independent claims, we can imagine that some claims
involve misrepresentations by New GM as to the safety of Old GM cars. These
sorts of claims are based on New GMʹs post‐petition conduct, and are not claims
that are based on a right to payment that arose before the filing of petition or that
are based on pre‐petition conduct. Thus, these claims are outside the scope of
the Sale Orderʹs ʺfree and clearʺ provision.
Fourth, the Sale Order likewise does not cover the Used Car
Purchasersʹ claims. The Used Car Purchasers were individuals who purchased
Old GM cars after the closing, without knowledge of the defect or possible claim
against New GM. They had no relation with Old GM prior to bankruptcy.
Indeed, as of the bankruptcy petition there were an unknown number of
unknown individuals who would one day purchase Old GM vehicles
secondhand. There could have been no contact or relationship ‐‐ actual or
presumed ‐‐ between Old GM and these specific plaintiffs, who otherwise had no
awareness of the ignition switch defect or putative claims against New GM. We
cannot, consistent with bankruptcy law, read the Sale Order to cover their claims.
See Chateaugay I, 944 F.2d at 1003‐04 (calling such a reading ʺabsurdʺ).
‐ 42 ‐ New GM argues that ʺmodifyingʺ the Sale Order would ʺknock the
props out of the foundation on which the [Sale Order] was basedʺ or otherwise
be unlawful. New GM Br. 77 (internal quotation marks omitted). But we do not
modify the Sale Order. Instead, we merely interpret the Sale Order in accordance
with bankruptcy law. Indeed, by filing a motion to enforce, New GM in effect
asked for the courts to interpret the Sale Order. See Petrie Retail, 304 F.3d at 229.
In sum, the ʺfree and clearʺ provision covers pre‐closing accident
claims and economic loss claims based on the ignition switch and other defects.
It does not cover independent claims or Used Car Purchasersʹ claims.
Accordingly, we affirm the bankruptcy courtʹs decision not to enjoin
independent claims, see MLC II, 529 B.R. at 568‐70, and reverse its decision to
enjoin the Used Car Purchasersʹ claims, see id. at 570‐72.
III. Procedural Due Process
The Sale Order covers the pre‐closing accident claims and economic
loss claims based on the ignition switch and other defects. The Sale Order, if
enforced, would thus bar those claims. Plaintiffs contend on appeal that
enforcing the Sale Order would violate procedural due process. We address two
issues: (1) what notice plaintiffs were entitled to as a matter of procedural due
‐ 43 ‐ processs, and (2) iff they weree provided d inadequaate notice, whether the
bankrup ptcy courtt erred in d denying rellief on the basis thatt most plaintiffs weree
not ʺpreejudiced.ʺ
We reeview facttual finding gs for cleaar error and d legal con nclusions,
includin ng interpreetations off the Consttitution, dee novo. In rre Barnet, 7737 F.3d 2338,
246 (2d Cir. 2013). Our clea ar error sta andard is aa deferentiaal one, and d if the
bankrup ptcy courttʹs ʺʹaccoun nt of the ev vidence is p plausible iin light of tthe record d
viewed in its entirrety, the co ourt of app peals may not reversse it even tthough
convincced that ha ad it been ssitting as th he trier of fact, it wo ould have w weighed th he
evidencce differently.ʹʺ Amaadeo v. Zantt, 486 U.S. 214, 223 (11988) (quo oting Anderrson
v. Bessem mer City, 4 4, 573‐74 (1985)). 470 U.S. 564
A. A Noticce
The b bankruptcy y court firsst conclud ded that plaaintiffs weere not
provideed notice a as required d by proced dural due process. S See MLC III, 529 B.R. aat
555‐60. The bank kruptcy cou urt held th hat becausee Old GM knew or w with
reasona able diligen nce should own of the ignition sw d have kno witch claim ms, plaintiiffs
were en ntitled to actual or diirect mail n notice, butt received o only publiication nottice.
‐ 44 ‐ See id. at 557‐60. The parties dispute the extent of Old GMʹs knowledge of the
ignition switch problem.
1. Applicable Law
The Due Process Clause provides, ʺNo person shall . . . be deprived
of life, liberty, or property, without due process of law.ʺ U.S. Const. amend. V.
Certain procedural protections attach when ʺdeprivations trigger due process.ʺ
Connecticut v. Doehr, 501 U.S. 1, 12 (1991). Generally, legal claims are sufficient to
constitute property such that a deprivation would trigger due process scrutiny.
See N.Y. State Natʹl Org. for Women v. Pataki, 261 F.3d 156, 169‐70 (2d Cir. 2001).
Once due process is triggered, the question becomes what process is
due. Morrissey v. Brewer, 408 U.S. 471, 481 (1972). ʺAn elementary and
fundamental requirement of due process in any proceeding which is to be
accorded finality is notice reasonably calculated, under all the circumstances, to
apprise interested parties of the pendency of the action and afford them an
opportunity to present their objections.ʺ Mullane v. Cent. Hanover Bank & Tr. Co.,
339 U.S. 306, 314 (1950). Courts ask ʺwhether the state acted reasonably in
selecting means likely to inform persons affected, not whether each property
owner actually received notice.ʺ Weigner v. City of New York, 852 F.2d 646, 649 (2d
‐ 45 ‐ Cir. 1988). Notice is adequate if ʺ[t]he means employed [are] such as one
desirous of actually informing the absentee might reasonably adopt to
accomplish it.ʺ Mullane, 339 U.S. at 315.
