Chrysler Sale Bars Future Tort Claims

I have read Judge Gonzalez’s Order of June 1 concerning the sale of substantially all of the assets of Chrysler to Fiat, and it certainly appears to me that the sale will cut off  future products liability claims. 

Here is the key language Pages 42 – 44 of  the Court’s Order.

Category (3) consists of tort and consumer objections. Those objections relating to  lemon law and warranty claims have been resolved by the modification of relevant language in the Fale order. An objection (ECF Docket No. 1231) was raised regarding an environmental claim, but the property to which the claim related is no longer owned by the Debtors and the objection is therefore overruled. Various objections were raised related to property damage claims and personal injury and wrongful death claims, including those which have not yet occurred. Some of these objectors argue that their claims are not “interests in property” such that the purchased assets can be sold free and clear of them. However, the leading case on this issue, In re Trans World Airlines, Inc., 322 F.3d 283 (3d Cir. 2003) (“TWA”), makes clear that such tort claims are interests in property such that they are extinguished by a free and clear sale under section 363(f)(5) and are therefore extinguished by the Sale Transaction. See id. at 289, 293. The Court follows TWA and overrules the objections premised on this argument. Even so, in personam claims, including any potential state successor or transferee liability claims against
New Chrysler, as well as in rem interests, are encompassed by section 363(f) and are therefore extinguished by the Sale Transaction. See, e.g., In re White Motor Credit Corp., 75 B.R. 944, 949 (Bankr. N.D. Ohio 1987); In re All Am. Of Ashburn, Inc., 56 B.R. 186, 190 (Bankr. N.D. Ga. 1986).

The Court also overrules the objections premised on this argument. Additionally, objections in this category touching upon notice and due process issues, particularly with respect to potential future tort claimants, are overruled as to those issues because, as discussed elsewhere in this Opinion, notice of the proposed sale was published in newspapers with very wide circulation. The Supreme Court has held that publication of notice in such newspapers provides sufficient notice to claimants “whose interests or whereabouts could not with due diligence be ascertained.” Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 317 (1950). Accordingly, as demonstrated by the objections themselves, the interests of tort
claimants, including potential future tort claimants, have been presented to the Court, and the objections raised by or on behalf of such claimants are overruled.

Other objections in this category are premised on the argument that a free and clear sale would be fundamentally unfair, inequitable, or in bad faith. The policy underlying section 363(f) is to allow a purchaser to assume only the liabilities that promote its commercial interests. See, e.g., In re New England Fish Co., 19 B.R. 323, 328-29 (Bankr. W.D. Wash. 1982); White Motor Credit, 75 B.R. at 951. Accordingly, objections premised on this argument are overruled. An objection in this category raised the Takings Clause of the Fifth Amendment, but this objection is overruled because the objector holds an unsecured claim, rather than a lien in some collateral that is property of the estate, which is a necessary prerequisite to a Fifth Amendment Takings Clause claim in the bankruptcy context. See U.S. v. Security Industrial Bank, 459 U.S. 70 (1982).  The same objection also raised the issue of the break-up fee being excessive, but this objection is overruled as untimely because that fee was approved in the Bidding Procedures Order and is not implicated since the assets are being sold to the original bidder. Another objection related to an asbestos claim raised both the failure to comply with section 524(g) and that the Sale Transaction improperly provides for the release of third parties, but this objection is overruled as to both issues because section 524(g) is inapplicable to a free and clear sale under section 363 and the Sale Transaction does not contain releases of third parties. Such claims can still be asserted against the Debtors’ estate. Other objections in this category which contend that the Sale Transaction is a sub rosa plan are overruled as to that issue but are addressed by the relevant sections of this Opinion.

What is unclear to me under this Order does, if anything to existing claims and judgments.  I will try to determine what is going there and let you know.

I am confident  that an appeal will be filed.

This decision, if it stands, will have an impact on component part manufacturers.  To the extent that a part fails you will see plaintiffs going directly to the component part manufacturer and not to Chrysler – the entity that injected the product into the stream of commerce.

But design claims?  Unless Chrysler out-sourced its design work, those claims will be gone unless state law permits a claim against the dealer.  Tennessee permits products liability claims against the retailer of a new product  if the manufacturer of the product is insolvent.  Of course, a lot of dealers are going out of business, but many of them have liability insurance that will provide some amount of monies who those who can prove that the vehicle was sold in a defective or unreasonably dangerous condition.

Here is my prior post on the Chrysler bankruptcy filing.

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