By Debra A. Dandeneau (Baker & McKenzie)
Elliott v. General Motors LLC (In re Motors Liquidation Co.), 829 F.3d 135 (2d Cir. 2016), addresses General Motors’ attempt to sell substantially all of its assets to “New GM” free and clear of certain claims of vehicle owners under the Bankruptcy Code.
“New GM” acquired GM’s assets in a bankruptcy court-approved sale. New GM assumed liability for claims arising from any accidents occurring after the closing date and for any express vehicle warranties. Three classes of vehicle purchasers were not covered:
– prepetition purchasers with prepetition injuries from the “ignition switch defect,”
– prepetition purchasers with economic damages as a result of defects not covered by an express warranty, and
– postpetition purchasers of used GM vehicles who claimed economic damages as a result of defects.
The Second Circuit held that a debtor may sell free and clear of successor liability claims, but independent claims against New GM were not covered by the “free and clear” sale.
The court applied a variation of the “relationship test,” which requires prepetition conduct by the debtor plus some minimum contact or relationship with the claimant, to determine whether the purchasers held “claims.” Both pre-closing accident claims and economic loss claims by prepetition purchasers constituted “claims,” but postpetition purchasers of used vehicles did not have “claims.”
To determine whether the holders of prepetition claims received sufficient notice, the Second Circuit focused on GM’s knowledge of the claims instead of its knowledge of the identity of the creditors.
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