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In re General Motors LLC Ignition Switch Litigation

United States District Court, S.D. New York

December 19, 2017




         [Regarding New GM's Motion for Partial Summary Judgment on Successor Liability]

         This multidistrict litigation (“MDL”) arose from the February 2014 recall by General Motors LLC (“New GM”) of vehicles that had been manufactured by New GM's predecessor, General Motors Company (“Old GM”), with a defective ignition switch. Plaintiffs seek recovery on behalf of putative classes of GM car owners and lessors whose vehicles were subject to those recalls, arguing that they were harmed by, among other things, a drop in the value of their vehicles due to the ignition switch defect and other defects. Late last year, New GM moved, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for partial summary judgment on “successor liability” claims brought by a subset of Plaintiffs - namely, “[a]ll persons who bought or leased a Delta Ignition Switch Vehicle on or before July 9, 2009” (Docket No. 3356, ¶ 973) - in sixteen jurisdictions that had been the focus of other prior opinions. (Docket No. 3519). In a prior opinion, familiarity with which is assumed, the Court held that Delaware law applied in seven of those sixteen jurisdictions and that, under Delaware law, Plaintiffs' successor liability claims failed as a matter of law. See In re Gen. Motors LLC Ignition Switch Litig., No. 14-MC-2543 (JMF), 2017 WL 3382071, at *1 (S.D.N.Y. Aug. 3, 2017) (“Prior Successor Liability Op”). With respect to each of the other nine jurisdictions - Alabama, Illinois, Maryland, Michigan, Missouri, Oklahoma, Pennsylvania, Texas, and Virginia - the Court engaged in a choice-of-law analysis to determine the applicable substantive law, but deferred a decision on the merits pending supplemental briefing from the parties. See Id. at *19.

         The Court has reviewed the parties' supplemental submissions and now picks up where it left off. For the reasons discussed below, the Court concludes that Plaintiffs' successor liability claims fail as a matter of law under Maryland law, which applies a strict test to claims that a successor corporation is a “mere continuation” of a predecessor corporation (so strict that no plaintiff appears to have succeeded in bringing a successor liability claim on that basis). By and large, the applicable law in the other eight jurisdictions, however, is more forgiving and less amenable to resolution on summary judgment, as it involves the application of fact-intensive multi-factor tests. Applying those tests, the Court concludes that summary judgment cannot be granted as to Plaintiffs' claims from the other eight jurisdictions still at issue.


         In its prior opinion, the Court determined that the substantive law of seven jurisdictions applied in the nine jurisdictions at issue. Specifically, the Court held that Alabama, Maryland, Michigan, Missouri, Oklahoma, and Pennsylvania would each apply its own law to the claims of Plaintiffs from those jurisdictions; that Illinois would apply Michigan law; and that Texas and Virginia would each apply New York law. See Id. Although there are similarities between and among the laws at issue, the Court addresses each of the seven jurisdictions in turn.

         A. Alabama

         Alabama recognizes four exceptions to the general rule against successor liability, two of which are relevant here: (1) the de facto merger exception (where “the transaction amounts to a De facto merger or consolidation of the two companies”); and (2) the mere-continuation exception (where “the transferee corporation is a mere continuation of the transferor”). Andrews v. John E. Smith's Sons Co., 369 So.2d 781, 785 (Ala. 1979).[1] It is not entirely clear whether there is an appreciable difference, under Alabama law, between the de facto merger and mere-continuation exceptions. See, e.g., Clardy v. Sanders, 551 So.2d 1057, 1061 (Ala. 1989) (treating “these two exceptions” analogously (internal quotation and citation omitted)); Matrix-Churchill v. Springsteen, 461 So.2d 782, 786 (Ala. 1984) (same). Moreover, Plaintiffs concede that there is little daylight between the two. (Pls' Br. 4). Accordingly, the Court addresses only the mere continuation exception under Alabama law.

