Consumer Law

Chrysler Assumes Post-Bankruptcy Product-Liability Claims

By Deepak Gupta

by Adina Rosenbaum

In a reversal of its position in the bankruptcy proceeding, Chrysler has agreed to assume liability for people injured after the Chrysler bankruptcy by vehicles sold before the bankruptcy.

As background, in late May and early June, Public Citizen represented a bunch of consumer organizations in objecting to the Chrysler bankruptcy sale because the sale documents purported to sell Chrysler "free and clear" of product liability claims. We particularly got involved to represent the interests of future claimants -- that is, the claims of people who would be injured or killed in accidents that occurred after the bankruptcy but were caused by defects in Chrysler vehicles sold before the bankruptcy. The bankruptcy court approved the sale free and clear of such future claims, and I argued the issue in front of the Second Circuit. Within minutes after that argument ended, the Court announced that it was upholding the sale for substantially the same reasons as the bankruptcy court and that opinions would be forthcoming. Four days later, we filed a petition for certiorari.

Earlier this month, the Second Circuit issued its opinion. The decision upheld the sale, but the court chose not to decide the legality of freeing Chrysler from liability for future claims. In particular, it said:

We affirm this aspect of the bankruptcy court?s decision insofar as it constituted a valid exercise of authority under the Bankruptcy Code. However, we decline to delineate the scope of the bankruptcy court?s authority to extinguish future claims, until such time as we are presented with an actual claim for an injury that is caused by Old Chrysler, that occurs after the Sale, and that is cognizable under state successor liability law.

Because the Second Circuit had not decided the future claimants issue, we moved to dismiss the consumer organizations from the petition for certiorari. We figured the issue of whether Chrysler could be sold free and clear of future claims would come up when someone was injured in an accident involving a car sold before the bankruptcy. It turns out, though, that the issue won?t come up: yesterday, the new Chrysler Group announced that it would "accept product liability claims on vehicles manufactured by Old Carco before June 10 that are involved in accidents on or after that date."  I'm glad Chrysler got the future claimants issue right this time and hope it will also soon agree to assume liability for people injured in pre-bankruptcy crashes.

Here's a video about why this issue matters:

Full post as published by CL&P Blog on August 28, 2009 (boomark / email).