Burr Alert: Inadequate Notice Limits "Free and Clear" Sales in Bankruptcy
Recently, the United States Court of Appeals for the Second Circuit entered a decision in the General Motors bankruptcy case that found an exception to the "free and clear" language of Section 363(f) of the Bankruptcy Code2 where adequate notice of the sale order is not provided. However, the exception may not be far reaching due to the "peculiar" facts of the case.
Factual Background and Lower Court Decision
On June 1, 2009, General Motors Corporation ("Old GM") filed a petition for bankruptcy under chapter 11 of the Bankruptcy Code. Shortly thereafter, Old GM's assets were sold to General Motors LLC ("New GM") pursuant to Section 363 of the Bankruptcy Code. The sale order, among other things, authorized the sale of such assets free and clear of successor liability claims and enjoined all parties from making any such claims against New GM. Despite such protections in the sale order, class action lawsuits were filed against New GM asserting successor liability claims related to faulty ignition switches in vehicles produced by Old GM. The problems with the faulty ignition switches were known to Old GM before such switches were even placed into vehicles, yet Old GM did not work to fix the problems. The successor liability claims essentially fell into three categories: (1) claims based on pre-closing injuries and/or economic losses, both related to the faulty ignition switches and otherwise (the "Pre-Closing Claims"); (2) claims based on post-closing injuries related to the faulty ignition switches of individuals who purchased a General Motors vehicle post-closing (the "Used Car Claims"); and (3) claims based on New GM's wrongful post-closing conduct of concealing the faulty ignition switch problems (the "Independent Claims").
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