Chrysler Wrongful Death Suits Barred in Alabama While Permitted Elsewhere

A resident of Alabama cannot lodge a wrongful death suit against “New” Chrysler based on a defect in a car made by “Old” Chrysler, although residents of other states can.

Why?

Answer: Because a wrongful death claim is classified in Alabama as a claim for punitive damages, and “New” Chrysler was insulated from punitive damage claims when it purchased “Old” Chrysler’s assets in the 2009 bankruptcy sale.

Under the court-approved asset purchase agreement in 2009, “New” Chrysler only assumed specified liabilities of “Old” Chrysler. Among the assumed liabilities, “New” Chrysler took on liability for accidents occurring after the sale involving vehicles made by “Old” Chrysler.

However, the agreement expressly excluded liability for punitive damages.

Several years after the Chrysler bankruptcy sale, a woman died in an auto accident while riding in a car manufactured long before the auto maker’s bankruptcy. Her estate sued “New” Chrysler for wrongful death in state court. Based on the limitations in liability contained in the asset purchase agreement, “New” Chrysler brought an action in bankruptcy court in New York to bar the wrongful death claim.

Given the peculiarities of Alabama law, “New” Chrysler was able to avoid responsibility for a wrongful death claim where it ordinarily would be liable.

How come, you ask?

The Alabama Wrongful Death Act, or AWDA, allows recovery of “such damages as the jury may assess . . . for the wrongful act, omission, or negligence of any person” resulting in death.

As Bankruptcy Judge Stuart M. Bernstein said in his November 1 opinion, the Alabama Supreme Court, going back to 1877, has consistently interpreted the AWDA “to limit recovery to punitive damages and exclude recovery for compensatory damages.” Although the words “punitive” or exemplary” damages do not appear in the AWDA, Judge Bernstein explained how the statute was intended “to prevent homicides” by punishing the tortfeasor through the imposition of punitive damages. The goal of the statute, he said, is “not to compensate the injured party.”

The plaintiff raised several arguments to avoid the exclusion of liability in the asset purchase agreement. Judge Bernstein rejected all of them.

Judge Bernstein said there was no patent or latent ambiguity in the asset purchase agreement allowing suit in Alabama on a claim permissible elsewhere. Likewise, the result was not absurd, he said.

Despite tort reform in Alabama, Judge Bernstein said the legislature did not change the AWDA to permit compensatory damages in wrongful death actions. He concluded that the damages awarded under AWDA “are still punitive damages, whether based on mere negligence or on more egregious wrongdoing, because they are intended to punish and deter rather than compensate.”

Judge Bernstein therefore barred the plaintiff from pursuing a wrongful death claim in the Alabama courts. “While the result is unsatisfactory,” he said, “the Court is powerless to change the result.”