         Under the mere-continuation exception, liability may be found where a successor “uses the assets it acquires to substantially continue its predecessor's business activities.” Lopez v. Delta Int'l Mach. Corp., 15-CV-0193 (JOB), 2017 WL 3142028, at *33 (D.N.M. July 24, 2017). Alabama courts apply “a four-factor test” to determine if a purchasing corporation is a mere continuation. Asher v. KCS Int'l, Inc., 659 So.2d 598, 599 (Ala. 1995). The four factors are: (1) where there “was basic continuity of the enterprise of the seller corporation, including, apparently, a retention of key personnel, assets, general business operations and even the [seller's] name”; (2) whether “[t]he seller corporation ceased ordinary business operations, liquidated, and dissolved soon after distribution of consideration received from the buying corporation”; (3) whether “[t]he purchasing corporation assumed those liabilities and obligations of the seller ordinarily necessary for the continuation of the normal business operations of the seller corporation”; and (4) whether “[t]he purchasing corporation held itself out to the world as the effective continuation of the seller corporation.” Turner v. Wean United, Inc., 531 So.2d 827, 830 (Ala. 1988) (internal citation and quotation marks omitted). Although the Alabama Supreme Court has described the first factor as “arguably the most important, ” id. at 830, to prevail on a successor liability claim, a plaintiff must produce “substantial evidence of each of the four factors, ” Asher, 659 So.2d at 599; accord Prattville Mem'l Chapel v. Parker, 10 So.3d 546, 558 (Ala. 2008); see also, e.g., Brown, 599 So.2d at 3 (affirming summary judgment for the defendant where the plaintiff did not provide substantial evidence of two factors).

         Applying those standards here, the Court concludes that New GM's motion for summary judgment must be denied as to claims under Alabama law. In particular, Plaintiffs proffer substantial evidence of each factor. First, there is no dispute that New GM continued Old GM's business and operations by, inter alia, assuming franchise agreements, maintaining contracts with suppliers, retaining their principal executive offices, and continuing to produce Old GM's automobiles. (Docket No. 3618 (“PSUF”), at ¶¶ 44-54). Second, pursuant to a liquidation plan, Old GM dissolved nine months after New GM acquired the bulk of its assets. (PSUF ¶¶ 24-27). Third, New GM assumed critical liabilities, including product liability, warrant, and recall obligations, as well as responsibilities under employee benefit plans, in order to continue normal business operations. (PSUF ¶ 12). And finally, after the sale of Old GM, New GM held itself out as the continuation of Old GM by, for example, maintaining the logos of well-known automobile brands. (PSUF ¶¶ 53-54). At a minimum, Plaintiffs demonstrate that there are genuine issues of material fact with respect to each of the factors in Alabama's multi-factor test.

         Notably, New GM does not seriously argue otherwise. Instead, it claims that Plaintiffs fail to show that they were “deprived by the asset transaction of an effective remedy.” (Docket No. 4453 (“Def.'s Br.”), at 20 (quoting Santa Maria v. Owens-Illinois, Inc., 808 F.2d 848, 859 (1st Cir. 1986)). But New GM does not cite (and the Court has not found) any Alabama precedent suggesting that such a requirement supersedes the four-factor test discussed above. New GM also argues that Plaintiffs cannot meet the third factor - that the predecessor corporation ceased ordinary business operations, liquidated, and dissolved soon after receiving consideration for the sale - because Old GM “and its liquidating trust have existed for eight years after the Sale.” (Def.'s Br. 23). But that argument is premised on treating the liquidating trust - the MLC General Unsecured Creditors Trust (the “GUC Trust”) - as the relevant predecessor to New GM.[2] Under Alabama law, however, the predecessor for purposes of the third factor is the “seller corporation.” See Parrett Trucking, Inc. v. Telecom Sols., Inc., 989 So.2d 513, 521 (Ala. 2008); see also Brown, 599 So.2d at 3 (stating that the second factor concerns the “seller corporation”). Here, the GUC Trust was not the “seller corporation”; Old GM was. (PSUF ¶ 2). Indeed, the GUC Trust did not even exist until the sale of Old GM to New GM was consummated. (PSUF ¶ 29). Accordingly, drawing all inferences in favor of Plaintiffs, as the nonmoving parties, the Court cannot say as a matter of law that New GM is entitled to summary judgment on Plaintiffs' successor liability claims under Alabama law.

