Class Certification Continues to Gum up the Works in Bankruptcy

By: Ravi Vohra

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In Motors Liquidation Co.,[1] the Bankruptcy Court for the Southern District of New York denied class certification and disallowed two claims set forth by the Botha and Balintulo claimants (the “Class Claimants”) in General Motors Corporation’s (“Old GM”) chapter 11 proceedings.[2] The claims were first raised prepetition by 26 named plaintiffs in two separate groups, (the “Botha Plaintiffs” and the “Balintulo Plaintiffs”), and Old GM filed its chapter 11 petition while those lawsuits were still pending. The Botha and Balintulo Plaintiffs then filed proofs of claims against the corporation.[3] More than twelve months after Old GM’s chapter 11 filing and eight months after the bar date, the Class Claimants moved for class treatment and Old GM then sought to disallow the class claims.[4] Among other things, the Class Claimants alleged that they were victims of the infamous system of apartheid in South Africa, and that Old GM aided and abetted the perpetrators of the apartheid system in causing the claimants’ injuries.[5]

The Southern District of New York does not prohibit filing class proofs of claim in bankruptcy, but the right to file one is not absolute. The decision to allow a class proof of claim is committed to the bankruptcy court’s discretion.[6] Although a claimant must satisfy three requirements [7] before being considered for class certification, the court focused its analysis on Federal Rule of Civil Procedure Rule 23(b)(3), which the Claimants failed to satisfy. Rule 23(b)(3) provides that a class action may be maintained if (1) Rule 23(a)[8] is satisfied; (2) if questions of law or fact common to the class members predominate over any affecting only individual members; and (3) that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.[9]

The court denied class certification because it found that the common issues presented in this case did not predominate over the individual issues. Because the claimants sought relief on behalf of thousands of South Africans who suffered distinct injuries over the course of several decades, the court determined that it would be difficult to establish causation and the requisite intent on the part of Old GM.[10] The court also held that class action treatment was not the superior mechanism for dealing with the underlying claims as well. The simpler alternative would be to have individual claimants “tell” their story to the court and the court then ascertain Old GM’s liability, if any.[11] To proceed on a class action basis, the court would have to choose between holding one or more trials of “extraordinary complexity,” or take inappropriate shortcuts to make class action treatment superior, thereby threatening the parties’ due process rights.[12]

This case illustrates the difficulty of obtaining class certification of claims in a bankruptcy proceeding. Class action claims are usually inferior to individual claims because the creditors of a debtor can file proofs of claim without counsel and at virtually no cost.[13] Similarly, the deterrent effect of class actions in mass tort cases will not be present when a class moves for certification in a bankruptcy proceeding. Class actions will not deter other companies from committing the same harm when the punishment for any wrongful conduct is being borne by unsecured creditors.[14] Lastly, class certification will usually be less desirable in bankruptcy because class-based claims have the potential of “adding layers of procedural and factual complexity” to a bankruptcy proceeding. In other words, as the Southern District of New York noted, a class action “may gum up the works, because until it is complete, the court cannot determine the entitlement of the other creditors.”[15]


[1] 447 B.R. 150 (Bankr. S.D.N.Y. 2011).

[2] Id. at 153 (noting the two contested matters evolved from lawsuits brought against General Motors Corporation (“Old GM”), now known as Debtor Motors Liquidation Company).

[3] Id. at 154.

[4] Id. at 153, 164.

[5] Id. at 155 (discussing injuries to include “extrajudicial killing,” “torture,” “detention,” and “cruel, inhuman, or degrading treatment”). 

[6] In re Musicland Holding Corp., 362 B.R. 644 , 650 (Bankr. S.D.N.Y. 2007); In re Bally Total Fitness of Greater New York, Inc., 402 B.R. 616, 619 (Bankr. S.D.N.Y. 2009).

[7] In re Motors Liquidation Co., 447 B.R. at 157 (“The proponent of a class claim must (1) make a motion to extend the application of Federal Rule of Civil Procedure Rule 23; (2) satisfy the requirements of Rule 23; and (3) show that the benefits derived from the use of the class claim are consistent with the goals of bankruptcy.”).

[8] Fed. R. Civ. P. 23(a) (allowing “[O]ne or more members of a class to sue or be sued as representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.”).

[9] Fed. R. Civ. P. 23(b)(3)(A)–(D) (“The matters pertinent to this finding include: (A) the class members’ interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.”).

[10] In re Motors Liquidation Co., 447 B.R. at 159.

[11] Id.at 163.

[12] Id.

[13] In re Ephedra Products Liability Litigation, 329 B.R. 1, 9 (S.D.N.Y. 2005).

[14] Id.

[15] In re Woodward & Lothrop Holdings, Inc., 205 B.R. 365, 376 (Bankr. S.D.N.Y. 1997).