General Motors LLC (New GM) could be liable for punitive damages in the many cases against it in other courts, the U.S. Bankruptcy Court in the Southern District of New York ruled, acting in a “gatekeeper” role in which it does not decide nonbankruptcy issues concerning the merits of the ignition switch defect plaintiffs’ claims against the company. Two “pathways” to punitive damages are available to plaintiffs whose products liability claims were based on New GM’s “post-closing acts or conduct” after the sale of the assets of “Old GM” to the new entity, “New GM” in bankruptcy proceedings (post-closing accident plaintiffs).  Punitive damages must rely solely on New GM knowledge or conduct imputed by New GM personnel or documents and cannot be based on Old GM knowledge or conduct. However, the claims can be based on knowledge of New GM employees that was “inherited” from their tenure at Old GM (In re: Motors Liquidation Co., November 9, 2015, Gerber, R.).

Background. An April 2015 decision by the bankruptcy court addressed the litigation flowing from New GM’s announcement of a defect in ignition switches installed in certain GM-branded vehicles (see Products Liability Law Daily, April 16, 2015, analysis for further background information). A subsequent judgment on June 1, 2015, implemented the decision. The June judgment generally prohibits claims against New GM based on Old GM’s acts, yet allows claims to be asserted against New GM to the extent that the claims (such as product liability claims) were contractually assumed under the sale agreement (of assets) or are considered “independent claims”—claims based solely on New GM’s alleged wrongful conduct. Under applicable nonbankruptcy law, the knowledge of particular New GM employees could be imputed to New GM, or New GM could be deemed to be on notice of documents in its files. As admitted by New GM, many Old GM personnel transferred to New GM after the sale as did many Old GM documents, providing a basis for potential imputation. However, because New GM was protected under the April decision and June judgment from claims based on Old GM conduct, the court found it necessary to rule on the extent to which those rulings affected the ability to impute to New GM the employees’ knowledge carried over from Old GM, or that might result from records that came from Old GM in plaintiffs’ cases.

Under the sale agreement, New GM contractually assumed only certain liabilities (assumed liabilities) from Old GM. Others were not assumed (retained liabilities) and remained liabilities solely of Old GM. The post-closing accident plaintiffs (whose products liability claims were assumed liabilities) argued that claims for punitive damages premised on Old GM knowledge or conduct were also assumed liabilities and could be asserted with the compensatory damages that the post-closing accident plaintiffs sought.

Pathways to punitive damages. The court agreed with two of the three ways that the plaintiffs asserted punitive damages could be recovered from New GM based on Old GM conduct. The court rejected the contention that claims for punitive damages were contractually assumed by New GM under the sale agreement and, as a result, “all of Old GM’s conduct is fair game.” The totality of the contractual language and extrinsic evidence indicated that New GM did not agree to, nor contractually take on, Old GM’s punitive damages liability.

One pathway the court agreed upon was that of information “inherited” by New GM. Any acts by New GM personnel, or knowledge of New GM personnel (including knowledge that any of them might have acquired while previously working at Old GM), could, consistent with the court’s April decision and June judgment, be imputed to New GM to the extent appropriate under applicable nonbankruptcy law. Similarly, knowledge can be imputed as a consequence of documents in a company’s files, and, thus, documents in New GM’s files can be used as a predicate for such knowledge, even if the documents first came into existence before the sale from Old GM to New GM. The bankruptcy court determined that those general principles could be applied in the related GM litigation in other courts. In addition, information obtained by New GM after the sale, the court said, could be used for punitive damages purposes as well. The extent to which such after-acquired information was relevant to punitive damages claims was a matter of nonbankruptcy law, and for the other courts to determine.

Punitive damages. The court concluded that punitive damages with respect to products liability claims or economic loss claims involving Old GM manufactured vehicles could be sought against New GM only to the extent that they rely solely on New GM knowledge or conduct. The claims cannot be based on Old GM knowledge or conduct, the court said. However, they can be based on knowledge of New GM employees that was “inherited” from their tenure at Old GM (or documents inherited from Old GM) and based on knowledge acquired after the sale by New GM.

The case is No. 09-50026 (REG).  

Attorneys:  Donald F. Baty, Jr. (Honigman Miller Schwartz and Cohn LLP) and David R. Berz (Weil, Gotshal & Manges LLP) for Motors Liquidation Co. a/k/a GMC Truck Division a/k/a Automotive Market Research a/k/a NAO Fleet Operations a/k/a National Car Rental a/k/a GM Corp. a/k/a National Car Sales a/k/a GM Corp.-GM Auction Department f/k/a General Motors Corp. Lisa H. Rubin (Gibson Dunn & Crutcher LLP) for Wilmington Trust Co. Brian Shoichi Masumoto, Office of the United States Trustee, for U.S. Trustee. Angela Ferrante (Garden City Group, LLC) for GCG, Inc. a/k/a The Garden City Group, Inc. Philip Bentley (Kramer Levin Naftalis & Frankel LLP) for Official Committee of Unsecured Creditors of General Motors Corp. Arthur Jay Steinberg (King & Spalding LLP) for General Motors LLC.

Companies: Motors Liquidation Co. f/k/a General Motors Corp.; General Motors LLC.