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By: Stephanie Y. Lin

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In re Old Carco,[1] the Bankruptcy Court for the Southern District of New York held that the plaintiffs’ pre-petition claims were barred by a sale order entered following a sale pursuant to section 363 of the Bankruptcy Code (a “363 Sale”) because the court found that the sale order’s “free and clear of any interest in such property” language included the plaintiffs’ claims.  The plaintiffs had filed a class action suit in Delaware state court against Chrysler Group LLC (“New Chrysler”) alleging that their vehicles, which were manufactured and sold by Old Carco LLC (“Old Chrysler”), suffered from a design flaw known as “fuel spit back.”[2]  After the case was removed to the Delaware federal district court, New Chrysler moved to dismiss the class action on the grounds that the plaintiffs’ claims were barred by the sale order that approved the sale of Old Chrysler’s assets to New Chrysler during Old Chrysler’s chapter 11 reorganization (the “Sale Order”).[3]  The Delaware district court then transferred the dispute to the New York bankruptcy court solely to determine the effect of the Sale Order on the plaintiffs’ claims.[4]  Under the Sale Order, New Chrysler assumed liability for only three types of claims that could be brought by future plaintiffs.[5]  The bankruptcy court found that while the sale order did not prevent the plaintiffs’ claims that arose under these three types of liabilities, all other claims that arose prior to the Closing Date were barred.[6]  Specifically, the bankruptcy court found that the plaintiffs or their predecessors (if the plaintiff had bought a used car) had a “pre-petition relationship” with Old Chrysler, and the “fuel spit back” design flaw existed pre-petition.[7]  Because of this, the bankruptcy court determined that the plaintiffs’ claims existed pre-petition, and thus, were barred by the Sales Order.[8]