This requirement also applies to bankruptcy proceedings. See
Martin v. Wilks, 490 U.S. 755, 762 n.2 (1989), superseded by statute on other grounds,
Civil Rights Act of 1991, Pub.L. No. 102–166, 105 Stat. 1071. Indeed, a
fundamental purpose of bankruptcy is to discharge, restructure, or impair claims
against the debtor in an orderly fashion. See Lines v. Frederick, 400 U.S. 18, 19
(1970). ʺThe general rule that emerges . . . is that notice by publication is not
enough with respect to a person whose name and address are known or very
easily ascertainable and whose legally protected interests are directly affected by
the proceedings in question.ʺ Schroeder v. City of New York, 371 U.S. 208, 212‐13
(1962); accord Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 800 (1983). In other
words, adequacy of notice ʺturns on what the debtor . . . knew about the claim or,
with reasonable diligence, should have known.ʺ DPWN Holdings (USA), Inc. v.
United Air Lines, Inc., 747 F.3d 145, 150 (2d Cir. 2014) (citing Chemetron Corp. v.
Jones, 72 F.3d 341, 345‐46 (3d Cir. 1995)). If the debtor knew or reasonably should
have known about the claims, then due process entitles potential claimants to
‐ 46 ‐ actual notice of the bankruptcy proceedings, but if the claims were unknown,
publication notice suffices. Chemetron, 72 F.3d at 345‐46.
If a debtor reveals in bankruptcy the claims against it and provides
potential claimants notice consistent with due process of law, then the Code
affords vast protections. Both § 1141(c) and § 363(f) permit ʺfree and clearʺ
provisions that act as liability shield. These provisions provide enormous
incentives for a struggling company to be forthright. But if a debtor does not
reveal claims that it is aware of, then bankruptcy law cannot protect it. Courts
must ʺlimit[] the opportunity for a completely unencumbered new beginning to
the ʹhonest but unfortunate debtor.ʹʺ Grogan v. Garner, 498 U.S. 279, 286‐87 (1991)
(quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)).
2. Application
The parties do not dispute that plaintiffs received only publication
notice. The question is whether they were entitled to more. The bankruptcy
court found that because Old GM knew or reasonably should have known about
the ignition switch defect prior to bankruptcy, it should have provided direct
mail notice to vehicle owners. We find no clear error in this factual finding.
‐ 47 ‐ As background, federal law requires that automakers keep records
of the first owners of their vehicles. 49 U.S.C. § 30117(b)(1) (ʺA manufacturer of a
motor vehicle . . . shall cause to be maintained a record of the name and address
of the first purchaser of each vehicle . . . .ʺ). This provision facilitates recalls and
other consequences of the consumer‐automaker relationship. Thus, to the extent
that Old GM knew of defects in its cars, it would also necessarily know the
identity of a significant number of affected owners.
The facts paint a picture that Old GM did nothing, even as it knew
that the ignition switch defect impacted consumers. From its development in
1997, the ignition switch never passed Old GMʹs own technical specifications.
Old GM knew that the switch was defective, but it approved the switch for
millions of cars anyway.
Once the ignition switch was installed, Old GM almost immediately
received various complaints. News outlets reported about the faulty ignition
switch. NHTSA approached Old GM about moving stalls and airbag non‐
deployments. A police report, which Old GMʹs legal team possessed, linked
these breakdowns to a faulty ignition switch. Old GM even considered warning
dealers (but not consumers) about moving stalls. By May 2009, at the latest, Old
‐ 48 ‐ GM personnel had essentially concluded that the ignition switch, moving stalls,
and airbag non‐deployments were related. Considering the airbag issues, they
believed that one of the two ʺmost likely explanation[s] for the power mode
signal change was . . . a problem with the Ignition Switch.ʺ J. App. 9783.
A bankruptcy court could reasonably read from this record that Old
GM knew about the ignition switch defect. Old GM knew that the defect caused
stalls and had linked the airbag non‐deployments to the defect by May 2009.
Even assuming the bankruptcy court erred in concluding that Old
GM knew, Old GM ‐‐ if reasonably diligent ‐‐ surely should have known about the
defect. Old GM engineers should have followed up when they learned their
ignition switch did not initially pass certain technical specifications. Old GM
lawyers should have followed up when they heard disturbing reports about
airbag non‐deployments or moving stalls. Old GM product safety teams should
have followed up when they were able to recreate the ignition switch defect with
ease after being approached by NHTSA. If any of these leads had been diligently
pursued in the seven years between 2002 and 2009, Old GM likely would have
learned that the ignition switch defect posed a hazard for vehicle owners.
‐ 49 ‐ Such ʺreckless disregard of the facts [is] sufficient to satisfy the
requirement of knowledge.ʺ McGinty v. State, 193 F.3d 64, 70 (2d Cir. 1999). In
the face of all the reports and complaints of faulty ignition switches, moving
stalls, airbag non‐deployments, and, indeed, serious accidents, and in light of the
conclusions of its own personnel, Old GM had an obligation to take steps to
ʺacquire full or exact knowledge of the nature and extentʺ of the defect. United
States v. Macias, 786 F.3d 1060, 1062 (7th Cir. 2015). Under these circumstances,
Old GM had a duty to identify the cause of the problem and fix it. Instead, the
Valukas Report recounts a corporate culture that sought to pin responsibility on
others and a Sisyphean search for the ʺroot cause.ʺ
Further, even if the precise linkage between the ignition switch
defect and moving stalls and airbag non‐deployments was unclear, Old GM had
enough knowledge. At minimum, Old GM knew about moving stalls and airbag
non‐deployments in certain models, and should have revealed those facts in
bankruptcy. Those defects would still be the basis of ʺclaims,ʺ even if the root
cause (the ignition switch) was not clear.
New GM argues in response that because plaintiffsʹ claims were
ʺcontingent,ʺ those individuals were ʺunknownʺ creditors as a matter of law. But
‐ 50 ‐ contingent claims are still claims, 11 U.S.C. § 101(5), and claimants are entitled to
adequate notice if the debtor knows of the claims. Moreover, as discussed above,
the only contingency was Old GM telling owners about the ignition switch defect
‐‐ a contingency wholly in Old GMʹs control and without bearing as to Old GMʹs
own knowledge. New GM essentially asks that we reward debtors who conceal
claims against potential creditors. We decline to do so. See Grogan, 498 U.S. at
286‐87.