         B. Maryland

         By contrast, the Court concludes that New GM is entitled to summary judgment with respect to Plaintiffs' claims under Maryland law. Maryland recognizes four exceptions to the general principle against successor liability, see, e.g., Martin v. TWP Enters. Inc., 227 Md.App. 33, 50 (2016), of which Plaintiffs rely on only one: the “mere-continuation” exception. (Pls' Br. 6).[3] That exception permits successor liability where “[t]he successor entity is a mere continuation or reincarnation of the predecessor entity.” Nissen Corp. v. Miller, 323 Md. 613, 617 (1991) (quoting 1 American Law of Products Liability 3d § 7:1, at 10-12 (Travers, rev. ed. 1990)). Maryland courts look to various “indications of continuation” in determining whether the exception applies: “(1) any change in ownership and management, (2) the continued existence of the selling corporation, (3) the adequacy of consideration, (4) the transfer of any instrumental employees from the predecessor to the successor, and (5) the purpose of the asset sale.” Martin, 227 Md.App. at 60 (internal citations and quotation marks omitted). Maryland law holds that these factors are to “be weighed in the balance.” Id. at 59 (internal citation omitted). As the Maryland Court of Appeals has explained, the “gravamen of the traditional ‘mere continuation' exception is the continuation of the corporate entity rather than continuation of the business operation.” Nissen Corp., 323 Md. at 620; cf. Prior Successor Liability Op., 2017 WL 3382071, at *18 (noting that under Delaware law, the “test is not the continuation of the business operation . . . . Instead, the test is the continuation of the corporate entity.” (internal citations and quotation marks omitted)). On the whole, the exception is “designed to prevent a situation whereby the specific purpose of acquiring assets is to place those assets out of reach of the predecessor's creditors.” Balt. Luggage Co. v. Holtzman, 80 Md.App. 282, 297 (1989). Further, the exception is applied stringently in Maryland. In fact, to the Court's knowledge, no Maryland court has applied the mere-continuation exception in a plaintiff's favor. See Martin, 277 Md.App. at 54 (“In none [of the cases applying the exception] did the Court conclude that the successor corporation was a mere continuation of the predecessor corporation.”).

         In this case, Plaintiffs do not dispute that two of the relevant considerations - the adequacy of consideration and the purpose of the asset sale - cut against a finding of successor liability. (See Pls' Br. at 7 n.5). See also Prior Successor Liability Op., 2017 WL 3382071, at *18 (“[I]t is undisputed that the sale of certain of Old GM's assets to the new corporate entity sponsored principally by the U.S. Treasury was an arm's-length transaction involving fair consideration.”). In light of Maryland precedent, the other factors weigh against them as well. First, applying a strict test with respect to change in ownership and management, Maryland courts have held that some overlap is insufficient. See Martin, 227 Md.App. at 62-63 (rejecting the mere-continuation exception because “[a]lthough there was overlap, ownership and management . . . also changed following the asset sale”). Here, “it is undisputed that the Old GM was issued only 10% of New GM's common stock (and warrants to purchase up to 15%)” and that “the majority of the new company was owned by the U.S. government.” Prior Successor Liability Op., 2017 WL 3382071, at *18. And with only six of New GM's thirteen board members having previously served as board members of Old GM, id., this cannot be described as a case where “the purchasing corporation maintains the same or similar management and ownership but wears a ‘new hat.'” Nissen Corp., 323 Md. at 618 (quoting Balt. Luggage Co., 80 Md.App. at 297). Second, with respect to the dissolution of the predecessor corporation, although there is no dispute that Old GM dissolved after the sale, the dissolution of the predecessor corporation, by itself, does not trigger successor liability. See Martin, 227 Md.App. at 62-63 (declining to apply the exception where the predecessor corporation sold all of its assets to the successor). Finally, and perhaps most importantly, Maryland courts also consider “the underlying purpose of the ‘mere continuation' exception.” Id. at 63. In this case, Plaintiffs do not claim, let alone point to evidence suggesting, that “the specific purpose of acquiring assets [was] to place those assets out of reach of the predecessor's creditors.” Id. at 52-53 (quoting Balt. Luggage, 80 Md.App. at 297). In sum, Plaintiffs do not proffer sufficient facts, even taken together, to succeed under Maryland's relatively stringent mere-continuation exception. See, e.g., Progressive Septic, Inc. v. SeptiTech, LLC, 09-CV-3446 (ELH), 2011 WL 939022, at *14 (D. Md. Mar. 15, 2011) (applying Maryland law and granting summary judgment to the defendant even where the successor corporation “hired former employees of [the predecessor], ” “operated from the same plant as [the predecessor], ” “adopt[ed] . . . the [predecessor's] name, ” and “operat[ed] a similar business”). Summary judgment is therefore granted to New GM on Plaintiffs' Maryland claims.

