When the government calls the shots in a chapter 11 case, unsecured creditors are likely to claim that their losses were an uncompensated taking in a violation of the Takings Clause of the Fifth Amendment.
In an appeal arising from the bankruptcy sale of General Motors Corp., or Old GM, the Court of Appeals for the Federal Circuit ruled that the clock started ticking at an early date on claims that the U.S. government’s coercion of Old GM amounted to a regulatory taking. The August 1 opinion did not reach the question of whether the plaintiffs even had a claim in the first place.
The Personal Injury Claimants
The plaintiffs held personal injury claims relating to cars made by Old GM. When the auto maker filed a chapter 11 petition in June 2009, the government provided financing for the reorganization. In advance of filing, the government arranged for a sale of the assets to a new company, known as New GM. Initially, the government owned about 60% of New GM.
According to the plaintiffs, the government agreed to provide financing and buy the assets only if the sale order by the bankruptcy court cut off claims that could be made against New GM for successor liability. The plaintiffs contended they held valid successor liability claims against New GM under state law that were cut off by the sale order.
The plaintiffs filed a lawsuit in the Court of Federal Claims on July 9, 2015, alleging that the insulation of New GM from successor liability claims was an uncompensated regulatory taking in violation of the Fifth Amendment as a result of coercion by the government.
The Claims Court dismissed the suit, holding that it was not filed within the six-year statute of limitations under the Tucker Act, 28 U.S.C. § 2501. Even if the suit were timely, the Claims Court ruled that the plaintiffs failed to state a claim.
The Federal Circuit’s Affirmance
Writing for the Federal Circuit on August 1, Circuit Judge Timothy B. Dyk upheld dismissal by ruling that the Claims Court lacked jurisdiction because the statute had run. As it turned out, the suit was late by just a few days.
Old GM filed its chapter 11 petition on June 1, 2009 and immediately filed a motion to approve the sale. On July 1, Old GM filed a proposed sale order including the ban on successor liability claims.
On July 5, the bankruptcy court approved the sale and entered the sale-approval order. The sale order became effective on July 9, and the sale closed on July 10, 2009.
The plaintiffs had filed their suit on July 9, 2015. Their suit would have been timely if the statute began to run on either July 9 or July 10, 2009, when the sale order became effective and the sale closed.
The Tucker Act provides that claims in the Claims Court are barred unless they are “filed within six years after such claim first arose.” Judge Dyk pointed out that physical takings and regulatory takings are treated differently for statute of limitations purposes.
For a regulatory taking as alleged by the plaintiffs, Judge Dyk said that the “taking may occur before the effect of the regulatory action is felt and actual damages to the property interest is entirely determinable.” He went on to say that the final decision of the government triggers the accrual of the claim, “not the ultimate impact of that decision.”
Consequently, Judge Dyk said that the claim accrued on July 1, when Old GM filed the proposed sale order. The filing of the order, he said, “clearly inflicted an injury on the plaintiffs by diminishing the value of their claimed property rights.”
Because the suit was filed on July 9, 2015, more than six years after the submission of the sale order, Judge Dyk held that the suit was untimely and the Claims Court lacked jurisdiction. He also said that the plaintiffs could not mount a collateral attack on the sale order by alleging an unconstitutional taking. He did not reach the question of whether the plaintiffs had a claim in the first place.
When the government calls the shots in a chapter 11 case, unsecured creditors are likely to claim that their losses were an uncompensated taking in a violation of the Takings Clause of the Fifth Amendment.
In an appeal arising from the bankruptcy sale of General Motors Corp., or Old GM, the Court of Appeals for the Federal Circuit ruled that the clock started ticking at an early date on claims that the U.S. government’s coercion of Old GM amounted to a regulatory taking. The August 1 opinion did not reach the question of whether the plaintiffs even had a claim in the first place.
The plaintiffs held personal injury claims relating to cars made by Old GM. When the auto maker filed a chapter 11 petition in June 2009, the government provided financing for the reorganization. In advance of filing, the government arranged for a sale of the assets to a new company, known as New GM. Initially, the government owned about 60% of New GM.
According to the plaintiffs, the government agreed to provide financing and buy the assets only if the sale order by the bankruptcy court cut off claims that could be made against New GM for successor liability. The plaintiffs contended they held valid successor liability claims against New GM under state law that were cut off by the sale order.