Bledsoe et al v. FCA US LLC et al
Filing
215
ORDER GRANTING 171 Defendant's Motion for Judgment on the Pleadings Against Plaintiffs Bledsoe, Erben, Forshaw, Witberg, and Chouffet. Signed by District Judge Terrence G. Berg. (AChu)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JAMES BLEDSOE, et al.,
individually and on behalf of all
others similarly situated,
Plaintiffs,
vs.
FCA US LLC, a Delaware
corporation, and CUMMINS INC.,
an Indiana corporation,
4:16-CV-14024-TGB-RSW
ORDER GRANTING
DEFENDANT’S MOTION FOR
JUDGMENT ON THE
PLEADINGS AGAINST
PLAINTIFFS BLEDSOE,
ERBEN, FORSHAW,
WITBERG, AND CHOUFFET
Defendants.
Plaintiffs in this proposed putative class action allege that
Defendant FCA’s 2007–2012 Dodge Ram 2500 and 3500 diesel trucks (the
“Trucks” or “Affected Vehicles”), equipped with 6.7-liter Turbo Diesel
engines manufactured by Defendant Cummins Inc., emit nitrogen oxides
(“NOx”) at levels that exceed federal and state emissions standards as
well as the expectations of reasonable consumers. Plaintiffs allege that
they purchased their trucks on the basis of advertising from Defendants
that touted the trucks as more fuel efficient and environmentally friendly
than other diesel trucks. Plaintiffs allege that despite marketing the
trucks as containing “clean diesel engines,” Defendants knew the trucks
discharged emissions at levels greater than what a reasonable customer
would expect based on the alleged representations. In Plaintiff’s
operative Second Consolidated and Amended Class Action Complaint
(“SCAC”), they allege violations of the Racketeer Influenced and Corrupt
Organizations Act (“RICO Act”), the Magnuson Moss Warranty Act
(“MMWA”), and consumer protection, breach of contract, and fraudulent
concealment laws of 50 states as well as the District of Columbia.
Defendants FCA and Cummins moved to dismiss (ECF Nos. 67, 68), and
this Court entered an Order granting Defendants’ motions as they relate
to the MMWA but denying as they pertain to all other claims. ECF No.
97.
Pending before the Court is Defendant FCA’s Motion for Judgment
on the Pleadings as to Plaintiffs, Bledsoe, Erben, Forshaw, Witberg, and
Chouffet (“Select Plaintiffs”), pursuant in part, to Fed. R. Civ. P. 12(c),
for failure to plead facts supporting a basis to hold FCA liable.
Specifically, FCA argues (1) because FCA as an entity did not exist at the
time the vehicles of the Select Plaintiffs were manufactured and sold, the
claims relating to the vehicles of the Select Plaintiffs could not involve
any conduct committed by FCA; (2) the SCAC does not allege in any
manner that FCA should be subject to successor liability for the conduct
of Chrysler, LLC, which was the manufacturer that made and sold the
Select Plaintiffs’ vehicles; and, (3) an Order entered by the United States
Bankruptcy Court for the Southern District of New York bars Select
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Plaintiffs from bringing fraud-based claims against FCA and attaining
the type of relief they seek.
For the reasons outlined below, the Court will GRANT FCA’s
Motion for Judgment on the Pleadings and enter judgment in favor of
FCA on the claims of Plaintiffs Bledsoe, Erben, Forshaw, Witberg, and
Chouffet. Accordingly, Select Plaintiffs will be removed from the putative
class as potential class representatives.
I.
BACKGROUND
Plaintiffs seek to bring claims on behalf of themselves and a
nationwide class of all persons or entities in the United States who, as of
November 1, 2016, owned or leased a 2007 to 2012 Dodge Ram 2500 or
Dodge Ram 3500 pickup truck equipped with a Cummins 6.7-Liter diesel
engine (“the Trucks”).
Plaintiffs also seek to establish sub-classes representing owners
and/or lessees of the Trucks in all 50 states and the District of Columbia,
alleging deceptive advertising, breach of contract, and fraudulent
concealment claims under the laws of those respective states.
FCA is a limited liability company organized and existing under the
laws of the State of Delaware. SCAC, ¶ 56. FCA did not exist until April
28, 2009. FCA is a motor vehicle “Manufacturer” and a licensed
“Distributor” of new, previously untitled Chrysler, Dodge, Jeep, and Ram
brand motor vehicles. After its formation, FCA agreed to purchase
certain assets of the bankrupt entity Old Carco LLC (f/k/a Chrysler LLC)
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ECF No. 171, PageID.18039. The purchase of the bankrupt estate
required court approval. Id. The official “Closing Date” for the purchase
was June 10, 2009, when the United States Bankruptcy Court for the
Southern District of New York (“the Bankruptcy Court”) granted final
approval of the asset purchase in the form of a “Sale Order.” Id. at 1803839 (citing In re Old Carco LLC (f/k/a Chrysler LLC), Case No. 09-50002
(Bankr. S.D.N.Y. June 10, 2009), (ECF No. 171-3)).
As threshold matter, FCA points out that the SCAC cannot allege
conduct by FCA occurring in connection with the Select Plaintiffs’
vehicles because these vehicles were all purchased before FCA’s purchase
of the bankruptcy estate was approved. Moreover, the SCAC does not
specifically allege that FCA is the successor in interest to Chrysler, LLC.