         C. Michigan

         Michigan law - which applies to the claims of Plaintiffs from both Illinois and Michigan, see Prior Successor Liability Op., 2017 WL 3382071, at *19 - recognizes “five exceptions” to the traditional rule of successor liability. See Foster v. Cone-Blanchard Mach. Co., 460 Mich. 696, 702 (1999). Plaintiffs here rely on two: the continuity-of-enterprise and mere-continuation exceptions. (Pls' Br. 8). New GM argues that the former applies only to product liability cases (Def.'s Br. 23-24), and there is indeed some support for that proposition. See, e.g., Starks v. Mich. Welding Specialists, Inc., 477 Mich. 922, 922 (2006); Retail Works Funding LLC v. Tubby's Sub Shops Inc., No. 332453, 2017 WL 3798500, at *5 (Mich. Ct. App. Aug. 31, 2017). Ultimately, however, the exception is not so rigidly limited. In Turner v. Bituminous Cas. Co., 397 Mich. 406 (1976), the Michigan Supreme Court applied the exception in the products liability context on the theory that “manufacturers rather than the consumer should bear the brunt of the burden for defective products.” City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 252 (6th Cir. 1994) (citing Turner, 397 Mich. at 881); see also, e.g., Foster, 460 Mich. at 705 (“The underlying rationale for the Turner Court's decision to disregard traditional corporate law principles was to provide a source of recovery for injured plaintiffs.”). In the wake of that decision, the Sixth Circuit has explained, the “question is whether Turner-type policies apply in the given context.” C.T. Charlton & Assocs., Inc. v. Thule, Inc., 541 F. App'x 549, 553 (6th Cir. 2013); see also Id. at 552 (recognizing that the exception “is only meant to apply in products-liability cases (and potentially a few other areas animated by similar public-policy concerns)”). Significantly, the Michigan Supreme Court has held that plaintiffs cannot recover for economic losses in a tort action, see Neibarger v. Universal Cooperatives, Inc., 439 Mich. 512, 527-28 (1992), but that principle has been limited to “transactions involving the sale of goods for commercial purposes, ” Blackward v. Simplex Prod. Div., No. 221066, 2001 WL 1255924, at *3 (Mich. Ct. App. Oct. 19, 2001). By contrast, courts have held that the policy reasons identified in Turner apply “to transactions involving individual consumers making noncommercial purposes, ” id., such as those at issue here. Accordingly, the Court concludes that the Michigan Supreme Court would likely apply the continuity-of-enterprise exception to Plaintiffs' economic loss claims.

         As it does under Alabama law, the continuity-of-enterprise exception under Michigan law turns on a consideration of whether

(1) there is continuation of the seller corporation, so that there is a continuity of management, personnel, physical location, assets, and general business operations of the predecessor corporation; (2) the predecessor corporation ceases its ordinary business operations, liquidates, and dissolves as soon as legally and practically possible . . . (3) the purchasing corporation assumes those liabilities and obligations of the seller ordinarily necessary for the uninterrupted continuation of normal business operations of the selling ...

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