Out of the Fray ... Onto the "Slow Boat to China": Putting the Brakes on the GM Bankruptcy Appeal

Three weeks ago, as I discussed here, I jumped into the GM fray and filed this objection on behalf 5 product liability claimants who, absent the "free and clear" sale protections sought by GM under Section 363, would have had the right to add the Purchaser as an additional defendant to their pending lawsuits based on each of their respective state's successor liability laws.

After putting in 20+ hour days for a full week, including reviewing 35+ Gigabytes of OCR'd documents from GM, deposing Fritz Henderson and the Auto Task Force's Harry Wilson over two days, attending three days of hearing, and giving everything I had in this closing argument, Judge Gerber's opinion approving the sale and his bench decision denying my motion for direct appeal to the Second Circuit ended the fray for me and put my clients' appeal on the "slow boat to China," as the old saying goes.  But in doing so, he issued a persuasive opinion that--on reflection--actually did my clients a favor, despite their having to endure an extra year of appeal by first passing through the district court. 

How so?  Well, Judge Gerber himself acknowledged that the successor liability issue was the “most debatable” and “most important” of the issues before the Court.  He also correctly observed that I’d like to see this issue decided by the Supreme Court (assuming I can't get the Second Circuit to reverse itself or at least distinguish GM from Chrysler on the facts).  After all, 363 sales are so common nowadays that Baird and Rasmussen's prediction in 2002 of the "end of bankruptcy" is now being viewed as a shocking--but inevitable--fact of life.  And the undeniable split in the circuits over whether 363 sales can be "free and clear" of successor liability claims makes the case ripe for Supreme Court review, particularly given the magnitude of the claims being left behind (GM and Chrysler alone have shed about $2 billion of these liabilities in the past 45 days). 

One thing we know about the Supreme Court, however, is that it doesn't like to get "ambushed."  As Justice Ginsburg pointedly reminded counsel during oral argument in the Travelers Casualty v. PG&E case (discussed here):

We are a court of review. So no matter how well it's been aired [in other circuit cases], we wait to see what the lower courts have said on a question. We don't take it in the first instance.

Judge Gerber echoed these thoughts in his opinion denying my motion for direct appeal when he asked:

How could a decision presented and decided to the Second Circuit in two days (or on any other expedited basis) be helpful to the bankruptcy community, or the public, or the Supreme Court?   If the Supreme Court is to decide an issue that’s the subject of a Circuit split, doesn’t it deserve the best decision the Second Circuit can provide?

Hard to argue with that.  So, per Judge Gerber's sound instruction, we'll leave the "supercharged" Corvette ZR3 6.2L / 638 hp V8 at the dock and instead board the luxurious, brand-spanking-new, Bohai Zhenzhu, destination SCOTUS, with stops at the SDNY and 2d Circuit ports of call.

Bon Voyage!

© Steve Jakubowski 2009

Written By:Francis Pileggi On July 8, 2009 3:10 PM

Congrats on your heroic efforts!

Written By:Sergei On July 8, 2009 10:02 PM

Dear Steve,

Very enlightening post. By the way, would u have a larger resolution image of the chinese junk boat? I would like to put that on my phone if possible.

Ed Note: Thanks Sergei... here's the link:

Written By:Bill Connelly On July 9, 2009 8:13 AM

Well done! Perhaps this will be the case to clear out the 363 confusion on this issue. Patience and perseverance will be rewarded. Always enjoy the blog.

Written By:Max Tucker On July 10, 2009 3:29 PM

Steve, congrats for you perseverance, and at least having the bankruptcy court administering the GM case recognize the difficulties presented by the successor liability issue. I struggled though this issue back in 1995, and published the following article: The Clash of Successor Liability Principles, Reorganization Law, and the Just Demand that Relief Be Afforded Unknown and Unknowable Claimants, 12 Bankruptcy Developments Journal 1 (1995). I concluded that 363 doesn't really work to extinguish these claims. However in intervening years, I understand that some circuit courts may have concluded differently. I always wonder about the quality of the arguments that led to some of these opinions. In any event, I will be watching your ongoing efforts with interest. Max Tucker

Written By:Anonymous On July 14, 2009 3:00 PM

Today is July 14, 2009. If the G.M. bankruptcy is complete,
then why is the G.M. Opel division still unsold?

Ed Note: The bankruptcy being "complete" is a euphemism. The case is proceeding as "Motors Liquidation Company" and so the bankruptcy really isn't complete; it's just that the "Continuing Brands" of Chevy, GMC, Cadillac, and Buick are no longer in bankruptcy but have been bought by the "Purchaser" (i.e., (beneficially) you and every other taxpayer!).

Written By:Disability Insurance On December 10, 2009 1:17 AM

Wow, you definitely have put in a lot of work on this subject. I hope all goes well for you in the long run.