The New York federal judge overseeing ignition switch litigation against General Motors LLC has dismissed claims brought by drivers in six states and Washington, D.C., who bought cars from “Old GM” before the company’s 2009 bankruptcy sale. However, U.S. District Judge Jesse Furman held off on deciding claims from nine other states. In his ruling, Judge Furman first determined that U.S. bankruptcy law didn’t bar the drivers’ claims, but then applied Delaware law to dismiss the claims of drivers from California, D.C., Florida, Louisiana, Massachusetts, New York and Wisconsin. At issue in the ruling were successor liability claims brought by drivers in 15 states and D.C. who bought or leased cars with the Delta-model ignition switch defect before the July 2009 bankruptcy sale.
Although the Second Circuit Court of Appeals ruled in September that bankruptcy law didn’t bar the claims, GM had argued that the appeals court’s more recent Tronox ruling supported treating the claims as belonging to the Old GM bankruptcy estate and that the court should dismiss them. But Judge Furman rejected that line of argument, reiterating the Second Circuit’s finding that the drivers didn’t know about their claims before Old GM’s bankruptcy and were therefore deprived of their constitutional right to due process.
However, Judge Furman then had to perform a state-by-state analysis to determine which states’ laws applied to drivers from each state, and then decide the merits accordingly. New GM had argued he should apply either the law of Delaware, where New GM is incorporated, or of New York, where the bankruptcy sale was negotiated. The drivers had argued he should apply the laws of their home states or of Michigan, where most of the alleged misconduct occurred.
Judge Furman ultimately found that Delaware law applied to the claims of drivers from California, D.C., Florida, Louisiana, Massachusetts, New York and Wisconsin. In Delaware, a company that buys the assets of another company isn’t responsible for the latter’s debts and liabilities, the judge said. There are exceptions to this rule against successor liability, including – as the drivers argued – that a purchaser is “merely a continuation of the seller,” the judge noted. But “in evaluating whether that is the case,” Judge Furman said:
Delaware courts consider, among other factors, whether the sale was an arm’s length, cash transaction; whether the transferor corporation existed after the sale; and whether there was any continuity of ownership or control. Applying those standards here, it is plain that New GM is entitled to summary judgment on plaintiffs’ successor liability claims under Delaware law.
Judge Furman held off on determining the fate of the claims of drivers from the nine other states, which include Alabama, Illinois, Maryland and Michigan, asking instead for more information from the parties.
The defective switch lawsuits, which have been consolidated into multidistrict litigation, allege that design defects in certain models of GM cars led the ignition to slip out of the run position, shutting off the car and preventing the air bags from deploying. More than 100 deaths have been attributed to the design flaw, and GM initiated an extensive recall of the affected cars in 2014. The MDL is In re: General Motors LLC Ignition Switch Litigation, case number 1:14-md-02543, in the U.S. District Court for the Southern District of New York.
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