[4/13/10 Update:  In this decision, the District Court denied my appeal as statutorily and equitably moot and so would not consider whether Section 363(f) allows bankruptcy sales "free and clear" in in personam products liability claims.]

[12/14/09 Update:  Here’s the response briefs of GM and Treasury.  Here’s my reply briefHere’s a link to my post today on Supreme Court’s bombshell ruling vacating the 2d Circuit’s Chrysler decision.]

What started out a couple months ago as a "Slow Boat to China," today feels more like the "Voyage of the Damned."

Yesterday I filed this "Opening Brief" (plus the Sale Opinion at Appendix A and the Sale Order and MPA at Appendix B) on behalf of my five clients in our appeal of the GM Sale Order:  Callan Campbell, et al., v. Motors Liquidation Company, Case No. 09-6818 (NRB) (S.D.N.Y.).  The brief’s "Summary of the Argument" is at the end of this post.

This appeal is the only one pending that challenges the abhorrent treatment of preexisting products liability claims in either the GM or Chrysler bankruptcy cases.

When I first got involved in the case three months ago, I summarized here the injuries and the myriad adversities faced by my clients on a daily basis.  I wrote:

The sad, and all too tragic, stories of my clients, taken from the filed objection, are set forth below.  The only thing my clients did wrong here was buy a GM car.  For this act of brand loyalty, they have paid dearly.   It’s not enough that people lose their lives and get severely injured from design defects and product flaws, now they and their loved ones get thrown under the bus!

Having now lived with GM for about 450 hours the past three months, I have to say I’m thoroughly appalled at the cold-hearted stinginess of those calling the shots at GM and Chrysler.  They have left helpless accident victims hanging out to dry for reasons I cannot fathom, while otherwise spending "whatever it takes" — to whomever it takes — "to get the ‘deal’ done."  (See Opening Brief, at p.7).

With the US Treasury paying a mind-boggling $92 billion for most of "Old GM" (see Opening Brief, at p.7 fn.4), would it really be such a burden for the Secretary and his Boss to set aside another $250 million or so (or about 1/4% of the total consideration paid in the deal) to make sure there’s a small, but adequate, reserve to cover medical bills, assisted care, and other basic requirements of those (see, e.g.,  here, here, and Callan Campbell here) severely injured by the design defects built into cars manufactured by the same plants they’re now the stewards of?   (See Opening Brief at p.8 fn.6, estimating total remaining products claims left behind at $233.2 million).

Put another way, imagine you’ve got $92.00 in quarters in a big bucket.  Now imagine that you can dramatically change for the better the lives of hundreds, maybe even thousands, of people your own mirror-image predecessor destroyed through no fault of their own.  And imagine further that all you have to do to achieve that wonderful act of kind-heartedness is to take just one of those 368 quarters and put it aside for the benefit of those whose lives have been damned as a result of mistakes made by some of the people and property you just bought — and now control — for those 368 quarters.

That’s all that needs to be done in GM to make things right, and my guess is that only about a dime needs to be put aside to cover the outstanding products liability claims left to rot in Chrysler.  But no one seems to have the political or moral compunction to wrestle those thirty-five cents from the Boss’s own clenched fist.

"Sad" and "pathetic" are the first words that come to mind as I ponder the fact that I’m not on the "Slow Boat to China," but on the "Voyage of the Damned" (Art Spiegelman’s take on it).

My brief’s "Summary of the Argument" is below:

© Steve Jakubowski 2009




          Case law in this Circuit establishes three necessary conditions to a Court’s authorizing a 363 sale "free and clear" of potential products liability claims against a successor purchaser.  The first condition, a legal one, is set forth in Back v. LTV Corp. (In re Chateaugay), 213 B.R. 633, 638 (S.D.N.Y. 1997), and Pittsburgh Food & Bev., Inc. v. Ranallo, 112 F.3d 645 (3d. Cir. 1997), and requires that a reviewing court determine whether the bankruptcy court could colorably assert that it had "related to" subject-matter jurisdiction based on a finding that the outcome of the dispute could have a "conceivable effect" on the debtor’s bankruptcy estate.

          The second and third conditions, factual ones, are explained in In re Chrysler LLC, 576 F.3d 108 (2d Cir. 2009).  One requires a finding that the "free and clear" aspects of the sale order be a "critical inducement" to the purchaser’s willingness to consummate the sale.  The second requires a finding that the 363 sale process not be structured in a manner "inconsistent with the Bankruptcy Code’s priority scheme."  Chrysler, 576 F.3d at 126.

          Though failure to satisfy any one of these conditions should be sufficient to deny a purchaser the right to a "free and clear" order cleansing it of potential successor liability, none of these conditions were satisfied in this case.  First, the Bankruptcy Court lacked authority to render the findings and conclusions being challenged in this appeal because resolution of Appellants’ products liability claims against New GM, as successor, lacked any "conceivable effect" on the Debtors’ estates.  In this regard, most significant is the fact that Old GM has no obligation to indemnify New GM for liabilities that were not expressly assumed under the MPA yet might be charged to New GM post-Closing.  Second, the record clearly establishes that entry of a "free and clear" order barring successor claims against New GM in respect of Existing Products Claims was not a "critical inducement" to New GM’s willingness to consummate the 363 Sale.  In fact, the Bankruptcy Court found it "doubtful" that New GM "would have lent and ultimately bid a lesser amount" had it been required to assume these "politically sensitive" claims.  (Sale Op. at 51 n.91).  Third, the principle that creditors of equal priority should be treated similarly was cast aside in favor of Treasury’s single-minded focus on assuming any liability it deemed "necessary for the commercial success of New GM."  See, supra at 7 [of brief].  For this reason, over $60 billion in unsecured claims were assumed by New GM in whole or substantial part while, in marked contrast, Appellants and other similarly situated unsecured creditors will recover, at best, a paltry pari passu share of the few remaining assets left in Old GM.

          Arguments that this appeal is moot on statutory and equitable grounds also fail.  This appeal is not moot on statutory grounds because Bankruptcy Code section 363(m) does not prevent a reviewing court from reversing provisions of a sale order that were "not even colorably within its jurisdiction."  Ranallo, 112 F.3d at 650.  Nor, applying the five factors outlined in Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944, 949-50 (2d Cir. 1993), is this appeal equitably moot.  Most significantly, the remaining Existing Products Claims left behind with the Old GM are de minimus relative to the approximately $92 billion purchase price paid by New GM.  Thus, striking the provisions of the Sale Order barring these claims will not "unravel intricate transactions" or impair New GM’s viability.  Appellants’ failure to seek a stay pending appeal is also not fatal to their cause.  Appellants sought, but were denied, expedited review.  Moreover, the "stay" factor carries little weight where-as here-granting the requested relief would in no way unravel or "knock the props out" from the consummated transactions.

© 2009 by Steve Jakubowski