The core of FCA’s argument, however, is that in the Sale Order, the
Bankruptcy Court ruled that FCA would have no liabilities for any claims
which existed against Chrysler except for those liabilities which it
expressly assumed. ECF No. 171-3, PageID.18100-101 ¶ 35. Thus,
Defendant FCA alleges the “Sale Order expressly and unequivocally bars
all claims against FCA US ‘related to the production of vehicles prior to
the Closing Date,’ except for those expressly assumed by FCA US.” ECF
No. 171, PageID.18039.
The material term of the Sale Order provides as follows:
Except for the Assumed Liabilities expressly set forth in the
Purchase Agreement or described therein or Claims against
any Purchased Company, none of the Purchaser, its
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successor or assigns or any of their respective affiliates
shall have any liability for any Claim that (a) arose prior
to the Closing Date, (b) relates to the production of
vehicles prior to the Closing Date or (c) otherwise is
assertable against the Debtors or is related to the Purchased
Assets prior to the Closing Date. The Purchaser shall not be
deemed, as a result of any action taken in connection with the
Purchase Agreement or any of the transactions or documents
ancillary thereto or contemplated thereby or the acquisition
of the Purchased Assets to: (a) be a legal successor, or
otherwise be deemed a successor to the Debtors (other than
with respect to any obligations arising under the Assumed
Agreements; from and after the Closing); (b) have, de facto, or
otherwise, merged with or into the Debtors; or (c) be a mere
continuation or substantial continuation of the Debtors or the
enterprise of the Debtors. Without limiting the foregoing, the
Purchaser shall not have any successor, derivative or
vicarious liabilities of any kind or character for any
Claims, including, but not limited to, on any theory of
successor or transferee liability, de facto merger or continuity,
environmental, labor and employment, products or antitrust
liability, whether known or unknown as of the Closing,
now existing or thereafter arising, asserted or unasserted,
fixed or contingent, liquidated or unliquidated. Id.
(emphasis added). ECF No. 171-3, PageID.18100-101 ¶ 35
Accordingly, FCA claims the Sale Order bars the following Select
Plaintiffs (Bledsoe, Erben, Forshaw, Witberg, and Chouffet) from
bringing a claim because they purchased their vehicles prior to the
Closing Date. As FCA summarizes in its motion, citing to paragraphs in
the SCAC:
Bledsoe purchased a model-year 2007 Dodge Ram 2500 truck
in September 2007. SCAC, ¶ 41. Erben purchased a modelyear 2008 Dodge Ram 2500 truck in May 2008. Id. at ¶ 46.
Forshaw purchased a model year 2007 Dodge Ram 3500 truck
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in April 2008. Id. at ¶ 49. Witberg purchased a model-year
2008 Dodge Ram 2500 truck in July 2008. Id. at ¶ 50. Chouffet
purchased a model-year 2009 Dodge Ram 2500 truck in May
2009. Id. at ¶ 53.
ECF No. 171, PageID.18048. In addition, FCA also points out that
Plaintiffs claims are all grounded in fraud, which the Sale Order
unequivocally precludes for pre-bankruptcy vehicles purchased prior to
June 10, 2009.
In response, Plaintiffs argue that on two separate occasions—in its
2017 and 2019 motions to dismiss—FCA previously urged the Court to
dismiss the claims of certain plaintiffs based on Chrysler’s bankruptcy in
2009. See ECF Nos. 27, 68. And in its Orders deciding both motions,
because this Court did not explicitly accept FCA’s arguments, the case of
the law doctrine precludes FCA from presenting the same argument, in
the same action, again.
II.
STANDARD OF REVIEW
In a motion for judgment on the pleadings under Fed. R. Civ. P.
12(c), district courts must take as true “all well-pleaded material
allegations of the pleadings of the opposing party.” JPMorgan Chase
Bank, N.A. v. Winget, 510 F.3d 577, 581 (6th Cir. 2007) (quoting Southern
Ohio Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 479 F.2d 578
(6th Cir. 1973)). A motion for judgment on the pleadings uses the same
standard as for a motion to dismiss under Rule 12(b)(6). Warriors Sports,
Inc. v. National Collegiate Athletic Ass’n., 623 F.3d 281, 284-85 (6th Cir.
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2010). The motion may be granted “only if the moving party is
nevertheless clearly entitled to judgment.” Id. But courts “need not
accept as true legal conclusions or unwarranted factual inferences.”
Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir. 1999). “A Rule 12(c) motion ‘is
granted when no material issue of fact exists and the party making the
motion is entitled to judgment as a matter of law.’” Paskvan v. City of
Cleveland Civil Serv. Comm’n, 946 F.2d 1233, 1235 (6th Cir. 1991).
Where, as here, the motion is filed by the defendant, “[t]he court
must construe the complaint in a light most favorable to the plaintiff.”
Lowden v. Cty. of Clare, 709 F. Supp. 2d 540, 545 (E.D. Mich. 2010)
(quoting Bloch v. Ribar, 156 F.3d 673, 677 (6th Cir.1998)). [A]ll of the
well pleaded factual allegations in the adversary’s pleadings are assumed
to be true and all contravening assertions in the movant’s pleadings are
taken to be false.” Id. (quoting 5C Wright & Miller, Federal Practice &
Procedure § 1368).
Consideration of a motion under Rule 12(b)(6) or Rule 12(c) is
generally confined to the pleadings. See Jones v. City of Cincinnati, 521
F.3d 555, 562 (6th Cir. 2008). Courts may, however, consider any exhibits
attached to the complaint or the motion to dismiss “so long as they are
referred to in the Complaint and are central to the claims contained
therein.” Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th
Cir. 2008) (citing Amini v. Oberlin Coll., 259 F.3d 493, 502 (6th Cir.
