The General Motors chapter 11 case continues to produce interesting decisions on a variety of bankruptcy issues. Most recently, the bankruptcy court issued an opinion on the liability of “New GM” for alleged ignition switch defects, many of which involve vehicles manufactured by “Old GM” prior to the bankruptcy filing.
A bit of context is important in order to understand the ruling. After General Motors filed its chapter 11 case, it entered into an agreement to sell its operating assets to a newly-formed entity that has become known as New GM. At the outset, the sale agreement did not provide for New GM to take responsibility for personal injury or property damage claims relating to products that had been manufactured and sold prior to the bankruptcy filing. However, in response to the outcry that followed, the agreement was modified and New GM expressly assumed liability for personal injury and property damage claims relating to vehicles manufactured and sold by the pre-sale entity.
A number of questions have arisen regarding the scope of those assumed liabilities and their implications for New GM. The bankruptcy court has previously held the New GM is not generally liable for non-assumed liabilities of Old GM. However, issues remained regarding how that principle applied in specific instances.
In this most recent decision, Judge Gerber addressed two primary substantive questions. The first question was the extent to which knowledge of old GM personnel who continued with New GM could be imputed to New GM or whether the contents of Old GM files and records delivered to the new company could be treated as within the knowledge of New GM. That combination of questions was identified in the opinion as the “Imputation Issue.”
The second question addressed by Judge Gerber was whether punitive damages in actions against New GM could be based on the knowledge or conduct of Old GM. This was referred to in the opinion as the “Punitive Damages Issue.”
An interesting sidelight of the decision was the court’s identification of its role as that of a “gatekeeper.” There are a host of cases involving these various issues pending in courts throughout the country. The determination of the outcome applicable to the facts of each case was something that Judge Gerber viewed as beyond his appropriate role as the Bankruptcy Judge. Rather, Judge Gerber viewed his role as that of a gatekeeper, seeking to broadly identify those claims and allegations that could permissibly “pass through the gate” of the bankruptcy court’s earlier sale order and therefore be considered by other courts in the context of particular cases.
On the Imputation Issue, the court ruled that the knowledge of particular employees of New GM and documents in the files of New GM could appropriately be imputed to New GM for purposes of claims against it. The court declined to find a general theory of imputed knowledge, holding that the courts in the various cases would be called upon to decide the issue in the context of particular employees and particular documents.
On the Punitive Damages Issus, Judge Gerber ruled that claims for punitive damages had not been assumed by New GM under the sale agreement, and that such claims could be based only on the conduct of New GM. However, the court also found that conduct of New GM could be evaluated based on “inherited” information, thus recognizing the possibility that continuing employee knowledge or transferred documents could impact the responsibility of New GM in particular cases.
Representatives of both plaintiffs and New GM have both claimed victory in Judge Gerber’s recent decision. However, the real conclusions as to success will necessarily await individual cases and specific facts. It remains to be seen whether the types of allegations which the bankruptcy court’s ruling has allowed to “pass through the gate” will end up providing a vehicle for recoveries against New GM.