## Facts

- Old GM filed Chapter 11 in the Southern District of New York on June 1, 2009 and sought an expedited sale of substantially all assets to a newly created entity later known as New GM under 11 U.S.C. § 363.
- The bankruptcy court approved a sale order in July 2009 providing that New GM acquired the assets “free and clear” of most liens and claims, including many successor-liability claims, subject to specified exceptions.
- In 2014, New GM announced recalls involving an ignition-switch defect that could shut off engines and disable airbags; evidence supported that Old GM knew or should have known of the defect before the 2009 sale.
- Multiple plaintiff groups asserted claims tied to Old GM vehicles, including (i) pre-sale accident personal-injury claims and (ii) economic-loss claims by owners and used-car purchasers, some alleging New GM’s post-sale concealment and marketing misconduct.
- New GM moved in bankruptcy court to enforce the 2009 sale order and to enjoin present and future actions as barred by the sale order’s free-and-clear and successor-liability provisions.
- The bankruptcy court held that certain defect claimants received constitutionally insufficient notice because Old GM relied on publication notice despite being able to identify affected parties; nonetheless, it largely enforced the sale order based on a “no prejudice” rationale (it would have approved the same order).
- The bankruptcy court also applied equitable mootness to bar certain late efforts to pursue recoveries implicating the unsecured creditors’ trust.
- Appeals followed by New GM and various claimant groups.

## Issues

1. Whether the bankruptcy court had jurisdiction to interpret and enforce the 2009 § 363 sale order.
2. Whether, and to what extent, the sale order’s free-and-clear provisions could bar successor-liability and related claims against New GM.
3. Whether enforcing the sale order against defect claimants who received only publication notice violated procedural due process.
4. What standard governs “prejudice” from deficient bankruptcy notice in determining whether a claimant is bound by a sale order.
5. Whether equitable mootness barred relief affecting the unsecured creditors’ trust after substantial consummation.

## Decision

- The Second Circuit held the bankruptcy court had jurisdiction to interpret and enforce its sale order.
- The court held that due process was violated as to ignition-switch (and similarly situated) claimants who were known or reasonably ascertainable and therefore entitled to actual notice rather than publication notice.
- The court rejected the bankruptcy court’s prejudice approach; prejudice turns on whether deficient notice impaired claimants’ ability to protect their interests (e.g., object, negotiate, or appeal), not on whether the bankruptcy court would have entered the same sale order.
- The court concluded that claimants denied constitutionally sufficient notice were not bound by the sale order’s free-and-clear provisions, permitting many such claims against New GM to proceed.
- The court recognized that claims predicated on New GM’s own post-sale misconduct were not barred as Old GM successor-liability claims.
- On equitable mootness, the court declined to approve a categorical bar protecting the trust; it affirmed some equitable-mootness rulings, reversed or vacated others, and remanded for a more claim-specific assessment of whether meaningful relief was feasible without inequitable disruption.
- Disposition: affirmed, reversed and vacated in part, and remanded.

## Legal Principles

- Bankruptcy courts have continuing jurisdiction to interpret and enforce their own § 363 sale orders.
- A § 363 sale may transfer assets “free and clear” of certain claims, including some successor-liability theories, but enforcement is constrained by constitutional due process.
- Due process requires actual notice to “known” or reasonably ascertainable creditors; publication notice is insufficient for creditors identifiable with reasonable diligence.
- When notice is constitutionally deficient, the affected creditors are not bound by the sale order provisions that would otherwise extinguish their rights.
- Prejudice from deficient notice focuses on whether the notice failure deprived creditors of a meaningful opportunity to protect their interests, not on a court’s prediction that it would have ruled the same way.
- Equitable mootness is not a blanket doctrine; courts must evaluate whether effective relief can be granted without undoing consummated transactions or unfairly harming third parties.

## Conclusion

The Second Circuit held that the 2009 § 363 sale order could not be enforced to cut off defect-related claims of creditors who were entitled to, but did not receive, constitutionally adequate notice, and it required a creditor-centered prejudice inquiry while limiting broad use of equitable mootness and remanding for further proceedings.


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