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2001)). The exhibits attached by the parties in this case satisfy those
parameters.
III.
DISCUSSION
A. FCA’s Motion is not Untimely
FCA moves for judgment on the pleadings against the Select
Plaintiffs on the grounds that the Bankruptcy Court Order precludes
relief for claims grounded in fraud. In response, Plaintiffs interpose two
procedural objections: 1) FCA’s motion is untimely; 2) FCA’s defense is
barred by the law of the case doctrine.
First, Plaintiffs claim that FCA’s motion for judgment on the
pleadings is untimely because Defendant is essentially attempting to file
a tardy motion for reconsideration, which must be filed within 14 days of
the entry of the court’s Order. See E.D. Mich. L.R. 7.1(h)(1). Second,
Plaintiffs argue, even if FCA’s motion were timely, FCA fails to meet the
requirements for requesting a motion to reconsider because FCA is
attempting to bring the same arguments that have already by decided
upon by this Court.
Under Rule 59(e) the Court “may grant a . . . motion to alter or
amend judgment . . . if there is: ‘(1) a clear error of law; (2) newly
discovered evidence; (3) an intervening change in controlling law; or (4)
a need to prevent manifest injustice.’” Henderson v. Walled Lake Consol.
Sch., 469 F.3d 479, 496 (6th Cir. 2006) (quoting Intera Corp. v.
Henderson, 428 F.3d 605, 620 (6th Cir. 2005)). This standard is consistent
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with the language found in this District’s Local Rules. Id. Under Local
Rule 7.1, the Court generally will not grant motions for rehearing or
reconsideration unless there was a mistake, an intervening change in the
law, or new facts that were not discoverable with reasonable diligence,
such that it would affect the outcome of the decision. Notably, FCA’s
motion is not arguing that the Court made a mistake, or that there was
an intervening change in the law or that new facts have been discovered
that would affect the Court’s prior ruling.
Nevertheless, Plaintiffs contend that FCA presented the argument
made here in prior motions and the Court’s disposition of those motions
did not accept FCA’s argument, thereby indicating that it was implicitly
rejected by the Court. As will be explained, however, the Court disagrees
with Plaintiffs’ contention.
In its motion to dismiss Plaintiffs’ Consolidated and Amended Class
Action Complaint (“CAC”) pursuant to Rule 12(b)(6), FCA sought
dismissal, in part, of certain Plaintiffs because of the bankruptcy. FCA
argued that the claims of Select Plaintiffs “should be dismissed” because
“they are barred by a Sale Order entered in the Chrysler Bankruptcy.”
ECF No. 27 at PageID.3635. FCA contended that “[a]ll Dodge Ram 2500
or 3500 trucks manufactured prior to June 10, 2009 were manufactured
by Chrysler LLC – not FCA.” Id. at PageID.3635–36 (citing In re Old
Carco LLC/Ricks, 2013 WL 1856330, at *2 (Bankr. S.D.N.Y. May 2,
2013)).
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But this Court did not address this particular argument and
instead dismissed the Complaint on other grounds without prejudice,
determining that Plaintiffs failed to adequately allege an injury in fact
that would “allow this Court to draw a reasonable inference that the
results from Plaintiffs’ PEMS testing of one vehicle plausibly shows the
presence of a defeat device.” See ECF No. 60, PageID.8295; Bledsoe v.
FCA US LLC, 307 F. Supp. 3d 646, 654 (E.D. Mich. 2018) (“Bledsoe I”).
Although FCA had a second opportunity to appropriately raise
these issues it failed to do so in any detail. Instead, in its motion to
dismiss the Second Consolidated and Amended Class Action Complaint
(“SCAC”), FCA stated in a footnote that it had raised several grounds for
dismissal other than standing in its first motion (including the
bankruptcy bar), and it would be ready to discuss those grounds at oral
argument or at the Court’s request. ECF No. 68, PageID.10255 fn.2. As
the issue was not fully joined by the parties, the Court did not discuss
FCA’s footnote in Bledsoe II, and again based its decision on other
grounds that were fully developed in the briefing, denying the motion to
dismiss as to all claims except the MMWA claim. ECF No. 97; Bledsoe v.
FCA US LLC, 378 F. Supp. 3d 626 (E.D. Mich. 2019) (Bledsoe II).
For a prior decision to control, the prior tribunal must have actually
decided the issue. Wright et al., supra, § 4478. “A position that has been
assumed without decision for purposes of resolving another issue is not
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the law of the case.” Id. Howe v. City of Akron, 801 F.3d 718, 739–40 (6th
Cir. 2015).
In both Bledsoe I and Bledsoe II, the Court never addressed FCA’s
bankruptcy Order-related arguments. Therefore, although Plaintiffs are
essentially correct that FCA is presenting the same argument for a third
time, the prior decisions do not control the disposition of this issue
because the Court did not rule on it. Accordingly, FCA’s Motion cannot
properly be considered an untimely motion for reconsideration and the
interests of justice demand that this Court decide this pertinent question
before this case can proceed any further.
