In Re Motors Liquidation Co.
447 B.R. 142, 54 Bankr. Ct. Dec. (CRR) 23, 2011 Bankr. LEXIS 11 (2011)
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Rule of Law:
When an asset purchase agreement transfers liability for 'accidents or incidents first occurring on or after the Closing Date,' a subsequent consequence, such as death, arising from a pre-closing event does not constitute a new, separate 'incident' that triggers liability for the successor company.
Facts:
- In June 2007, Beverly Deutsch was severely injured in an accident while driving a 2006 Cadillac sedan manufactured by General Motors Corp. ('Old GM').
- On July 10, 2009 (the 'Closing Date'), General Motors LLC ('New GM') acquired the assets of Old GM through a bankruptcy sale.
- The Master Sale and Purchase Agreement (MSPA) stipulated that New GM would only assume product liability claims arising from 'accidents or incidents first occurring on or after the Closing Date.'
- In August 2009, one month after the Closing Date, Beverly Deutsch died from the injuries she had sustained in the 2007 accident.
Procedural Posture:
- In April 2008, a personal injury lawsuit was filed on behalf of Beverly Deutsch in California state court against Old GM.
- In June 2009, Old GM filed for chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York.
- In July 2009, the Bankruptcy Court approved the sale of Old GM's assets to New GM via a 363 Sale Order.
- In January 2010, the Estate of Beverly Deutsch filed an amended complaint in the California state action, naming New GM as a defendant.
- New GM then filed a motion in the Bankruptcy Court to enforce the 363 Sale Order, seeking a ruling that it had not assumed liability for the Deutsch Estate's claim.
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Issue:
Does a person's death that occurs after the closing date of a corporate asset sale constitute a separate 'incident first occurring on or after the Closing Date' under the sale agreement, thereby making the successor company liable, when the underlying car accident that caused the death occurred before the closing date?
Opinions:
Majority - Gerber
No. A death resulting from a pre-closing accident is a consequence of that original event, not a new 'incident first occurring' after the closing date that would trigger liability for the successor company. The court's analysis relies on textual interpretation of the Master Sale and Purchase Agreement (MSPA). It determines that the ordinary meaning of 'incident' refers to a discrete, causative event, akin to an 'accident.' The modifying phrase 'first occurring' strongly suggests that the initial event that gives rise to the injury is the controlling one for timing purposes, not its subsequent consequences. Applying the canon of construction noscitur a sociis ('a word is known by the company it keeps'), the court reasons that 'incidents' must be interpreted as being conceptually related to 'accidents,' such as fires or explosions, rather than being construed so broadly as to include the later results of those events. Therefore, since the car accident occurred in 2007, before the closing date, the liability was not assumed by New GM.
Analysis:
This decision provides critical clarity for asset purchasers in bankruptcy sales regarding the scope of assumed liabilities, particularly for 'long-tail' tort claims where the injury and its ultimate consequence are separated in time. By narrowly construing 'incident' to mean the causative event rather than its later effects, the court reinforces the principle that successor liability is strictly limited by the terms of the sale agreement. This precedent gives asset purchasers greater certainty and predictability, discouraging attempts to expand their liability by recharacterizing the consequences of pre-closing events as new, post-closing occurrences. It also highlights the importance of precise drafting in M&A and bankruptcy sale agreements to clearly delineate the temporal cutoff for liability assumption.
