Burton et al v. Chrysler Group LLC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------------------------X
:
In re: 	: 	Chapter 11
:
OLD CARCO LLC, et al., 	: 	Case No. 09-50002 (SMB)
:
Debtors. 	: 	(Jointly Administered)
----------------------------------------------------------------X
AUTUMN BURTON, et al., 	:
:
Plaintiffs, 	: 	Adv. Proc. No. 13-01109 (SMB)
:
‒ against ‒ 	:
:
CHRYSLER GROUP, LLC, 	:
:
Defendant. 	:
----------------------------------------------------------------X
MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING
IN PART MOTION TO DISMISS THE SECOND AMENDED COMPLAINT
A P P E A R A N C E S:
SCHNADER HARRISON SEGAL & LEWIS LLP
Attorneys for Plaintiffs
140 Broadway, Suite 3100
New York, NY 10005-1101
Kenneth R. Puhala, Esq.
Barry E. Bressler, Esq.
Richard A. Barkasy, Esq.
Eric A. Boden, Esq.
Of Counsel
SULLIVAN & CROMWELL LLP
Attorneys for Defendants
125 Broad Street
New York, New York 10004
Steven L. Holley, Esq.
Benjamin R. Walker, Esq.
Of Counsel
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 1 of 24

2
STUART M. BERNSTEIN
United States Bankruptcy Judge:
The plaintiffs own vehicles that were manufactured and sold by the debtors, Old Carco
LLC and twenty four of its affiliates (“Old Carco” or the “Debtors”). They allege that their
vehicles suffer from a design flaw known as “fuel spit back.” They commenced this class action
in Delaware state court against Chrysler Group LLC (“New Chrysler”), the purchaser of Old
Carco’s assets, seeking relief for this design flaw under a variety of theories. Following removal
to Delaware District Court, New Chrysler moved to dismiss plaintiffs’ Second Amended
Complaint (“SAC”) pursuant to Federal Rule of Civil Procedure 12(b)(6) arguing that the claims
are barred by the Sale Order entered in the Chrysler bankruptcy case. (See Order (I) Authorizing
the Sale of Substantially all of the Debtors’ Assets Free and Clear of All Liens, Claims, Interests
and Encumbrances, (II) Authorizing the Assumption and Assignment of Certain Executory
Contracts and Unexpired Leases in Connection Therewith and Related Procedures and (III)
Granting Related Relief, dated June 1, 2009 (“Sale Order”) (ECF Main Case1 Doc. # 3232).)
The Delaware District Court transferred the dispute to this Court solely to determine the
effect of the Sale Order on the plaintiffs’ claims. The Court concludes that with two exceptions
the Sale Order bars any claims based on a breach of a duty that existed as of the time of the June
10, 2009 closing. The exceptions relate to claims for the repair or replacement of parts under
warranties that accompanied the purchase of the vehicles when new or were acquired under
extended service contracts (collectively, the “Repair Warranty”) and any “Lemon Law” claims
arising under non-bankruptcy law.2 Conversely, the Sale Order obviously does not bar claims
1 	“ECF Main Case” refers to the docket in the main bankruptcy case, 09-50002 (SMB), while “ECF” refers
to the docket in this adversary proceeding, 13-01109 (SMB).
2 	A third exception, which deals with product liability claims arising from “accidents,” is not relevant to the
plaintiffs’ claims.
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 2 of 24

3
concerning vehicles manufactured or sold by New Chrysler after the closing or injuries resulting
from the breach of any duties that arose under non-bankruptcy law after the closing. The Court
leaves the determination of the legal sufficiency of those claims to the Delaware District Court.
BACKGROUND
A. 	The Facts
This lawsuit concerns the “fuel spit-back problem,” a design flaw which causes fuel to
spill out of the filler tube during refueling. (See Class Action Second Amended Complaint, dated
Aug. 21, 2012 (“SAC”), at ¶ 2 (ECF Doc. # 1, Part 52).) Chrysler owners began to complain
about the problem in the fall of 2001, and as a result, Old Carco issued a safety defect recall in
2002, and a second safety recall for the 2005 MY Durango in 2005. (SAC ¶¶ 3-4.) In February
2007, owners of other model year Jeeps complained, and in January 2009, a further safety recall
was issued involving other Durango model vehicles. (SAC ¶¶ 5-6.)
After the bankruptcy sale described in the next section of this decision, New Chrysler
took steps to address the problem. In September 2009, it sent a Technical Service Bulletin
(“TSB”) to its dealers advising them that consumers were continuing to experience “fuel spit
back problems,” and explaining various steps that might be required if a customer brought in his
or her Chrysler product with this complaint. (SAC ¶ 7.)
In August 2010, the National Highway Traffic Safety Administration (“NHTSA”) opened
an investigation regarding complaints of “fuel spit-back problems” in 2007 and 2008 Jeep
Wranglers. (SAC ¶ 8.) The NHTSA advised New Chrysler that the same problem had been
found in 2005 and 2006 Jeep Wranglers. (SAC ¶ 8.) In response, New Chrysler admitted that (1)
the 2005 through 2010 Jeep Wrangler model vehicles included the same or similar fuel system
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 3 of 24