Finally, we address a theme in this case that the GM bankruptcy was
extraordinary because a quick § 363 sale was required to preserve the value of
the company and to save it from liquidation. See New GM Br. 34 (ʺTime was of
the essence, and costs were a significant factor.ʺ). Forty days was indeed quick
for bankruptcy and previously unthinkable for one of this scale. While the desire
to move through bankruptcy as expeditiously as possible was laudable, Old
GMʹs precarious situation and the need for speed did not obviate basic
constitutional principles. Due process applies even in a companyʹs moment of
crisis. Cf. Home Building & Loan Assʹn v. Blaisdell, 290 U.S. 398, 425 (1934) (ʺThe
Constitution was adopted in a period of grave emergency.ʺ).
‐ 51 ‐ We fi find no clea ar error in the bankru uptcy courrtʹs finding g that Old GM
knew or should h have known with rea asonable diiligence ab bout the deefect. See
MLC II,, 529 B.R. a at 556‐60. IIndividualls with claaims arising out of th he ignition
switch d defect werre entitled to notice b by direct m mail or som me equivaleent, as
required d by proceedural duee process.
B. B ʺPrejjudiceʺ
Afterr concludin ng that Old d GM did not provid de adequate notice, tthe
bankrup ptcy courtt nonetheleess enforceed the Salee Order. Seee id. at 5655‐73. The
bankrup ptcy courtt held that ʺprejudiceeʺ is an ʺesssential elem mentʺ of p procedurall
due pro ocess and tthat plaintiiffs were n not prejudiiced ‐‐ exceept as to in ndependen nt
claims ‐‐‐ because the bankru uptcy courrt would h have appro oved the Saale Order
even if p plaintiffs w were proviided adequ uate noticee. Id. at 5665. The parties dispu ute
whether ʺprejudicceʺ is required and, iif it is, wheether theree is prejudiice here.
1. Applicab ble Law
bankruptcy The b y court held that ʺprrejudiceʺ iss a requirement of th he
Due Pro ocess Clau use and tha at even if in nadequatee notice deeprived an individuaal of
propertty without a meaning gful opporrtunity to b be heard, tthere is no o prejudicee if
in hindssight the o outcome w would havee been the ssame with h adequatee notice. Idd.
‐ 52 ‐ Some courts have indeed held that ʺa party who claims to be aggrieved by a
violation of procedural due process must show prejudice.ʺ Perry v. Blum, 629
F.3d 1, 17 (1st Cir. 2010). Other courts have held otherwise that ʺa due process
violation cannot constitute harmless error.ʺ In re New Concept Hous., Inc., 951
F.2d 932, 937 n.7 (8th Cir. 1991); see Fuentes v. Shevin, 407 U.S. 67, 87 (1972) (ʺThe
right to be heard does not depend upon an advance showing that one will surely
prevail at the hearing.ʺ).25 Courts have concluded that a ʺfree and clearʺ clause
was unenforceable because of lack of notice and a hearing in accordance with
25 See, e.g., McNabb v. Commʹr Ala. Depʹt of Corr., 727 F.3d 1334, 1347 (11th Cir. 2013) (ʺOur cases have long held that certain procedural due process violations, such as the flat‐out denial of the right to be heard on a material issue, can never be harmless.ʺ); Kim v. Hurston, 182 F.3d 113, 119 (2d Cir. 1999) (commenting that even though the ʺminimal hearing that procedural due process requires would have done [the plaintiff] little good since she could not have realistically contested the changed reason,ʺ that ʺ[n]evertheless, the procedural due process requirement[s] . . . must be observedʺ); Lane Hollow Coal Co. v. Dir., Office of Workersʹ Compensation Programs, 137 F.3d 799, 806 (4th Cir. 1998) (ʺ[A] just result is not enough.ʺ); In re Boomgarden, 780 F.2d 657, 661 (7th Cir. 1985) (ʺIn bankruptcy proceedings, both debtors and creditors have a constitutional right to be heard on their claims, and the denial of that right to them is the denial of due process which is never harmless error.ʺ (internal quotation marks omitted)); In re George W. Myers Co., 412 F.2d 785, 786 (3d Cir. 1969) (holding that ʺalleged bankrupt was denied procedural due process by the . . . refusal of its offer to present evidence at the close of the evidenceʺ and that such denial could not be ʺharmless errorʺ); Republic Natʹl Bank of Dallas v. Crippen, 224 F.2d 565, 566 (5th Cir. 1955) (ʺThe right to be heard on their claims was a constitutional right and the denial of that right to them was the denial of due process which is never harmless error.ʺ); Phila. Co. v. SEC, 175 F.2d 808, 820 (D.C. Cir. 1948) (ʺDenial of a procedural right guaranteed by the Constitution ‐‐ in this instance denial of the type of hearing guaranteed . . . by the due process clause ‐‐ is never ʹharmless error.ʹʺ), vacated as moot, 337 U.S. 901 (1949).
‐ 53 ‐ procedural due process, without exploring prejudice. See In re Savage Indus., 43
F.3d 714, 721‐22 (1st Cir. 1994); cf. Nolasco v. Holder, 637 F.3d 159, 164 (2d Cir.
2011) (ʺThere may well be instances in which . . . failure to comply with [a
procedural rule] results in a lack of notice or the denial of a meaningful
opportunity to be heard such that . . . due process rights are violated.ʺ).
