In Re Motors Liquidation

829 F.3d 135 (2nd Cir. 2016)


General Motors Corporation (Old GM) filed for bankruptcy. The U.S. Department of the Treasury loaned billions of dollars from the Troubled Asset Relief Program (TARP) to buy the company time to revamp its business model. When that did not work the geniuses in the government decided GM was to declare 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 car's ignition could accidentally turn off, shutting down the engine, disabling power steering and braking, and deactivating the airbags. Most of the cars in question were built years before the GM bankruptcy. In bankruptcy, Old GM had used 11 U.S.C. §363 to sell its assets to New GM 'free and clear.' Old GM would become a 'debtor-in-possession' and continue operating its business. Old GM could seek the bankruptcy court's permission to sell portions of its business. There would be New GM, a company owned predominantly by Treasury (over sixty percent). New GM would acquire from Old GM substantially all of its business but would not take on all of Old GM's liabilities. New GM would acquire Old GM assets 'free 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.' Old GM was to remain. The proposed sale would leave Old GM with some assets, including $1.175 billion in cash, interests in the Saturn brand, and certain real and personal property. Old GM would also receive consideration from New GM, including a promise to repay Treasury and Canadian government loans used to finance the business through bankruptcy and a ten-percent equity stake in New GM. Old GM would retain, however, the bulk of its old liabilities. Old GM would liquidate. Old GM would disband: it would rename itself 'Motors Liquidation Company' and arrange a plan for liquidation that addressed how its remaining liabilities would be paid. Old GM was to provide notice of the proposed sale order. Old GM was required to send direct mail notice of its proposed sale order to numerous interested parties, including 'all parties who are known to have asserted any lien, claim, encumbrance, or interest in or on [the to-be-sold assets],' and to post-publication notice of the same in major publications, including the Wall Street Journal and New York Times. After hearing over 850 objections to the proposed sale order the bankruptcy court issued the Sale Order, which entered into effect the final sale agreement between Old GM and New GM. New GM began operating the automaker business. A 'free and clear' provision in the bankruptcy court's sale order barred those same claims from being brought against New GM as the successor corporation. Ps initiated class action lawsuits against New GM, asserting 'successor liability' claims and seeking damages. New GM argued that the 'free and clear' provision, claims could only be brought against Old GM, and not New GM. The Bankruptcy Court enjoined many of these claims against New GM. The court also determined that these plaintiffs did not have notice as required by the Due Process Clause of the Fifth Amendment, but denied Ps relief from all but a subset of claims. The court also 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. Ps appealed