In two cases last month, In re: Motors Liquidation Co., Case Nos 18-1939 & 18-1940 (2nd Cir. Nov. 2019), the U.S. Court of Appeals for the Second Circuit decided that the ?current? General Motors is not liable for punitive damages stemming from its pre-bankruptcy predecessor’s conduct, ending claims by customers who say they were harmed by faulty ignition switches in incidents that occurred after GM’s reorganization.
The appeal arose from two suits against GM over faulty ignition switches, which were the subject of a recall in 2014, five years after the predecessor company, “Old GM,” filed for bankruptcy and sold its assets to the entity that would become General Motors LLC, or the “New GM.” When New GM purchased most of Old GM’s assets in 2009, it agreed under bankruptcy law to assume a limited amount of Old GM’s liabilities, sparking litigation over what exactly the new company is liable for.
The Second Circuit held that although the sale agreement states that New GM assumes “all liabilities” from its predecessor, that phrase is not in a vacuum but instead refers specifically to compensatory liabilities arising from death and personal injury. As punitive damages are not among the defined categories of liabilities that New GM assumed, the panel wrote, the default rule is that such a liability stayed with the now defunct Old GM.
Punitive damages are paid to punish “egregious, reprehensible behavior,” not to compensate for an injury or death, the panel wrote. A claim for punitive damages does not arise out of an injury, the panel added, but rather is intended to deter reprehensible behavior from happening again. The plainitffs are still able to pursue their compensatory claims before a jury.