4
components, including the fuel tank assembly and inlet check valve, (SAC ¶ 9), (2) the 2005
through 2008 Durango model vehicles were appropriate peer vehicles with the same or similar
fuel tank assemblies and inlet check valves, (SAC ¶ 9), and (3) there were 542,650 Jeep
Wranglers and 266,315 Durangos with the same or similar fuel system assemblies and inlet
check valves. (SAC ¶ 10.)
On February 11, 2011, New Chrysler issued Chrysler TSB No. 14-001-11 (the “February
2011 TSB”).3 The latter extended a lifetime warranty to owners of 2007 and 2008 Jeep
Wranglers (approximately 135,000 vehicles). (SAC ¶ 11.) The February 2011 TSB provided
that if the customer experienced the “fuel spit back problem,” the servicer should replace the fuel
tank and install a new fuel pump and Level Unit O-ring. (Plaintiffs’ Opposition, Ex. C.) 	The
February 2011 TSB was not a safety recall, did not advise current owners of a flaw, safety defect
or hazard, and the customer had to complain about the problem in order to take advantage of the
extended warranty. (SAC ¶ 11.)
In addition, New Chrysler issued Chrysler TSB No. 14-001-12, on January 20, 2012 (the
“January 2012 TSB”), which was slightly more detailed but essentially extended the same
lifetime warranty to the owners of 2006-2008 Durangos and 2007-2008 Aspens. 4 That same
month, New Chrysler sent a letter to the owners of certain Dodge Durango vehicles advising
them that because of the “fuel spit back problems,” their vehicles would now have a lifetime
3 	The February 2011 TSB was not attached to the SAC, but a copy is attached as Exhibit C to Plaintiffs’
Opposition to Chrysler Group LLC’s Motion to Dismiss Second Amended Complaint, dated Mar. 21, 2013
(“Plaintiffs’ Opposition”) (ECF Doc. # 15).
4 	The January 2012 TSB is attached to the Plaintiffs’ Opposition as Exhibit E.
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 4 of 24

5
warranty for certain fuel system parts. In the event a problem developed, a Chrysler dealership
would repair their vehicle. (SAC ¶ 15.) 5
B. 	The Sale to New Chrysler
In the meantime, on April 30, 2009, the Debtors filed chapter 11 petitions in this Court.
In a well-publicized transaction, they entered into a Master Transaction Agreement (“MTA”)
agreeing to sell substantially all of their assets free and clear of all claims and liabilities (other
than “Assumed Liabilities”), whenever arising, to New Carco Acquisition LLC, later renamed
Chrysler Group LLC ( i.e., New Chrysler). See Shatzki v. Abrams, No. 1:09cv02046 LJO DLB,
2010 WL 148183, at *1 (E.D. Cal. Jan. 12, 2010); Cooper v. Daimler AG, No. 1:-09-CV-2507-
RWS, 2009 WL 4730306, at *1 (N.D. Ga. Dec. 3, 2009); Ricks v. New Chrysler Group, LLC (In
re Old Carco LLC), Adv. No. 12-09801 (SMB), 2013 WL 1856330, at *2 (Bankr. S.D.N.Y. May
2, 2013). The transaction closed on June 10, 2009 (the “Closing Date”), the Debtors ceased
operations and New Chrysler took over the operations of the “Chrysler” automotive business.
Ricks, 2013 WL 1856330, at *2.
The MTA specified the liabilities that New Chrysler assumed. (See MTA § 2.08
(“Purchaser shall assume, effective as of the Closing, and shall timely perform and discharge in
accordance with their respective terms, the Assumed Liabilities and no others.” (Emphasis
added).)6 The Assumed Liabilities included “all Liabilities pursuant to product warranties
(including extended services contracts purchased from one of the Debtors), product returns and
5 	The January 2012 letter was not attached to the SAC or supplied by the plaintiffs. It may be the same letter
as the January 25, 2012 letter referred to later in the SAC. (See SAC ¶ 56.) The January 25, 2012 was also not
attached to the SAC.
6 	A copy of the MTA is annexed as Exhibit A to the Notice of (A) Successful Bidder for Substantially All of
the Debtors’ Assets and (B) Filing of Amended Purchaser Agreement, dated May 31, 2009 (ECF Main Case Doc. #
3071).
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 5 of 24