The § 363 sale context presents unique challenges for due process
analysis. As seen here ‐‐ with over 850 objections filed ‐‐ objections may often be
duplicative. See GM, 407 B.R. at 500 (finding successor liability ʺmost debatableʺ
of issues); cf. Mullane, 339 U.S. at 319 (ʺ[N]otice reasonably certain to reach most
of those interested in objecting is likely to safeguard the interests of all, since any
objections sustained would inure to the benefit of all.ʺ). Many of the objections,
especially those made against a ʺfree and clearʺ provision, are not likely to be
grounded in any legal right to change the terms of the sale, but rather will be
grounded in a particular factual context. Section 363 sales are, in essence, private
transactions. On one side, the debtor‐in‐possession ʺhas ample administrative
flexibility in the conduct of sales,ʺ 3 Collier on Bankruptcy ¶ 363.02[2], and on the
other side, the purchaser need not take on liabilities unless it wishes to do so, see
id. ¶ 363.06[7]. A bankruptcy court reviews a proposed § 363 saleʹs terms only for
‐ 54 ‐ some minimal ʺgood business reason.ʺ Lionel, 722 F.2d at 1071; see also 3 Collier on
Bankruptcy ¶ 363.02[1][e] (ʺOne of the major policy decisions in drafting the Code
was to separate the court from the day‐to‐day administrative activities in
bankruptcy cases . . . .ʺ). Many sale objections will thus sound in business
reasons to change the proposed sale order, and not by reference to some legal
requirement that the order must be changed.26
Assuming plaintiffs must demonstrate prejudice, the relevant
inquiry is whether courts can be confident in the reliability of prior proceedings
when there has been a procedural defect. See Lane Hollow Coal Co. v. Dir., Office of
Workersʹ Compensation Programs, 137 F.3d 799, 808 (4th Cir. 1998) (considering
ʺfairness of the trial and its reliability as an accurate indicator of guiltʺ); see also
Rose v. Clark, 478 U.S. 570, 577‐78 (1986) (asking whether adjudication in the
criminal context without procedural protections can ʺreliably serve its function as
26 See A. Joseph Warburton, Understanding the Bankruptcies of Chrysler and General Motors: A Primer, 60 Syracuse L. Rev. 531, 531 (2010) (ʺCertain creditors, who saw their investments in the companies sharply reduced, vigorously objected to the role of the government in the bankruptcy process. Some charged that in protecting the interests of taxpayers, the Treasury Department negotiated aggressively with creditors but, in protecting the interests of organized labor, it offered the United Autoworkers union special treatment.ʺ); see also GM, 407 B.R. at 496 (ʺThe objectorsʹ real problem is with the decisions of the Purchaser, not with the Debtor, nor with any violation of the Code or caselaw.ʺ).
‐ 55 ‐ a vehicle for determination ofʺ a case). In considering reliability, ʺ[t]he entire
record must be considered and the probable effect of the error determined in the
light of all the evidence.ʺ 11 Charles Alan Wright, Arthur R. Miller, et al., Federal
Practice & Procedure § 2883 (3d ed. 2016) [hereinafter ʺWright & Millerʺ]; see
Matusick v. Erie Cty. Water Auth., 757 F.3d 31, 50‐51 (2d Cir. 2014). ʺ[I]f [the court]
cannot say, with fair assurance, after pondering all that happened without
stripping the erroneous action from the whole, that the judgment was not
substantially swayed by the error,ʺ then it must find a procedural due process
violation. Kotteakos v. United States, 328 U.S. 750, 765 (1946).
We need not decide whether prejudice is an element when there is
inadequate notice of a proposed § 363 sale, for even assuming plaintiffs must
demonstrate prejudice, they have done so here. After examining the record as a
whole, we cannot say with fair assurance that the outcome of the § 363 sale
proceedings would have been the same had Old GM disclosed the ignition
switch defect and these plaintiffs voiced their objections to the ʺfree and clearʺ
provision. Because we cannot say with any confidence that no accommodation
would have been made for them in the Sale Order, we reverse.
‐ 56 ‐ At the outset, it is difficult to evaluate in hindsight what the
objections would have been had plaintiffs participated in the § 363 sale. Perhaps
they would have tried to identify some legal defect in the Sale Order, asked that
economic losses or pre‐closing accidents arising from the ignition switch defect
be exempted from the ʺfree and clearʺ provision, or requested greater priority in
any GUC Trust distribution. But this uncertainty about the content of plaintiffsʹ
objections is the natural result of the lack of any meaningful opportunity to be
heard in the § 363 sale proceedings. Cf. Lane Hollow, 137 F.3d at 808 (ʺIf there has
been no fair day in court, the reliability of the result is irrelevant, because a fair
day in court is how we assure the reliability of results.ʺ). This lack of certainty in
turn influences our degree of confidence in the outcome.
The bankruptcy court instead concluded that it would have reached
the same decision ‐‐ that it would have entered the Sale Order on the same terms
‐‐ even if plaintiffs had been given an opportunity to be heard. The bankruptcy
court concluded that these plaintiffs ʺoffer no legally based arguments as to why
they would have, or even could have, succeeded on the successor liability legal
argument when all of the other objectors failed.ʺ MLC II, 529 B.R. at 567; see GM,
‐ 57 ‐ 407 B.R. at 499‐506 (considering objections). The bankruptcy court found that
other arguments were too ʺspeculative.ʺ MLC II, 529 B.R. at 567‐68, 573.
We disagree. The bankruptcy court failed to recognize that the
terms of this § 363 sale were not within its exclusive control. Instead, the GM
sale was a negotiated deal with input from multiple parties ‐‐ Old GM, New GM,
Treasury, and other stakeholders. The Sale Order and Sale Agreement reflect this
polycentric approach: it includes some fifteen sets of liabilities that New GM
voluntarily, and without legal compulsion, took on as its own.
