Highlighting a potential shortcoming in some attempts to transfer environmental liability in bankruptcy proceedings, a federal court in New York found common law liability for environmental contamination was not covered by a release of “Environmental Law” liability. See In re: Motors Liquidation Company, et al., BANKR No. 09-50026 MG, Memorandum Opinion and Order Enforcing Provisions of Sale Order with respect to the Moore, et al., Plaintiffs, at 8 (Bankr. S.D.N.Y, May 4, 2018).

In 2009 General Motors (“GM”) entered chapter 11 bankruptcy proceedings. “Old” GM was split, creating a separate, distinct entity known colloquially as “New” GM. Among the liabilities new GM assumed from old GM in a 2009 sale order and agreement were those arising under “Environmental Law,” defined as “any Law in existence on the date of the Original Agreement relating to the management or release of, or exposure of humans to, any Hazardous Materials; or pollution; or the protection of human health and welfare and the Environment.”

A group of landowners near GM’s Milford Proving Ground testing facility—which was previously owned by “old” GM, but transferred to “new” GM in 2009—filed a putative class action in federal court in Michigan alleging personal injury and property damage arising from the use of road salt at the facility. New GM moved the bankruptcy court that had overseen the 2009 split to enforce the 2009 sale order and agreement, arguing common law claims were not among new GM’s assumed liabilities.

The bankruptcy court agreed and concluded that common-law toxic torts did not fit within the relevant concept of “Environmental Law” under the agreement. Instead, such claims “are essentially successor liability claims” which were not assumed by new GM. The court found the structure of the 2009 sale order and agreement indicated “new” GM’s intent to only assume “specifically-identified liabilities,” a concept the court found inconsistent with the nature of toxic torts. The court held that the plaintiffs’ claims against new GM “for personal injury or property damage based on groundwater contamination that migrated from the [facility] before the sale of the property to New GM was completed” are barred, but that claims for contamination that migrated after the sale could go forward.