In re Motors Liquidation Co.

591 B.R. 501

IN RE: MOTORS LIQUIDATION COMPANY, f/k/a General Motors Corporation, et al., Debtors.

Case No. 09-50026 (MG)

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

Signed September 24, 2018

DRINKER BIDDLE & REATH LLP, Counsel for the GUC Trust, 1177 Avenue of the Americas, 41st Floor, New York, New York 10036, By: Kristen K. Going, Esq.

BROWN RUDNICK LLP, Designated Counsel for the Ignition Switch Plaintiffs and Certain Non-Ignition Switch Plaintiffs in the Bankruptcy Court, Seven Times Square, New York, NY 10036, By: Edward S. Weisfelner, Esq., Howard S. Steel, Esq.

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Counsel for General Motors LLC, 1285 Avenue of the Americas, New York, New York 10019, By: Paul Basta, Esq., Aidan Synnott, Esq., Kyle J. Kimpler, Esq., Sarah Harnett, Esq., Dan Youngblut, Esq.

KING & SPALDING LLP, Counsel for General Motors LLC, 1185 Avenue of the Americas, New York, NY 10036, By: Arthur Steinberg, Esq., Scott Davidson, Esq.

MEMORANDUM OPINION AND ORDER CONCLUDING THAT THE SIGNATORY PLAINTIFFS AND THE GUC TRUST MUST SATISFY CIVIL RULE 23 FOR THE PROPOSED SETTLEMENT TO BE APPROVED AND DENYING THREE PENDING MOTIONS WITHOUT PREJUDICE

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

I. INTRODUCTION ¹

This matter involves the continuing saga ensuing from General Motors Corporation's ("Old GM") failure to disclose serious vehicle safety defects in more than 11 million cars that it manufactured before Old GM's bankruptcy on June 1, 2009. Old GM knew about the defects but did not disclose them to car buyers, regulators or the public, and most relevant to the bankruptcy case, Old GM did not disclose to the owners of defective vehicles that they had to file claims against Old GM for personal injuries, wrongful death, property damage and economic losses caused or contributed to by the defects before the bankruptcy claims bar date–November 30, 2009. On July 5, 2009, the bankruptcy court approved the sale of substantially all of Old GM's assets to General Motors LLC ("New GM") in a section 363 sale. The sale closed on July 10, 2009 and, fortunately, New GM continues to prosper.

Beginning in February 2014, New GM began recalling cars due to a potentially lethal defect in their ignition switches. As recounted in a Second Circuit opinion, "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." See Elliott v. General Motors LLC (In re Motors Liquidation Co.) , 829 F.3d 135, 148 (2d Cir. 2016) (hereinafter, " Elliott "). Old GM's Chapter 11 Plan was confirmed by the bankruptcy court on March 29, 2011, well before disclosure of the serious product defects and well past the bar date for filing proofs of claim. The Chapter 11 Plan authorized the creation of the GUC Trust to oversee the claims allowance process and distribute assets for the benefit of Old GM's unsecured creditors pursuant to the terms of the GUC Trust Agreement. See In re Motors Liquidation Co. , 529 B.R. 510, 536 (Bankr. S.D.N.Y. 2015), aff'd. in part and rev'd in part sub nom. Elliott , 829 F.3d 135.

Soon after New GM's initial recall, many class-action lawsuits and thousands of individual lawsuits were filed against New GM, claiming that the defects caused wrongful death, personal injuries, property damage and economic losses. The cases filed in federal courts were transferred to Judge Jesse M. Furman in the U.S. District Court for the Southern District of New York for pretrial proceedings (the "MDL").²

In 2015, after the vehicle defects were disclosed, the bankruptcy court addressed the issue of whether parties injured by the previously undisclosed defects could recover from the GUC Trust. The bankruptcy court concluded, among other things, that the confirmed Chapter 11 Plan was substantially consummated, and any effort to recover damages from the GUC Trust for previously unasserted claims was equitably moot. In re Motors Liquidation Co. , 529 B.R. at 510. The Second Circuit in Elliott stated that "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." 829 F.3d at 150.