B. The Law of the Case Doctrine does not bar FCA’s Defense
FCA’s defense is not barred by the law of the case doctrine for the
same reasons. The law of the case doctrine provides that courts should
not reconsider a matter once resolved in a prior proceeding. Howe v. City
of Akron, 801 F.3d 718, 739 (6th Cir. 2015) (Howe II). “The purpose of the
law-of-the-case doctrine is to ensure that the same issue presented a
second time in the same case in the same court should lead to the same
result.” Howe II, 801 F.3d at 739 (emphases in original) (internal citations
and quotations omitted); see also Arizona v. California, 460 U.S. 605, 618
(1983) (“the [law-of-the-case] doctrine posits that when a court decides
upon a rule of law, that decision should continue to govern the same
issues in subsequent stages in the same case”); 18B Charles Alan Wright
et al., Federal Practice & Procedure: Jurisdiction & Related Matters §
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4478 (4th ed. 2015) (“Law-of-the-case rules have developed to maintain
consistency and avoid reconsideration of matters once decided during the
course of a single continuing lawsuit.”) (footnotes omitted)
The doctrine provides that “when a court decides upon a rule of law,
that decision should continue to govern the same issues in subsequent
stages in the same case.” Pelzer v. Vassalle, 655 F. App’x 352, 359 (6th
Cir. 2016) (quoting Pepper v. United States, 562 U.S. 476, 506, (2011)). It
is, however, a prudential doctrine that merely “directs [our] discretion, it
does not limit [our] power.” Id. (quoting Arizona v. California, 460 U.S.
605, 618 (1983)). “We may revisit our prior holdings when confronted
with new evidence or relevant law, or if we are convinced our prior
decision was clearly erroneous and adhering to it would work a manifest
injustice.” Id; see White v. Murtha, 377 F.2d 428, 431–32 (5th Cir. 1967);
see generally 18B Wright, et al., supra, § 4478.
In Howe II, defendant requested that the Sixth Circuit grant a full
review of plaintiff’s liability judgments made in Howe I, contending that
Howe I was a review of a preliminary injunction, and therefore did not
provide a full review of defendant’s arguments. The Sixth Circuit, in
finding that the doctrine of law of the case applied, determined that the
court had “carefully considered” each argument that defendant raised as
to why the plaintiffs’ liability judgment would not be upheld on appeal
and issued a reasoned judgment. Id. at 741 (quoting Entergy, Arkansas,
Inc. v. Nebraska, 241 F.3d 979, 987 (8th Cir. 2001)). Therefore, the Court
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of Appeals’ prior ruling, in upholding the district court’s preliminary
injunction that plaintiffs were likely to prevail on the merits of their
claims, was law of the case.
Plaintiffs correctly point to the fact that the law of the case doctrine
is applicable to formerly raised issues that are addressed “implicitly or
by necessary inference from the disposition.” Burrell v. Henderson, 483
F. Supp. 2d 595, 598 (S.D. Ohio 2007) (citing McKenzie v. BellSouth
Telecomm. Inc., 219 F.3d 508, 513 n. 3 (6th Cir.2000) (internal quotations
and citations omitted). However, that is not the case here. As already
discussed, neither Bledsoe I nor Bledsoe II addressed expressly, or
implicitly, whether Chrysler’s bankruptcy Sale Order shielded FCA from
liability as to some of the plaintiffs’ claims. In both of the previous Orders,
the grounds upon which the Court ruled were completely independent of
this issue. Therefore, those Orders did not create law of the case
regarding the arguments raised in FCA’s motion.
C. The Bankruptcy Court’s Sale Order Precludes Relief for
Select Plaintiffs’ Claims
FCA points out that the SCAC alleges it should be liable for acts
committed when the vehicles were sold, specifically, that FCA made
representations at the point of sale concerning the emissions and fuel
economy of the Trucks that were false or misleading, that the Trucks had
a device that resulted in excess emissions, and that the Plaintiffs
therefore paid more for the Trucks than they should have. The SCAC
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makes these claims directly against FCA, it does not allege any form of
successor liability between FCA and Chrysler, LLC. FCA contends that
the SCAC fails to make any connection between the purchase of the
Select Plaintiffs’ vehicles, all of which were manufactured and sold before
June 10, 2009, and FCA—because FCA did not exist at the time of
purchase.
But even if the Court were to somehow construe the SCAC as
effectively alleging successor liability, the terms of the Bankruptcy Court
Sale Order (ECF No. 171-3) specifically bar recovery for successor
liability against FCA for conduct by Old Chrysler, the company which
manufactured and sold Select Plaintiffs’ vehicles prior to 2009. In
response, Plaintiffs argue “FCA’s efforts to use the Sale Order to escape
liability violates the Due Process Clause of the U.S. Constitution.” See In
re Motors Liquidation Co., 829 F.3d 135 (2d Cir. 2016).
A bankruptcy court has “arising under” or “arising in” jurisdiction
to decide the scope of a sale order provision authorizing certain assets to
be sold “free and clear of liens.” Gupta v. Quincy Med. Ctr., 858 F.3d 657,
665 (1st Cir. 2017); see also Elliott v. GM LLC (In re Motors Liquidation
Co.), 829 F.3d at 153 (“A bankruptcy court’s decision to interpret and
enforce a prior sale order falls under . . . ‘arising in’ jurisdiction.”). A
bankruptcy court may approve a § 363 sale [the type of sale conducted
here] “free and clear” of successor liability claims if those claims flow from
the debtor’s ownership of the sold assets. Such a claim must arise from a
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(1) right to payment (2) that arose before the filing of the petition or
resulted from pre-petition conduct fairly giving rise to the claim. Further,
there must be some contact or relationship between the debtor and the
claimant such that the claimant is identifiable. In re Motors Liquidation
Co., 829 F.3d at 156.
Accordingly, FCA argues that “[t]his District has expressly
recognized it should ‘defer to the bankruptcy court’s interpretation of its
sale order because it plainly had jurisdiction to interpret its own prior
orders.’” ECF No. 171, PageID.18053 (citing Grundy v. FCA US LLC,
2020 WL 7353515, *3 (E.D. Mich. 2020) (citation and internal
punctuation omitted).