The process of how New GM voluntarily assumed liabilities is most
apparent with its assumption of Lemon Law claims.27 Following the proposed
sale order, numerous state attorneys general objected that the proposed sale
would bar claims based on state Lemon Laws. But their objections were not
particularly legal in character ‐‐ that is, no state attorney general focused on how
a liability shield that barred Lemon Law claims would be illegal. Citing no law,
the objection was that New GM should assume these liabilities ʺ[i]n light of the
relationship between [Old GM] and [New GM] . . . , as well as the statements by
the United States government promising that all warranty obligations would be
27 New GM informs the Court that a similar process occurred with respect to New GM accepting responsibility for post‐closing accidents.
‐ 58 ‐ honored.ʺ Bankr. ECF No. 2043, at 39; accord Bankr. ECF No. 2076, at 10. In other
words, because President Obama had promised to back warranties, the state
attorneys general argued that that Lemon Laws should be honored as well.
Following these objections, ʺLemon Law claims were added as an
assumed liability during the course of the 363 Sale hearing after negotiation with
the [state attorneys general].ʺ MLC II, 529 B.R. at 534 n.36. The state attorneys
general had made a practical, business‐minded argument, which brought Old
GM, New GM, and Treasury to the negotiating table. At the sale hearing, counsel
to the National Association of Attorneys General commented that the state
attorneys general ʺhave worked very hard since the beginning of the case with
debtorsʹ counsel initially, with Treasury counsel, almost everybody in this room
at some point or another.ʺ J. App. 2084. The result of these negotiations was an
understanding that ʺlemon laws were covered under the notion of warranty
claimsʺ and inclusion in the Sale Agreement of language reflecting this
agreement. Id. at 2086.
Opportunities to negotiate are difficult if not impossible to recreate.
We do not know what would have happened in 2009 if counsel representing
plaintiffs with billions of dollars in claims had sat across the table from Old GM,
‐ 59 ‐ New GM, and Treasury. Our lack of confidence, however, is not imputed on
plaintiffs denied notice but instead bolsters a conclusion that enforcing the Sale
Order would violate procedural due process. Indeed, for the following reasons,
while we cannot say with any certainty that the outcome would have been
different, we can say that the business circumstances at the time were such that
plaintiffs could have had some negotiating leverage, and the opportunity to
participate in the proceedings would have been meaningful.
First, it is well documented that one of the primary impetuses
behind a quick § 363 sale was to ʺrestore consumer confidence.ʺ GM, 407 B.R. at
480. ʺThe problem is that if the 363 Transaction got off track . . . , the U.S.
Government would see that there was no means of early exit for GM; . . .
customer confidence would plummet; and . . . the U.S. Treasury would have to
keep funding GM.ʺ Id. at 492. If consumer confidence dissipated, neither
Treasury loans nor a § 363 sale could save GM: nobody would buy a GM car.
These concerns were reflected in President Obamaʹs $600 million
guarantee of GM and Chrysler warranties. The business of cars is unique,
dependent largely on the goodwill of consumers. Cars are owned for years and
form the cornerstones of quintessentially American activities: dropping off and
‐ 60 ‐ picking up children from school, drive‐ins and drive‐thrus, family vacations and
road trips. ʺ[T]he road and the automobileʺ are, in American history,
ʺsanctuaries, hidden from the intrusive gaze of the state, [where] individuals live
freely.ʺ Sarah Seo, The New Public, 125 Yale L.J. 1616, 1620 (2016). The safety and
reliability of a car are central to these activities. As the head of President
Obamaʹs auto task force put it, in relation to Chryslerʹs bankruptcy: ʺwhat
consumer would buy another Chrysler if the company didnʹt honor its
warranties?ʺ Rattner, supra note 8, at 181. In other words, plaintiffs could have
tried to convince the bankruptcy parties that it made good business sense to
spend substantial sums to preserve customer goodwill in the GM brand and, in
turn, GMʹs business value.
Second, New GM was not a truly private corporation. Instead, the
President and Treasury oversaw its affairs during the bailout and Treasury
owned a majority stake following the bankruptcy. While private shareholders
expect their investments to be profitable, the government does not necessarily
share the same profit motive. Treasury injected hundreds of billions of dollars
into the economy during the financial crisis, not on the expectation that it would
make a reasonable rate of return but on the understanding that millions of
‐ 61 ‐ Americans would be affected if the economy were to collapse. If the ignition
switch defect were revealed in the course of bankruptcy, plaintiffs could have
petitioned the government, as the majority owner of New GM, to consider how
millions of faultless individuals with defective Old GM cars could be affected.
Indeed, during the later congressional hearings, Representatives and Senators
questioned New GMʹs CEO on her invocation of the liability shield when the
government guided the process. See supra note 13. Senator Richard Blumenthal,
for instance, indicated that he would have objected in bankruptcy had he known,
because he ʺopposed it at the time, as Attorney General for the state of
Connecticut, not [foreseeing] that the material adverse fact being concealed was
as gigantic as this one.ʺ April 2, 2014 Senate Hearing, supra note 13, at 22‐23
(statement of Sen. Richard Blumenthal, Member, S. Subcomm. on Consumer
Prot., Prod. Safety & Ins.).
Third, we must price in the real cost of disrupting the bankruptcy
process. From the middle of 2007 through the first quarter of 2009, Old GMʹs
average net loss exceeded $10 billion per quarter; a dayʹs worth of delay would
cost over $125 million, a week almost a billion dollars. We do not know whether
the proceedings would have been delayed, but some delay was certainly
‐ 62 ‐ possible. For instance, Congress called the GM CEO to testify over the course of
four days.28 Old GM likewise conducted a thorough internal investigation on the
ignition switch defect, and the Valukas Report took more than two‐and‐a‐half
months to prepare. It seems unlikely that a bankruptcy court would have
casually approved a ʺfree and clearʺ provision while these investigations into the
ignition switch defectʹs precise nature were still ongoing.
