## Facts

- Old GM filed Chapter 11 in the Southern District of New York in 2009 and sought approval of a sale of substantially all assets under 11 U.S.C. § 363.
- The bankruptcy court entered a 2009 sale order approving the transaction and providing that New GM took assets “free and clear” of specified liens, claims, and successor-liability theories, subject to identified assumed liabilities.
- In 2014, New GM announced recalls tied to an ignition-switch defect associated with vehicles manufactured prepetition by Old GM.
- Plaintiffs filed multiple actions alleging personal injury and economic loss, including (i) pre-closing accident plaintiffs, (ii) prepetition purchasers asserting economic loss, and (iii) post-sale used-car purchasers asserting economic loss from latent defects.
- New GM moved in the bankruptcy court to enforce the sale order to enjoin the suits as barred by the “free and clear” provisions.
- The bankruptcy court largely agreed the sale order barred many asserted successor-liability and economic-loss claims; it also allowed some claims premised on New GM’s own post-sale conduct and addressed equitable mootness regarding late-filed trust claims.
- Multiple claimant groups appealed; New GM and others cross-appealed.

## Issues

1. Whether the bankruptcy court had jurisdiction to interpret and enforce the 2009 § 363 sale order against suits filed in other forums.
2. Whether, and to what extent, the sale order could extinguish successor-liability and economic-loss claims as “claims” within the Bankruptcy Code.
3. Whether post-sale used-car purchasers’ economic-loss claims constituted bankruptcy “claims” that could be cut off by the sale order.
4. Whether enforcing the sale order against ignition-switch claimants who received publication notice violated procedural due process where the debtor knew or should have known of the defect and could identify affected customers.
5. Whether the bankruptcy court’s equitable-mootness discussion was proper or advisory.

## Decision

- The Second Circuit affirmed that the bankruptcy court had subject-matter jurisdiction to interpret and enforce its own sale order.
- The court held that a § 363 sale may transfer assets free and clear of successor-liability claims only to the extent the underlying rights qualify as bankruptcy “claims,” requiring prepetition debtor conduct plus a prepetition relationship with the claimant.
- Applying that framework, the court concluded:
  - Pre-closing accident claims and prepetition purchasers’ economic-loss claims could qualify as “claims” and, as a matter of bankruptcy law and sale-order text, fell within the “free and clear” provisions.
  - Post-sale used-car purchasers’ economic-loss claims were not “claims” against Old GM at the time of bankruptcy because they lacked a prepetition relationship with Old GM; they were not extinguished by the sale order.
  - Claims based solely on New GM’s own post-closing conduct (such as post-sale concealment or misrepresentations) were “independent” and not barred by the “free and clear” order.
- The court reversed in part on due process, holding that ignition-switch claimants could not be bound by the sale order where constitutionally adequate notice was not provided.
- The court vacated the bankruptcy court’s equitable-mootness discussion as advisory in light of the due-process ruling and remanded for further proceedings.

## Legal Principles

- Bankruptcy courts have authority and “related to” jurisdiction to interpret and enforce their own sale orders, including determining whether later-filed suits are barred by a § 363 order.
- A § 363 “free and clear” sale can cut off successor-liability theories only insofar as the asserted rights are bankruptcy “claims,” which require prepetition conduct by the debtor and a prepetition relationship with the claimant (such as exposure, impact, or privity).
- Postpetition purchasers who acquire the product after the sale, without any prepetition relationship to the debtor, generally do not hold bankruptcy “claims” that can be extinguished by the sale order.
- “Independent” causes of action based on the purchaser’s post-sale misconduct are not treated as derivative successor-liability claims barred by a “free and clear” provision.
- When a debtor knows or should know of a product defect and can identify affected parties with reasonable diligence, due process requires direct notice (or an equivalent individualized method), not publication alone.
- Once constitutionally inadequate notice is shown, the affected parties cannot be bound by the sale order; a court may not excuse the deficiency by speculating the sale would have been approved anyway.

## Conclusion

The Second Circuit held that while a § 363 sale order may bar certain successor-liability and economic-loss claims that qualify as bankruptcy “claims,” it cannot bind ignition-switch claimants who were denied constitutionally adequate notice, and it does not extinguish claims by post-sale used-car purchasers lacking any prepetition relationship with the debtor or independent claims based solely on the buyer’s post-sale misconduct.


Elliott v. Gen. Motors LLC (In re Motors Liquidation Co.), 829 F.3d 135 (2d Cir. 2016)