Indeed, in an unpublished opinion, Judge Stephen J. Murphy, III,
held that a bankruptcy court’s interpretation of its sale order supersedes
this Court’s authority because the bankruptcy court has “‘jurisdiction to
interpret . . . its own prior orders.’” Grundy, 2020 WL 7353515 at *3
(quoting Travelers Indem. Co. v. Bailey, 557 U.S. 137, 151 (2009). There,
the Court dismissed Plaintiffs’ request for injunctive relief with respect
to its breach of warranty claims, deferring to the prior bankruptcy court
proceeding where the court determined that recovery against FCA for
claimants who purchased vehicles from FCA’s predecessor—Chrysler—
was limited to the costs of repairs and labor for any alleged damages.
Similarly, FCA points to prior proceedings before the bankruptcy
court in which that court interpreted its Sale Order, limiting FCA’s
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liability to costs for repairs. In In re Old Carco LLC/Tulacro v. Chrysler
Group LLC, Plaintiff attempted to bring suit against FCA under
California’s Song-Beverly Consumer Warranty Act, Cal. Civ. Code §
1790, et. seq. (the “Song-Beverly Act”) based upon a failure to repair
certain alleged defects in plaintiff’s 2003 Dodge vehicle which was
manufactured by the debtors and purchased as a used vehicle 6 years
prior to entry of the Sale Order. Adv. Proc. No. 11-09401 (S.D.N.Y.
October 28, 2011) (“Tulacro”); ECF No. 171-4. FCA moved to dismiss the
complaint, arguing that plaintiff’s claims were barred by the Sale Order
approving the sale of substantially all of the debtors’ assets to Chrysler
Group, free and clear of all claims other than liabilities expressly
assumed by FCA, pursuant to Section 363 of title 11 of the United States
Code (the “Bankruptcy Code”).
The Sale Order authorized the debtors to enter into a Master
Transaction Agreement (“MTA”) with Chrysler Group, with a closing
date of June 10, 2009. The bankruptcy court agreed with FCA, finding
that the Song-Beverly Act is a “lemon law” and that pursuant to
Paragraph 19 of the Sale Order, FCA only assumed lemon-law liabilities
for vehicles manufactured by the debtors in the five years prior to the
Closing Date. In interpreting the Sale Order, the bankruptcy court
determined FCA could not be held liable for the breach of warranty claim
because Paragraph 19 of the Sale Order served as “exclusive source” for
FCA US’s liabilities for claims relating to motor vehicles manufactured
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prior to June 10, 2009, “whether the claims arose before or after” it was
entered, id. at PageID.18116, and FCA did not assume liability with
respect to vehicles manufactured prior to June 10, 2004.
Subsequently, In re Old Carco LLC/Tatum v. Chrysler Group LLC,
the bankruptcy court expressly addressed the issue of FCA’s liabilities
for fraud-based claims arising out of sales of vehicles prior to June 10,
2009. Adv. Proc. No. 11-09411 (S.D.N.Y. February 15, 2012) (“Tatum”);
ECF No. 171-5. Rejecting the plaintiff’s argument that the Sale Order
could be interpreted as allowing fraud claims as “a mechanism to enforce
lemon-law claims,” the court unequivocally stated that under the Sale
Order the relief available from FCA for claims related to vehicles sold
before the “Closing Date” is “limited to the costs of repairing parts and
labor,” and “[t]o the extent [] any repair is not effective, in that the parts
and labor provided do not prevent the reoccurrence of the problem, that
liability was not assumed” by FCA. ECF No. 171-5, PageID.18124; See
also In re Old Carco LLC/Ricks, 2013 WL 1856330, *5 (Bankr. S.D.N.Y.
May 2, 2013) (“Ricks”); ECF No. 171-6, PageID.18130. (“[FCA] did not
assume any liabilities based on fraud or fraudulent practices, and
accordingly, the fraud claims are dismissed.”); see also Burton v. Chrysler
Group LLC, 492 B.R. 392, 405 (S.D.N.Y. June 26, 2013) (FCA “did not
assume any liabilities with respect to any pre-existing defects except for
the Repair Warranty, Lemon Law claims and Product Liability claims
involving accidents,” “had no duty to extend lifetime warranties to any
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owner” of a vehicle it did not sell, “did not assume Old Carco’s duty to
warn its customers,” and, in fact, “any claim based on the breach of Old
Carco’s duty to warn [was] barred by the Sale Order.”).
Plaintiffs argue that the present facts are inapposite to Grundy,
and instead resemble those of In re Motors Liquidation Co., where the
Second Circuit overruled the bankruptcy’s court’s interpretation of a sale
order on grounds that plaintiffs had been deprived of due process.
The Due Process Clause provides, “No person shall . . . be deprived
of life, liberty, or property, without due process of law.” U.S. Const.
amend. V. Certain procedural protections attach when “deprivations
trigger due process.” Connecticut v. Doehr, 501 U.S. 1, 12 (1991).
Generally, legal claims are sufficient to constitute property such that a
deprivation would trigger due process scrutiny. See Lewis v. Whirlpool
Corp., 630 F.3d 484, 490 (6th Cir. 2011); In re Motors Liquidation Co.,
829 F.3d at 158. “An elementary and fundamental requirement of due
process in any proceeding which is to be accorded finality is notice
reasonably calculated, under all the circumstances, to apprise interested
parties of the pendency of the action and afford them an opportunity to
present their objections.” Mullane v. Cent. Hanover Bank & Tr. Co., 339
U.S. 306, 314 (1950).