Finally, there is the detriment of added litigation ‐‐ had the class
actions been filed in the midst of bankruptcy, the mere administration of those
cases could have taken considerable resources. Had the government also
brought criminal charges ‐‐ such as the charges now suspended by a deferred
prosecution agreement with the U.S. Attorneyʹs Office for the Southern District of
New York in which New GM forfeited $900 million ‐‐ managing how to juggle
bankruptcy with a criminal prosecution could have taken even longer. United
States v. $900,000,000 in U.S. Currency, No. 15 Civ. 7342 (S.D.N.Y.), ECF No. 1; see
11 U.S.C. § 362(b)(1) (exempting from usual automatic stay criminal actions
against debtor). The reasonable conclusion is that, with the likelihood and price
of disruption to the bankruptcy proceedings being so high, plaintiffs at least had
28 See Rattner, supra note 8, at 304 (ʺThe auto rescue succeeded in no small part because we did not have to deal with Congress.ʺ).
‐ 63 ‐ a basis for making business‐minded arguments for why they should receive
some accommodation in or carve‐out from the Sale Order.
Under these circumstances, we cannot be confident that the Sale
Order would have been negotiated and approved exactly as it was if Old GM
had revealed the ignition switch defect in bankruptcy. The facts here were
peculiar and are no doubt colored by the inadequate notice and plaintiffsʹ lack of
any meaningful opportunity to be heard. See Kotteakos, 328 U.S. at 765 (directing
courts to consider ʺall that happened without stripping the erroneous action
from the wholeʺ). Given the bankruptcy courtʹs focus on consumer confidence,
the involvement of Treasury, the financial stakes at the time, and all the business
circumstances, there was a reasonable possibility that plaintiffs could have
negotiated some relief from the Sale Order.
We address two further concerns. First, the bankruptcy court stated
that it ʺwould not have let GM go into the liquidation that would have resulted if
[it] denied approval of the 363 Sale.ʺ MLC II, 529 B.R at 567; see J. App. 1623. In
other words, the bankruptcy court suggested that it would have approved the
§ 363 sale anyway, because the alternative was liquidation ‐‐ and liquidation
would have been catastrophic. While we agree that liquidation would have been
‐ 64 ‐ catastrophic, we are confident that Old GM, New GM, Treasury, and the
bankruptcy court itself would have endeavored to address the ignition switch
claims in the Sale Order if doing so was good for the GM business. The choice
was not just between the Sale Order as issued and liquidation; accommodations
could have been made.
Second, many of the peculiar facts discussed apply with less force to
the Non‐Ignition Switch Plaintiffs, who assert claims arising from other defects.
The bankruptcy court entered judgment against the Non‐Ignition Switch
Plaintiffs based on its opinion determining the rights of the other plaintiffs, but
left as an open question whether Old GM knew of the Non‐Ignition Switch
Plaintiffsʹ claims based in other defects. See MLC III, 531 B.R. at 360. Without
factual findings relevant to determining knowledge, we have no basis for
deciding whether notice was adequate let alone whether enforcement of the Sale
Order would violate procedural due process as to these claims.
To conclude, we reverse the bankruptcy courtʹs decision insofar as it
enforced the Sale Order to enjoin claims relating to the ignition switch defect.29
See MLC II, 529 B.R. at 566‐73. Because enforcing the Sale Order would violate
29 In reversing, we express no views on the Groman Plaintiffsʹ request for discovery to prove a procedural due process violation or fraud on the court.
‐ 65 ‐ procedural due process in these circumstances, the bankruptcy court erred in
granting New GMʹs motion to enforce and these plaintiffs thus cannot be ʺbound
by the terms of the [Sale] Order[].ʺ In re Johns‐Manville Corp., 600 F.3d 135, 158
(2d Cir. 2010). As to claims based in non‐ignition switch defects, we vacate the
bankruptcy courtʹs decision to enjoin those claims, see MLC III, 531 B.R. at 360,
and remand for further proceedings consistent with this opinion.
IV. Equitable Mootness
Finally, we address the bankruptcy courtʹs decision that relief for
any would‐be claims against GUC Trust was equitably moot. MLC II, 529 B.R. at
583‐92. We ordinarily review ʺdismissal on grounds of equitable mootness for
abuse of discretion, under which we examine conclusions of law de novo and
findings of fact for clear error.ʺ In re BGI, Inc., 772 F.3d 102, 107 (2d Cir. 2014)
(citation omitted). There were, however, no claims asserted against Old GM or
GUC Trust in bankruptcy court or in the multi‐district litigation. Under these
circumstances, we exercise our ʺindependent obligationʺ to ensure that the case
ʺsatisfies the ʹcase‐or‐controversyʹ requirement of Article III, Section 2 of the
Constitution.ʺ United States v. Williams, 475 F.3d 468, 478‐9 (2d Cir. 2007).
‐ 66 ‐ A. A Appllicable Law w
The d doctrine off equitablee mootnesss allows ap ppellate co ourts to
during the pendency of an appeal, eventss dismisss bankrupttcy appealss ʺwhen, d
occurʺ ssuch that ʺeven thou ugh effectiv ve relief co ould conceiivably be ffashioned,
implem mentation o of that relieef would b be inequitaable.ʺ In ree Chateaugaay Corp.
(ʺChateaaugay IIʺ), 9 988 F.2d 32 22, 325 (2d d Cir. 1993 ). ʺ[A] ban nkruptcy aappeal is
presum med equitab bly moot w when the d debtorʹs reo organizatio on plan haas been
substan ntially conssummated d.ʺ In re BG GI, 772 F.3d d at 108. T To obtain rrelief in theese
circumsstances, a cclaimant m must satisfy y the so‐caalled ʺChatteaugay factors.ʺ See
Chateau ugay III, 10 F.3d at 952 2‐53.
