Judging from briefs filed last week in opposition to a grant of certiorari, the Supreme Court is unlikely to review the decision handed down by the Second Circuit in July potentially holding General Motors Co., or New GM, liable for claims of known ignition switch creditors who did not receive notice by mail of the looming sale of the business in 2009.
The auto maker urged the Supreme Court to grant an appeal, contending the Second Circuit departed from decisions in other circuits and ignored Section 363(m) by holding that a good faith purchaser like New GM can be liable even though the sale was “free and clear” of claims.
In the words of the ignition switch plaintiffs in their brief opposing Supreme Court review, “there is no circuit split” and “bigger is no basis for certiorari.”
Defective Notice of the GM Sale
In early 2014, some three years after General Motors Corp., or Old GM, confirmed its chapter 11 plan, the purchaser, New GM, recalled of millions of vehicles to repair ignition switch defects that Old GM had known about for several years before bankruptcy.
Responding to the ensuing spate of class action suits, New GM prevailed on the bankruptcy judge to bar some claims against it based on the switch defect by enforcing the 2009 “free and clear” sale order that gave New GM liability only for specified liabilities, including warranty claims, accidents occurring after the sale, and Lemon Law claims. Otherwise, the sale was intended to prevent New GM from being sued on successor liability claims.
In its opinion last summer finding a due process violation from failure to give notice of the sale to known creditors, the Second Circuit reversed the bankruptcy court’s conclusion that there was no prejudice to owners of autos with defective switches. In substance, the appeals court allowed owners of defective autos to sue New GM on successor liability theories. Pending suits will decide whether New GM is liable for pre-closing accident claims and claims for economic loss. However, the Second Circuit did not decide that New GM in fact has successor liability.
New GM filed a petition for certiorari in December. To read ABI’s discussion of the petition, click here.
Opposition to the ‘Cert’ Petition
The ignition switch plaintiffs, a creditors’ trust created under Old GM’s plan, and pre-bankruptcy accident claimants were among those filing briefs last week in opposition to Supreme Court review.
The Acting Solicitor General did not submit a brief because the high court did not request the government’s views. The failure of the Supreme Court to ask for a brief from the government could be taken as some indication that the justices were not inclined initially to grant certiorari.
The briefs in opposition to certiorari all take largely the same approach. The pre-bankruptcy accident victims say “there is no circuit conflict” and “no court of appeals has ever adopted any of [New GM’s] legal arguments.”
Whereas the Supreme Court is prone to granting certiorari if the circuits are split, the accident victims characterize the petition for review as an “entirely fact-bound” objection to the Second Circuit’s opinion.
The briefs in opposition to certiorari contend that the Second Circuit’s decision is interlocutory, because the appeals court did not decide whether New GM has any liability. They submit that the proper time for review will occur only after New GM’s liability has been decided.
The objectors also contend that the circuit court decision was sui generis and unlikely to recur. The creditors’ trust called the ignition switch scandal a “black swan event” that took place in one of the largest corporate reorganizations ever to occur in the world.
Responding to New GM’s contention that the Second Circuit opinion will disturb bankruptcy courts’ ability to sell assets “free and clear,” the creditors’ trust said, “The sky is not falling; Section 363 is alive and well” because the appeals court did “not actually hold a Section 363 purchaser liable for anything whatsoever.”
Although it is perhaps too late for any new bankruptcy cases to be argued this term in the Supreme Court, the odds for granting certiorari were narrowed considerably in two leading contenders last week. In addition the GM case, the Acting Solicitor General counseled the justices not to review U.S. Bank NA v. The Village at Lakeridge LLC, a case from the Ninth Circuit holding that the purchaser of a claim does not automatically take on the seller’s insider status. To read ABI’s discussion of Lakeridge, click here.