Zywicki on Plaintiff Suits Against Automakers

A worrisome byproduct of the Chrysler and GM bankruptcies may be treatment of consumers' tort claims, which some fear will not experience due process because of language calling for automakers' emergence from bankruptcy "free and clear" of  pending and future claims and interests in property sold prior to the bankruptcy.

"In the bankruptcy world, you treat claims of someone injured by a defective product in the same way as someone who holds a bond," said Professor Todd Zywicki. Most courts take the view that the injured party joins other unsecured creditors behind those that are secured.

Last week consumer organizations and plaintiffs' lawyers requested a stay by the Supreme Court, challenging the constitutionality of terminating the rights of people who may at some point in the future be injured or killed in an accident involving a GM or Chrysler vehicle.

Plaintiff suits against automakers stall out, The National Law Journal, June 15, 2009. By Marcia Coyle.

"Although the justices refused to halt the Chrysler sale last week, the consumer-plaintiff group still has a petition pending that fleshes out legal arguments as to why Chrysler should remain on the hook for both pending and future products liability claims. If the court denies review, the group's lawyers said, they will consider returning to the high court if GM, as expected, follows Chrysler's path.

"In trying to save pending tort claims like those of Warriner and Cole, Public Citizen's Rosenbaum, along with Elizabeth Cabraser of San Francisco's Lieff Cabraser Heimann & Bernstein, and Nancy Winkelman and Barry Bressler of Philadelphia's Schnader Harrison Segal & Lewis, make a statutory argument. Chrysler was sold to Fiat under Section 363 of the bankruptcy code. Section 363(f) authorizes the sale of property free of all 'interests' in the property. They contend that products liability claims are not 'interests' in property. To bolster that position, they note that Section 1141(c) of the code, which deals with sales in a reorganization plan, specifically speaks to sales of property free and clear of all 'claims and interests.' Where Congress includes particular language in one section of a statute but not in another section of the same law, they argue, it is presumed that Congress acted intentionally and purposefully.

"A number of bankruptcy experts, and even Chrysler in its response to the consumer-plaintiff groups' stay request in the Supreme Court last week, agree the language of Section 363 is not entirely clear. Although the phrase 'interests in property' is not defined in the code, Chrysler's counsel, Thomas Cullen of Jones Day, said the bankruptcy court correctly concluded that it extends beyond in rem interests, such as liens, to encompass in personam claims, including tort claims.

"But bankruptcy litigator Steve Jakubowski of Chicago's The Coleman Law Firm countered, 'Nothing in the statute says these sales are free and clear of claims, only interests. Claims are not interests. There has been a raging debate under the surface for a few years as to whether a bankruptcy court in a 363 sale can literally wipe out all successor liability claims [claims against the post-bankruptcy company], even future claims.'

"Jakubowski added that many jurisdictions hold that even 'free and clear' sales under Section 363(f) don't insulate a successor corporation from products liability claims that could have been asserted against its predecessor if there is a state law that would hold the successor liable for such claims."

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