The eequitable m mootness d doctrine haas enigmatic origins,, and the
range o of proceediings in wh hich it appllies is not w well settled d. See In ree Continenttal
Airlines, 91 F.3d 553, 567 (3d d Cir. 1996 6) (en banc) (Alito, J., dissenting g) (labeling g it a
ʺcurious doctrineʺʺ). Our Circuit has a acknowled dged that th he doctrin ne draws on n
ble consideerations ass well as th ʺequitab he constitu utional req quirement tthat there be a
case or controverssy.ʺ Chateaaugay III, 1 10 F.3d at 9952. Otherr courts haave focused d
instead on the doctrineʹs sta atutory underpinnin ngs and rolle in ʺfill[in ng] the
intersticces of the C Code.ʺ In re UNR Indus., Inc., 220 F.3d 7666, 769 (7th h Cir. 1994))
‐ 67 ‐ (explaining also difference between ʺinability to alter the outcome (real mootness)
and unwillingness to alter the outcome (ʹequitable mootnessʹ)ʺ). Indeed, several
provisions of the Code prohibit modification of bankruptcy orders unless those
orders are stayed pending appeal. See, e.g., 11 U.S.C. §§ 363(m), 364(e).
However broad the doctrine of equitable mootness, Article III
requires a case or controversy before relief may be equitably mooted.30
ʺ[E]quitable mootness bears only upon the proper remedy, and does not raise a
threshold question of our power to rule.ʺ In re Metromedia Fiber Network, Inc., 416
F.3d 136, 144 (2d Cir. 2005) (emphasis added).
30 We do not resolve whether it is appropriate for a bankruptcy court ‐‐ as opposed to an appellate court ‐‐ to apply equitable mootness, which appears to be a recent phenomenon. E.g., In re Innovative Clinical Sols., Ltd., 302 B.R. 136, 141 (Bankr. D. Del. 2003) (citing In re Circle K Corp., 171 B.R. 666, 669 (Bankr. D. Ariz. 1994), which nominally applied constitutional mootness); see also Alan M. Ahart, The Limited Scope of Implied Powers of a Bankruptcy Judge: A Statutory Court of Bankruptcy, Not A Court of Equity, 79 Am. Bankr. L.J. 1, 32‐33 (2005) (ʺSince a bankruptcy court is not a court of equity, a bankruptcy judge ought not resort to non‐statutory equitable principles, defenses, doctrines or remedies to excuse compliance with or to override provision(s) of the Bankruptcy Code or rules, or nonbankruptcy federal law.ʺ(footnotes omitted)). Indeed, this Circuitʹs equitable mootness cases have all involved an appellate body applying the doctrine in the first instance. See, e.g., BGI, 772 F.3d 102; In re Charter Commcʹns, Inc., 691 F.3d 476 (2d Cir. 2012); In re Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir. 2005); In re Burger Boys, Inc., 94 F.3d 755 (2d Cir. 1996); In re Chateaugay Corp., 94 F.3d 772 (2d Cir. 1996); In re Best Prods. Co., 68 F.3d 26 (2d Cir. 1995); Chateaugay III, 10 F.3d 944; Chateaugay II, 988 F.2d 322.
‐ 68 ‐ ʺThe oldest and most consistent thread in the federal law of
justiciability is that federal courts will not give advisory opinions.ʺ 13 Wright &
Miller § 3529.1. A controversy that is ʺappropriate for judicial determination . . .
must be definite and concrete, touching the legal relations of parties having
adverse legal interests.ʺ Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240‐41 (1937);
see Flast v. Cohen, 392 U.S. 83, 95 (1968) (ʺlimit[ing] the business of federal courts
to questions presented in an adversary context and in a form historically viewed
as capable of resolution through the judicial processʺ). ʺ[F]ederal courts are
without power to decide questions that cannot affect the rights of litigants in the
case before them.ʺ North Carolina v. Rice, 404 U.S. 244, 246 (1971) (emphasis added).
That is, courts may not give ʺan opinion advising what the law would be upon a
hypothetical state of facts,ʺ Aetna Life Ins., 300 U.S. at 241, for instance, where a
party did not ʺseek the adjudication of any adverse legal interests,ʺ S. Jackson &
Son, Inc. v. Coffee, Sugar & Cocoa Exch. Inc., 24 F.3d 427, 432 (2d Cir. 1994).
These limitations apply to bankruptcy courts. See Wellness Intʹl
Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1945 (2015) (ʺBankruptcy courts hear
matters solely on a district courtʹs reference [and]possess no free‐floating
authority to decide claims traditionally heard by Article III courts.ʺ). In
‐ 69 ‐ bankrup ptcy, moreeover, the adjudication of claim ms may be subject to o other
prepara atory stepss. Bankrup ptcy courtss will geneerally set aa ʺbar dateʺʺ that fixess the
time to file a proo of of claim against th he bankrup ptcy estate.. See Fed. R. Bankr. P P.
3002(c)((3). If the b bar date has passed, then the iinitial step for an ind dividual
seeking g relief aga d be to seeek permissiion to file a late proo ainst the esstate would of of
claim: o only after permission n is granteed can thatt individuaal claim th hat she is
entitled d to relief. See Fed. R R. Bankr. P. 9006(b)(11); see also P Pioneer Invv. Servs. Coo. v.
Brunswick Assocs. Ltd., 507 U U.S. 380, 39 94‐95 (19933) (setting forth stand dard for
able neglecctʺ for late claims und ʺexcusa der Rule 9006(b)(1))..
