Second Circuit Drubs New GM on Successor Liability for Ignition Switch Defects
The Second Circuit handed a stinging defeat to General Motors Co. (also known as New GM) in a decision on July 13. The opinion countenances no excuse for failing to give actual notice to product liability creditors of an impending sale when the company in reorganization knows the claims to exist, according to an analysis by ABI Editor-at-Large Bill Rochelle. Judge Denny Chin’s opinion for a unanimous panel acknowledged the “laudable” desire to move GM through bankruptcy quickly, but wrote that “due process applies even in a company’s moment of crisis.” It is not entirely clear from the opinion whether a purely third-party purchaser of assets “free and clear” at a bankruptcy sale will be saddled with successor liability on claims of known creditors who were not given notice of an upcoming sale. In the GM case, the auto maker essentially remained in business after the assets were sold in a Section 363 sale, thus making successor liability an easier pill to swallow. Although the Second Circuit is allowing lawsuits against New GM based on defective ignition switches, the appeals court did not decide whether New GM in fact has successor liability. The opinion is an important pronouncement on the due process rights of known creditors and the consequences of a lack of notice. The opinion leaves open the question of whether the lack of prejudice can turn a due process violation into harmless error.
Don’t miss the “Great Debate” at ABI’s Views from the Bench conference on Oct. 7, as Judge Robert Gerber (ret.) (who presided over GM’s bankruptcy case) and Goodwin Procter's William Weintraub (who represented the accident plaintiffs on appeal) debate whether § 363 sales should lawfully be free and clear of successor-liability claims. The early bird rate expires on Friday, so please register here!
Law Center Calls Seller-Financed Home Sales "Toxic Transactions"
Seller-financed home sales are “toxic transactions,” a prominent national consumer law organization said on Thursday as it released a report and called for greater federal and state oversight of the sales, the New York Times reported today. In its report, the National Consumer Law Center said that many of the contracts in such transactions were “built to fail” and were predatory in nature — benefiting sellers at the expense of lower-income and minority buyers who could not qualify for mortgages. Such a transaction, called a contract for deed or land contract, is similar to buying a home on an installment plan, with a high-interest, long-term loan. For buyers lured by the dream of homeownership, the transactions can turn into money pits that result in a quick eviction by the seller, who can then flip the home again, an investigation by the New York Times found earlier this year. The National Consumer Law Center study describes a shadow housing market that has emerged since the financial crisis. These contracts have flourished in communities where there was a large supply of cheap, foreclosed homes and a paucity of mortgages for properties worth substantially less than $100,000. “Land installment contracts are popular with investors because defaulting borrowers can be swiftly evicted, and traditional mortgage foreclosure protections do not apply,” the report said. “This allows investors to reap substantial profits.”
Moody's: U.S. Pension Funding Levels Continue to Deteriorate
Moody’s Investors Service said in a report yesterday that U.S. multiemployer pension plans, already short on cash, are likely to see funding levels deteriorate due to aging constituents, low interest rates and a sluggish global equity market, the Wall Street Journal reported today. The credit rating company examined 124 multiemployer pension plans, finding the group was short by $337 billion at the end of 2014. While strong investment returns helped boost plan assets 4.5 percent to $302 billion in 2014, obligations rose 5 percent to $639 billion. The key reason behind pension plan shortfalls is the 2008 financial crisis, which erased 25 percent of plan assets totaling nearly $80 billion and left many plan funding levels near the 50 percent level, Moody’s said.
Analysis: How Private Equity Found Power and Profit in State Capitals
Since the 2008 financial crisis, Fortress and other private-equity firms have rapidly expanded their influence, assuming a pervasive, if under-the-radar, role in daily American life, an investigation by the New York Times has found. Private-equity firms often don’t directly engage with legislators and regulators, but the companies they control do. As a result, the firms themselves have emerged as relatively anonymous conglomerates that exert power behind the scenes in their dealings with governments, according to the Times analysis. And because private equity’s interests are so diverse, the industry interacts with governments not only through lobbying, but also as contractors and partners on public projects. While little-known outside Wall Street, Fortress covers a cross-section of American life through the companies it owns or manages, including controlling the nation’s largest nonbank collector of mortgage payments. Wesley Edens, a former Lehman Brothers partner who co-founded Fortress and is now its co-chairman, emphasized the positive effects of Fortress’s companies across the American economy. Fortress has replaced poorly performing banks, he pointed out, and has funded projects that no government could afford.
Flash Sales End Tomorrow: Great Bargains for Conferences and Books!
The hottest deals of the summer are taking place through Friday with ABI's Flash Sales! Current sales include:
- Save $75 on a new registration for the Mid‑Atlantic Bankruptcy Workshop, August 4-6 at the Hyatt Regency Chesapeake Bay. Use code 'SALEAWAYMA75' at checkout.
- Get an incredible $100 savings on registration for next week’s Southeast Bankruptcy Workshop at the Ritz Carlton Amelia Island. Use code 'SALEAWAYSE100' at checkout!
Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!
New on ABI’s Bankruptcy Blog Exchange: Eighth Circuit Rejects Crawford Decision on Stale Claims
A recent blog post said that the Eighth Circuit has created a circuit split by rejecting the Eleventh Circuit's Crawford ruling that filing a time-barred claim violates the FDCPA.
