In Re: Motors Liquidation Company

Background

Old GM filed for bankruptcy in 2009. New GM later purchased substantially all of Old GM’s assets but assumed only certain liabilities. The Bankruptcy Court’s sale order approved the sale free and clear of most liabilities and gave that court exclusive jurisdiction to enforce the order.

Robert Randall Buchanan, individually and as administrator of the estate of Glenda Marie Buchanan, brought a Georgia state-court action against New GM. Buchanan alleged that his deceased wife suffered fatal injuries in a November 10, 2014, single-vehicle accident while driving a used 2007 Chevrolet Trailblazer manufactured by Old GM. He alleged that the vehicle contained defective steering wheel angle sensors and that New GM knew about the defect after the bankruptcy sale but failed to warn drivers.

New GM moved in the Bankruptcy Court to enforce the sale order and to enjoin, meaning stop, Buchanan from continuing the Georgia lawsuit until the alleged deficiencies were corrected. New GM argued that the complaint improperly sought to impose liability on New GM for Old GM’s conduct, including punitive damages. It also argued that the failure-to-warn theory was not based solely on specific post-sale conduct by New GM.

Bankruptcy Court ruling

Bankruptcy Judge Martin Glenn framed the issue as whether Buchanan’s failure-to-warn claim and related punitive-damages request could pass through the bankruptcy court’s screening process, described in the opinion as the “bankruptcy gate.” He concluded that they could, subject to specific amendments to certain allegations.

Judge Glenn determined that the complaint alleged an independent claim based on New GM’s own post-sale conduct. In particular, the complaint alleged that New GM had independent post-sale knowledge of the steering-sensor defect, including knowledge inherited from Old GM employees, and failed to warn people such as the Buchanans. Judge Glenn also concluded that punitive damages could be permissible under Georgia law if the claim was based solely on New GM’s independent conduct rather than on Old GM’s conduct. New GM appealed.

District Court’s analysis

The District Court affirmed the Bankruptcy Court’s order, substantially for the reasons Judge Glenn gave. The court explained that an independent claim is based on New GM’s own wrongful conduct after the bankruptcy sale and falls outside the sale order’s free-and-clear protections. The First Amended Complaint alleged that New GM promoted the safety of its stability-control system after the sale, that a specifically identified New GM employee knew about problems with the steering sensors from prior employment at Old GM, and that New GM failed to warn drivers.

The court rejected New GM’s argument that knowledge acquired by an employee while working for Old GM could never support an independent claim against New GM. It stated that, where permitted by nonbankruptcy law, knowledge inherited from Old GM may be attributed to New GM if a New GM employee actually possessed that knowledge.

The court also rejected New GM’s argument that the absence of a direct relationship between New GM and Buchanan’s wife or vehicle required closing the bankruptcy gate. Whether New GM had a duty to warn was a question for the Georgia courts under Georgia law, not a reason to prevent the claim from proceeding through the bankruptcy screening process.

The court further concluded that the punitive-damages request did not change the result because Buchanan represented that he sought punitive damages solely for New GM’s independent failure-to-warn conduct, including knowledge acquired from Old GM, rather than for Old GM’s conduct. The court declined to consider New GM’s judicial-estoppel and judicial-admission arguments because New GM first raised them in its reply brief.

Disposition and effect

The District Court affirmed the Bankruptcy Court’s order, which had granted in part and denied in part New GM’s motion to enforce the sale order and enjoin Buchanan’s Georgia lawsuit. The District Court did not decide whether Buchanan’s failure-to-warn claim was ultimately valid under Georgia law or whether New GM was liable. It held only that the claim, as revised as required by the Bankruptcy Court, was not barred from proceeding by the bankruptcy sale order. The Clerk was directed to close the federal appeal, and Judge Jesse M. Furman ordered the case affirmed.