Heree, the bankruptcy cou urt held th hat any reliief from GU UC Trust
would b be equitab bly moot. B UC Trust. But plaintiiffs never ssought reliief from GU
The ban otness wass therefore advisory. nkruptcy ccourtʹs ruling on equitable moo
Neith her GUC T Trust nor O Old GM are parties to o the multti‐district
litigatio on now ong going in d district court. Only o one defend dant is nam med: New
GM. Liikewise, ass GUC Tru ust confirm med at oral argumentt, plaintiffss have not
filed an ny proofs o of claim wiith GUC Trrust, nor h have they eeven asked d the
‐ 70 ‐ bankruptcy court for permission to file late proofs of claim or to lift the bar date,
as would be required before relief could be granted.31
Instead, it appears from the record that GUC Trust became involved
at New GMʹs behest. New GM noted ʺwell there is a GUC Trustʺ and suggested
that because of the Sale Orderʹs bar on successor liability, any claims remained
with Old GM and thus GUC Trust. J. App. 11038. But New GM has not sought
to implead and bring cross‐claims against GUC Trust in the multi‐district
litigation under Federal Rule of Civil Procedure 14 or to do the same in the
Groman Plaintiffsʹ adversary proceeding in bankruptcy under Federal Rule of
Bankruptcy Procedure 7014.
Moreover, GUC Trust has protested its involvement in the case. At a
May 2, 2014 hearing, GUC Trust notified the bankruptcy court that it was
ʺfrankly [a] stranger[] to these proceedings.ʺ Id. at 11093. This was, according to
GUC Trustʹs uncontested representation, because:
31 The bankruptcy court lifted the bar date for independent claims as a remedy. See MLC II, 529 B.R. at 583. We note, however, that neither the Groman Plaintiffs nor Ignition Switch Plaintiffs requested this as relief. The Ignition Switch Plaintiffs only mentioned in a footnote in their opposition to the motion to enforce that Old GM failed to provide notice of the bar date. The Pre‐Closing Accident Plaintiffs stated on behalf of all plaintiffs that ʺPlaintiffs are not asserting a due process challenge to a bar date order or a discharge injunction issued in favor of a debtor.ʺ Bankr. ECF No. 13021, at 48 n.26.
‐ 71 ‐ No claimants, none of the plaintiffs, no claimants or potential claimants had raised this as a possibility. No one has filed a motion to lift the bar date. The only person that has raised it has been New GM, based upon, you know, some statements of fact in some pleadings. But the only person that has actually moved forward with it is New GM, and frankly, you know, itʹs our view that this is essentially a way to deflect liability away, and you know, the attention away from New GM and put it on a third party.
Id. at 11090. At a July 2, 2014 hearing, GUC Trust continued to push that
litigation of the equitable mootness issue was premature, and dependent on
whether the Sale Order could be enforced. Id. at 8485.32
Nonetheless, the bankruptcy court asked the parties (including GUC
Trust) to brief initially whether claims against New GM were really claims
against Old GMʹs bankruptcy estate or GUC Trust. As the bankruptcy court
stated: ʺweʹre going to consider as [a] threshold issue[] . . . the possibility that the
claims now being asserted may be claims against Old GM or the GUC Trust.ʺ J.
App. 11103 (emphases added). Following a later hearing, the bankruptcy court
32 The bankruptcy court seemingly agreed momentarily, commenting at the hearing that they could proceed ʺwithout now addressing and while maintaining reservations of rights with respect to issues such as . . . equitable [moot]ness.ʺ Id. at 8491.
‐ 72 ‐ added an issue of whether claims, if any, against GUC Trust should be
ʺdisallowed/dismissed on grounds of equitable mootness.ʺ Id. at 5780.
GUC Trust was thus not a ʺlitigant[] in the case before [the
bankruptcy court],ʺ Rice, 404 U.S. at 246, who ʺs[ought] the adjudication of any
adverse legal interests,ʺ S. Jackson & Son, Inc., 24 F.3d at 432. GUC Trust sought
not to be involved, but the bankruptcy court ordered otherwise. In doing so, the
bankruptcy court was concerned with a ʺhypotheticalʺ scenario, see Aetna Life
Ins., 300 U.S. at 241 ‐‐ the ʺpossibilityʺ that there ʺmay beʺ late‐filed claims against
GUC Trust, J. App. 11103. The bankruptcy courtʹs decision on equitable
mootness that followed essentially advised on this hypothetical controversy.
We acknowledge that the parties have expended considerable time
arguing about equitable mootness. We are likewise cognizant that plaintiffs at
one point sent a letter to GUC Trust suggesting that it should freeze its
distributions pending the bankruptcy proceedings. See MLC II, 529 B.R. at 537‐
38. But plaintiffs did not pursue any claims. Ultimately, it is the parties, and not
the court, that must create the controversy. See Depʹt of Envtl. Prot. & Energy v.
Heldor Indus., Inc., 989 F.2d 702, 707 (3d Cir. 1993) (rendering advisory ʺan answer
to a question not askedʺ by the parties).
‐ 73 ‐ We thus conclude that the bankruptcy courtʹs decision on equitable
mootness was advisory and vacate that decision. See MLC II, 529 B.R. at 583‐92.
CONCLUSION
For the reasons set forth above, with respect to the bankruptcy
courtʹs decisions below, we:
(1) AFFIRM the decision not to enforce the Sale Order as to the independent claims;
(2) REVERSE the decision to enforce the Sale Order as to the Used Car Purchasersʹ claims and claims relating to the ignition switch defect, including pre‐closing accident claims and economic loss claims;
(3) VACATE the decision to enforce the Sale Order as to claims relating to other defects; and
(4) VACATE the decision on equitable mootness as advisory.
We REMAND the case for further proceedings consistent with this
opinion.
‐ 74 ‐
Related
Cite This Page — Counsel Stack
In re Motors Liquidation Co., Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-motors-liquidation-co-ca2-2016.