In Mullane the Supreme Court held that “whether a particular form
of notice satisfies due process requirements depends on whether that
form of notice ‘is in itself reasonably certain to inform those affected . . .’”
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In re Park Nursing Ctr., Inc., 766 F.2d 261, 263 (6th Cir. 1985) (quoting
Mullane, 339 U.S. at 315). “[N]otice must be such as is reasonably
calculated to reach interested parties.” Id. (quoting Mullane, 339 U.S. at
318). This requirement also applies to bankruptcy proceedings. See
Martin v. Wilks, 490 U.S. 755, 762, n.2 (1989) (“[W]here a special
remedial scheme exists expressly foreclosing successive litigation by
nonlitigants, as for example in bankruptcy or probate, legal proceedings
may terminate preexisting rights if the scheme is otherwise consistent
with due process.” See also NLRB v. Bildisco & Bildisco, 465 U.S. 513,
529–530, n. 10 (1984) (“[P]roof of claim must be presented to the
Bankruptcy Court . . . or be lost”).
Plaintiffs claim Chrysler’s 40-day bankruptcy violated the Select
Plaintiffs’ due process rights because Chrysler never provided direct
notice to potential claimants like the Select Plaintiffs about its pending
bankruptcy, and legal claims are “property” under the due process
doctrine.
In In re Motors Liquidation Co., plaintiffs sought to bring a class
action lawsuit before the bankruptcy court against New GM after it
began recalling cars due to a potentially lethal ignition switch defect.
Many of the cars in question were built years before the Old GM filed for
bankruptcy. In the bankruptcy proceeding, under a process authorized in
11 U.S.C. § 363 of the Bankruptcy Code, Old GM was allowed to sell its
assets to New GM “free and clear” of Old GM’s liabilities. In plain terms,
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where individuals might have had claims against Old GM, a “free and
clear” provision in the bankruptcy court’s sale order barred those same
claims from being brought against New GM as the successor corporation.
Id. at 143. Nonetheless, plaintiffs initiated class action lawsuits against
New GM before the bankruptcy court, seeking to assert “successor
liability” claims and requesting damages for losses and injuries arising
from the ignition switch defect and other defects in vehicles
manufactured and sold by Old GM.
New GM argued that, because of the “free and clear” provision,
claims could only be brought against Old GM, and not New GM. But
Plaintiffs challenged the bankruptcy court’s ability to enforce the sale
order against them because, they claimed, they did not receive notice of
the bankruptcy proceeding sufficient to satisfy due process. The Second
Circuit reversed the bankruptcy court’s determination that plaintiffs
were not prejudiced by the lack of notice because the bankruptcy court
would have approved the sale order even if Plaintiffs had been put on
notice. Id. at 161–65. Rejecting the bankruptcy court’s conclusion
regarding prejudice, the Second Circuit held that knowledge about
existing claims would have likely changed the terms of the sale order,
particularly in a case where the U.S. government was a large stakeholder
and participant in the negotiation of the sale, and the order had also been
amended after objections were made by a group of state attorneys
general. Id. The Second Circuit determined that the sale order barred
20
pre-closing accident claims and economic losses arising from the ignition
switch defects or other defects, but not independent claims relating only
to New GM’s conduct or used car purchasers’ claims. Id. at 156.
In reaching its conclusion, the Second Circuit considered many
aspects unique to the case before it, noting that the bankruptcy court
failed to recognize that the terms of the § 363 sale were not within its
exclusive control. Instead, the GM sale was a negotiated deal with input
from multiple parties—Old GM, New GM, the United States Treasury,
and other stakeholders. Id. at163. The Court also noted that had the
ignition switch defect been revealed in the course of the bankruptcy
proceeding before the sale order was adopted, plaintiffs could have
petitioned the government, as the majority owner of New GM, to consider
how millions of faultless individuals with defective Old GM cars could be
affected.
Indeed,
during
the
later
congressional
hearings,
Representatives and Senators questioned New GM’s CEO on her
invocation of the liability shield when the government guided the process.
Id. at 165.
The Second Circuit also discussed the considerable record before
the bankruptcy court showing that Old GM was aware of complaints
concerning the ignition switch defect going back to 2002, which included
an investigation by the National Highway Traffic Safety Administration
(NHTSA), articles in the news media in 2005, and even a police report
associating the defect with fatalities in 2005-06. Id. at 148-51. Because
21
the ignition switch claims were known or reasonably ascertainable by Old
GM prior to the bankruptcy sale, the plaintiffs were entitled to actual
notice of the terms of the sale order before it went into effect. Id. at 151.
The Second Circuit explained, “If the debtor knew or reasonably should
have known about the claims, then Due Process entitles potential
claimants to actual notice of the bankruptcy proceedings, but if the claims
were unknown, publication of notice suffices.” Id. at 159.
Accordingly,
“[t]he bankruptcy court found that because Old GM knew or reasonably
should have known about the ignition switch defect prior to bankruptcy,
it should have provided direct mail notice to vehicle owners.” The Second
Circuit found no clear error in that factual finding. Id.
In the case before the Court, the SCAC does not contain allegations
sufficient to suggest that, at the time the Chrysler bankruptcy order was
approved in 2009, that either Chrysler or FCA had sufficient information
to be aware of the specific claims of the Select Plaintiffs. Rather, the
theory in this case is that Chrysler and Cummins essentially designed
the engines and vehicles to be defective from the very beginning.