Utilizing the theory of follow the money, the injured parties (the "Claimants") focused their efforts on claims against New GM, on a variety of theories including successor liability. New GM expressly assumed liability for personal injury, wrongful death and property damage claims caused by Old GM's misconduct for accidents that occurred after New GM acquired the assets of Old GM ("Post-Sale Accidents"). New GM did not, however, assume liability for personal injury, wrongful death and property damage claims for accidents that occurred before New GM acquired Old GM's assets ("Pre-Sale Accidents"). Nor did New GM assume liability for any economic losses resulting from defective vehicles manufactured by Old GM. The MDL proceeding has been carefully and methodically addressing the issues in hundreds of individual and putative class-action lawsuits against New GM.³ The Pre-Sale Accident claimants and the economic loss claimants now seek to recover from the GUC Trust, the successor of Old GM's estate with respect to unsecured claims.

The Second Circuit's July 2016 Elliott decision affirmed in part and reversed in part earlier bankruptcy court rulings. In the portion of Elliott most relevant to the issues now before this Court, the Second Circuit addressed the bankruptcy court's decision "that relief for would-be claims against the GUC Trust was equitably moot." 829 F.3d at 166. On the issue of equitable mootness, the Second Circuit vacated the bankruptcy court's ruling, concluded that the ruling was advisory, and remanded to the bankruptcy court. The court explained:

Neither GUC Trust nor Old GM are parties to the multi-district litigation now ongoing in the district court. Only one defendant is named: New GM. Likewise, as GUC Trust confirmed at oral argument, plaintiffs have not filed any proofs of claim with GUC Trust, nor have they even asked the 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.

Id. at 168.

The Second Circuit further explained:

Instead, it appears from the record that GUC Trust became involved at New GM's behest. New GM noted "well there is a GUC Trust" and suggested that because the Sale Order's bar on successor liability, any claims remained with Old GM and thus GUC Trust. 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 Plaintiffs' adversary proceeding in bankruptcy under Federal Rule of Bankruptcy Procedure 7014.

Id. at 168-69 (record citation omitted) (emphasis in original).

As this excerpt from the Second Circuit opinion shows, New GM sought to use the GUC Trust as a foil against claims that New GM is liable for defects in vehicles manufactured by Old GM by arguing that the GUC Trust is liable.⁴ But the tables have now turned. For the last several years, the Claimants injured by Old GM-manufactured vehicles, no longer burdened by an equitable mootness ruling, have been seeking to assert and recover late claims in Old GM's bankruptcy case. For too long, the GUC Trust, "at New GM's behest," id. , worked to thwart the Claimants' efforts to recover compensation for their injuries.⁵ That situation is now changed. The GUC Trust has been working constructively with the Claimants to develop a program that will expeditiously provide a mechanism for potentially millions of Claimants to be compensated for their injuries. Rather than working cooperatively with the GUC Trust and Claimants to facilitate a fair resolution of claims, New GM has worked assiduously to torpedo efforts to streamline a workable claims resolution process.

What is clear is that the Claimants injured by Old GM-manufactured vehicles may have a source of recovery—namely, New GM —without requiring Old GM's creditors who have already received distributions to pay back distributions, and without any finding of successor liability or wrongdoing by New GM. How so? The confirmed Chapter 11 Plan and Sale Order contain an "accordion" feature, which provides that New GM is required to issue "Adjustment Shares" to the GUC Trust if allowed unsecured claims exceed $35 billion dollars.⁶ If that occurs, the injured parties could recover from the GUC Trust without any finding of wrongdoing or successor liability of New GM.⁷ As things currently stand, allowed unsecured claims total $31.85 billion and Claimants assert that their claims exceed over $7 billion. See Elliott, 829 F.3d at 150. Thus, if Claimants' claims are allowed, it appears possible that the accordion will be triggered.

New GM's phalanx of lawyers has aggressively done everything in its capacity to build roadblocks in the way of the Claimants' efforts to obtain allowed unsecured claims against the GUC Trust. For its part, the GUC Trust now wants to bring an end to the years of litigation, and to provide for the possibility of recovery by Claimants. Therefore, the GUC Trust has entered into a proposed settlement with the "Signatory Plaintiffs," a group composed of 549 individuals claiming personal injuries, wrongful death and property damage for Pre-Sale Accidents and 59 individuals claiming economic loss damages; the Signatory Plaintiffs asserting economic loss claims seek to serve as representatives for the millions who own automobiles with one or more alleged defects that were the subject of some of the vehicle recalls in 2014.⁸ New GM denies direct liability to any of these injured parties. The settlement would permit late claims against the GUC Trust (for personal injury, wrongful death, property damage and economic losses), but leave the determination of the proper amount of aggregate allowed claims to an estimation...