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Will the <b><I>Tronox</I></b> Decision Help the New GM?
General Motors LLC — the New GM — is subject to a multitude of lawsuits stemming from its alleged wrongdoings and the alleged wrongdoings of its predecessor, General Motors Corp. — the Old GM — which sold its assets to New GM pursuant to a § 363 “free and clear” sale in bankruptcy in 2009. The U.S. Court of Appeals for the Second Circuit previously held that certain plaintiffs could not be barred by the “free and clear” provisions of the 2009 sale order (a decision the U.S. Supreme Court elected not to review). Following the denial of its petition for certiorari, the New GM is attempting to resurrect its principal defense against these lawsuits, arguing that the tort claims brought against New GM are barred on a new theory based on a recent Second Circuit decision in In re Tronox, 855 F.3d 84 (2d Cir. 2017).
In Tronox, the issue was whether individual claimants could pursue certain claims against Kerr-McGee, which had settled with the liquidation trust established as part of the Tronox bankruptcy. In this case, the appellate court barred individual plaintiffs from pursuing claims against Kerr-McGee, stating that the Bankruptcy Code prevented individual creditors from pursuing claims against a third party that are truly aimed at recovering “estate” assets. While Tronox may be a recent development in the Second Circuit, the theory has been previously adopted in the successor liability context in the U.S. Court of Appeals for the Third Circuit.
In In re Emoral, 740 F.3d 875 (3d Cir. 2014), the court held that prepetition personal injury claims that relied upon the “mere continuation” theory of successor liability constituted causes of action that were property of the bankruptcy estate and thus eligible for settlement, release and discharge as part of the bankruptcy proceeding. See Corinne Ball, “'Emoral': Third Circuit Provides Comfort to Distressed Purchasers,” NYLJ (April 24, 2014).
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