Here, Plaintiffs’ SCAC alleges:
FCA and Cummins’ business decision to install defeat devices
in the 2500 and 3500 trucks at issue here, was spurred by the
EPA’s 2001 announcement that stringent emissions
standards for heavy-duty highway diesel engines would take
effect in 2010. Cummins Inc. and Chrysler (now known as
FCA US LLC) saw a golden business opportunity, and worked
together to build a truck that, at least on paper, met these
standards, three years ahead of schedule. (footnotes omitted)
22
ECF No. 62, PageID.8341-42, ¶ 15. Additionally, Plaintiffs contend:
The comprehensive body of evidence set forth below plausibly
demonstrates that the Dodge Ram 2500 and 3500, model
years 2007-2012 diesel vehicles (the “Polluting Vehicles”)
have at least two designed software features that operate to
derate or turn down the emissions controls when the vehicle
operates outside the test environment. When the Polluting
Vehicles are not in a test environment, they emit massive
amounts of NOx well in excess of the legal standard and at
levels inconsistent with the promises that FCA and Cummins
made.
Id. at PageID.8338, ¶6. According to Plaintiff’s theory then, Chrysler and
FCA knew, or at the very least should have known, that these vehicles
would have had defects that could lead to possible claims being brought.
But this allegation is a far cry from the kind of record of prior complaints
and evidence of an actual defect that was before the bankruptcy court in
In re Motors Liquidation Co.
Still, Plaintiffs contend “[a]t the very least, notice provided to
Plaintiffs is a factual dispute that cannot be resolved on a Rule 12(c)
motion.” ECF No. 180, PageID.20897.
Plaintiffs also cite to a more recent Sixth Circuit case, where the
Court held a bankruptcy sale order did not bar prebankruptcy
purchasers’ interests, or right to seek relief, where purchasers did not
receive adequate notice of the pending bankruptcy proceeding. In re
HNRC Dissolution Co., 3 F.4th 912, 919 (6th Cir. 2021); See also In re
Nortel Networks, Inc., 531 B.R. 53, 62 (Bankr. D. Del. 2015), citing City
of New York v. New York, N.H. & H.R. Co., 344 U.S. 293, 296 (1953); (In
23
bankruptcy, “a creditor who does not receive proper notice of the claims
bar date is not bound thereby.”) As in the GM case, the Sixth Circuit
found that because the purchaser’s interest was “known” or “reasonably
ascertainable” to the debtor at the time of the bankruptcy sale, it was
entitled to direct notice of the proceeding rather than notice by
publication. In re HNRC, 3 F.4th at 919.
In both In re Motors Liquidation Co., and In re HNRC, the record
before the bankruptcy court established that plaintiffs were owed notice
of the pending bankruptcy proceeding either due to a known defect (In re
Motors Liquidation Co.), or because plaintiffs had a known interest in the
property being conveyed to a successor (In re HNRC). Here, Plaintiffs
argue that this Court should find a due process violation on the strength
of its allegation that a defeat device exists, Chrysler knew of its existence
prior to the bankruptcy proceeding, and therefore plaintiffs were owed
notice of the defect.
But the purpose of the Sale Order was clearly intended to bar just
this kind of “after-the-fact” claim. It would not have been possible for
Chrysler or the bankruptcy court to identify known claimants as to this
alleged defeat device, or false and misleading claims by Chrysler
regarding the efficiency of the Trucks’ engines, because those claims by
plaintiffs had not been made yet.
Plaintiffs’ position rests on the untenable expectation that a
bankrupt automaker—one that does not believe it intentionally designed
24
a defective engine or exhaust system or misrepresented their
performance to buyers—should be responsible for notifying all existing
purchasers of the Trucks of their possible claims for the conduct that the
automaker does not believe it committed. Consequently, this Court finds
that Plaintiffs’ due process argument is misapplied. Because Plaintiffs
have not alleged proof of claims filed prior to, or during the bankruptcy
proceeding, alleging facts that relate in any way to the existence of a
defeat device, the Sale Order became binding once the Sale Order was
entered. 11 U.S.C. § 1141(d)(1)(A)(i); See N.L.R.B. v. Bildisco & Bildisco,
465 U.S. 513, 530 (1984) (“[T]he filing of a proof of claim is a necessary
condition to the allowance of an unsecured or priority claim, since a plan
of reorganization is binding upon all creditors once the plan is confirmed,
whether or not the claim was presented for administration.”)
The terms of the Sale Order cover the Select Plaintiffs’ claims, and
there is insufficient evidence pleaded in the SCAC to support the
argument that those claims would have been known or reasonably
ascertainable to the debtor so as to require direct notification.
D. Plaintiffs’ Continued Tortious Conduct Claim Fails because
Select Plaintiffs are barred by the Bankruptcy Court’s Sale
Order from Recovering Relief
Finally, Plaintiffs argue that Chrysler’s bankruptcy does not
absolve FCA for “tortious conduct that involved pre-bankruptcy vehicles.”
ECF No. 180, PageID.20893. Plaintiffs claim that FCA breached its duty
25
after the Sale Order with respect to all Class Vehicles. Specifically,
Plaintiffs allege that FCA continued to make false statements through
its advertisements
and sales
brochures, and omitted material
information concerning all Class Vehicles, including failing to disclose
deficiencies of those vehicles and using emissions credits to build larger
and heavy-polluting vehicles. ECF No. 62, PageID.8413–16; ECF No.
180, PageID.20898.
For the same reasons this Court finds Plaintiffs’ claims are barred
by the Sale Order, the Court also finds that Plaintiffs’ tortious conduct
claim fails. Plaintiff continues to assert fraud-based claims against FCA
on behalf of Select Plaintiffs and alleging FCA breached its duty to warn
or disclose is a claim grounded in fraud. As FCA notes, the Bankruptcy
Court has “unequivocally” established that all fraud-based claims
against FCA are “barred and must be dismissed because they arise out of
vehicles manufactured and sold prior to June 10, 2009.” ECF No. 171,
PageID.18052. Because Select Plaintiffs purchased vehicles that were
manufactured and sold prior to FCA’s existence, these vehicles could not
have been purchased upon the reliance of alleged false statements
proffered by FCA. Therefore, Plaintiffs’ claims for tortious conduct as it
pertains to these Select Plaintiffs, can only be cognizable as a duty to
warn or disclose claim, which “‘is a typical successor liability case dressed
up to look like something else, and is prohibited by the plain language of
the bankruptcy court’s Order.’” Burton v. Chrysler Group, LLC (In re Old
26
Carco LLC), 492 B.R. 392, 405 (Bankr. S.D.N.Y. 2013) (quoting Otoski v.
Avidyne Corp., 2010 WL 4739943, at *7 (D.Or. Oct. 6, 2010) (report and
recommendation), adopted,2010 WL 4737815 (D.Or. Nov. 15, 2010)).
Moreover, even if plaintiff had alleged successor liability against
FCA in its SCAC, the Select Plaintiffs’ claims would still fail because
Plaintiffs have failed to plausibly plead FCA had a duty to warn
prebankruptcy purchasers of vehicles purchased or manufactured before
the Closing Date.
In Burton, the bankruptcy court established the standard for
prevailing on a successor’s duty to warn claim post-bankruptcy:
New Chrysler did not assume Old Carco’s duty to warn its
customers about the “fuel spit back” problem, and any claim
based on the breach of Old Carco’s duty to warn is barred by
the Sale Order. Nevertheless, the law may impose a separate
duty to warn on New Chrysler. Here, New Chrysler purchased
Old Carco’s assets. Succession alone does not impose a duty to
warn a predecessor’s customers of pre-existing defects,
Florom v. Elliott Mfg., 867 F.2d 570, 577 (10th Cir. 1989);
Travis v. Harris Corp., 565 F.2d 443, 448–49 (7th Cir. 1977),
but the duty may arise where the successor (1) succeeds to the
predecessor’s service contracts that cover the particular
machine, (2) actually services the machine, (3) is aware of the
defect and (4) knows the location of the machine’s owner.
Florom, 867 F.2d at 577; Polius v. Clark Equip. Co., 802 F.2d
75, 84 (3d Cir. 1986); Travis, 565 F.2d at 449; Schumacher v.
Richards Shear Co., 59 N.Y.2d 239, 464 N.Y.S.2d 437, 451
N.E.2d 195, 199 (1983); Restatement (Third) of Torts § 13 cmt.
b (1998). In these circumstances, the law imposes a duty to
warn because the successor has entered into a relationship
with the customer and derives an actual or potential economic
benefit. Schumacher, 451 N.E.2d at 199.
27
Holland v. FCA US LLC, 656 F. App’x 232, 239 (6th Cir. 2016) (quoting
Burton, 492 B.R. at 405). Moreover, the bankruptcy court in Burton
emphasized the importance of the type of injury in determining whether
there is a duty to warn:
The duty to warn cases typically involve a plaintiff who
suffers a personal injury because someone failed to warn him
about a dangerous product, and the failure to warn
proximately caused his subsequent injury.
Id. at 240 (quoting Burton, 492 B.R. at 405) (italics in original). Similar
to the courts’ holdings in Burton and Holland, this Court finds that
Plaintiffs have failed to plausibly allege that an economic relationship
existed between FCA and Select Plaintiffs, that Select Plaintiffs suffered
the type of injury the duty to warn was designed to protect, or that FCA
proximately caused their economic injury.
First, Plaintiffs do not allege the existence of a current service
contract between Select Plaintiffs or that an injury resulted from FCA’s
servicing of these vehicles, thereby giving rise to an economic
relationship. Second, Select Plaintiffs allege they suffered an economic
injury, not a personal one. Third, and most important, Plaintiffs have
failed to plausibly allege that FCA’s failure to warn Select Plaintiffs that
they purchased an allegedly defective vehicle manufactured by Old
Chrysler proximately caused their economic injury.
Plaintiffs allege they have suffered an economic injury for
overpaying for a vehicle that does not meet the emissions standards and
28
fuel economy advertised, but Plaintiffs who made pre-bankruptcy
purchases would have this injury “irrespective of any warning” issued by
FCA sometime after their purchases took place. Id. The injuries were the
result of the defect, not FCA’s failure to warn. Thus, the Select Plaintiffs
have failed to sufficiently allege that FCA’s failure to warn caused their
injury to survive a motion for judgment on the pleadings. Id.
CONCLUSION
For all of the above reasons, Defendant FCA’s Motion for Judgment
on the Pleadings as to the claims of Plaintiffs Bledsoe, Erben, Forshaw,
Witberg, and Chouffet is GRANTED. Judgment may be entered in favor
of FCA as to those Plaintiffs only.
Plaintiffs Bledsoe, Erben, Forshaw, Witberg, and Chouffet may no
longer serve as Class Representatives regarding any claims against
Defendant FCA.
In view of this decision, the Court will schedule a status conference
with the parties to discuss its effect on the pending motions for class
certification and other motions.
IT IS SO ORDERED.
Dated: March 31, 2022
s/Terrence G. Berg
TERRENCE G. BERG
UNITED STATES DISTRICT JUDGE
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