6
rebates on vehicles sold by Sellers prior to the Closing.” (MTA § 2.08(g), as modified by
Amended No. 1 to Master Transaction Agreement, dated May 31, 2009 (“Amendment No. 1”), at
¶ 14.)7 The MTA was subsequently amended to add section 2.08(h) which expanded the
category of Assumed Liabilities to include certain product liability claims arising from
“accidents.” (Amendment No. 4 to Master Transaction Agreement, dated Oct. 29, 2009
(“Amendment No. 4”), at ¶ 1.)8 Finally, paragraph 19 of the Sale Order approving the MTA
added certain Lemon Law claims to the list of Assumed Liabilities but limited the assumed
liabilities to vehicles manufactured within five years of the Closing Date.9
All other liabilities were expressly excluded. “Excluded Liabilities” included “all
Liabilities in strict liability, negligence, gross negligence or recklessness for acts or omissions
arising prior to or ongoing at the Closing,” (MTA § 2.09(j)), and “all Product Liability Claims
7 	Amendment No. 1 is attached to the MTA.
8 	Amendment No. 4 is annexed as Exhibit A to the Stipulation and Agreed Order Approving Amendment No.
4 to Master Transaction Agreement, dated Nov. 19, 2009 (ECF Main Case Doc. # 5988).) The new § 2.08(h)
expanded the Assumed Liabilities, inter alia, to include:
(h) . . . (ii) all Product Liability Claims arising from the sale on or prior to the Closing of motor
vehicles or component parts, in each case manufactured by Sellers or their Subsidiaries . . . solely
to the extent such Product Liability Claims (A) arise directly from motor vehicle accidents
occurring on or after Closing, (B) are not barred by any statute of limitations, (C) are not claims
including or related to any alleged exposure to any asbestos-containing material or any other
Hazardous Material and (D) do not include any claim for exemplary or punitive damages.
9 	Paragraph 19 of the Sale Order provided, in relevant part, as follows:
[T]he Purchaser, from and after the Closing, will recognize, honor and pay liabilities under Lemon
Laws for additional repairs, refunds, partial refunds (monetary damages) or replacement of a
defective vehicle (including reasonable attorneys’ fees, if any, required to be paid under such
Lemon Laws and necessarily incurred in obtaining those remedies), and for any regulatory
obligations under such Lemon Laws arising now, including but not limited to cases resolved
prepetition or in the future, on vehicles manufactured by the Debtors in the five years prior to the
Closing (without extending any statute of limitations provided under such Lemon Laws) . . . As
used herein, “Lemon Law” means a federal or state statute, including, but not limited to, claims
under the Magnuson-Moss Warranty Act based on or in conjunction with a state breach of
warranty claim, requiring a manufacturer to provide a consumer remedy when the manufacturer is
unable to conform the vehicle to the warranty after a reasonable number of attempts as defined in
the applicable statute.
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 6 of 24

7
arising from the sale of Products or Inventory on or prior to the Closing that are not described in
Section 2.08(h).”10 (MTA § 2.09(i); Amendment No. 4 ¶ 2.) “Product Liability Claim” meant
any Action arising out of, or otherwise relating to in any way in respect of claims
for personal injury, wrongful death or property damage resulting from exposure
to, or any other warranty claims, refunds, rebates, property damage, product
recalls, defective material claims, merchandise returns and/or any similar claims .
. . .
(MTA (Definitions Addendum) at 90, as modified by Amendment No. 1 ¶ 36) (emphasis added.)
The Sale Order reinforced that New Chrysler was buying Old Carco’s assets free and clear of all
other claims. Except as noted, “[t]he transfer of the Purchased Assets to the Purchaser under the
Purchase Agreement will be a legal, valid and effective transfer of all of the legal, equitable and
beneficial right, title and interest in and to the Purchased Assets free and clear of all Claims that
are not Assumed Liabilities (including, specifically and without limitation, any products liability
claims, environmental liabilities, employee benefit plans and any successor liability claims),
except as otherwise provided in this Sale Order.” (Sale Order ¶ Z; accord id. ¶¶ 9, 12-17, 35, 38,
39, 42.)
The net effect of these provisions, particularly those affecting warranty claims, was
explained by Bankruptcy Judge Arthur Gonzalez, the judge who oversaw the sale and signed the
Sale Order, in subsequent decisions. For example, in Tulacro v. Chrysler Group LLC (In re Old
Carco LLC), Adv. Proc. No. 11-09401 (AJG), slip op. (Bankr. S.D.N.Y. Oct. 28, 2011)
(ECF/Adv. Proc. No. 11-09401 Doc. # 18), the purchaser of a 2003 Dodge vehicle sued New
Chrysler alleging that it had failed to repair the vehicle. In addition to claims under California’s
Lemon Law, the plaintiff asserted general breach of warranty claims.
10 	Prior to the amendment, section 2.08(h) provided that New Chrysler assumed “all Product Liability Claims
arising from the sale after the Closing of Products or Inventory manufactured by Sellers or their Subsidiaries in
whole or in part prior to the Closing.”
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 7 of 24

8
Judge Gonzalez parsed the language of the MTA, the amendments to the MTA and the
Sale Order, and explained their relationship and meaning in the context of the negotiations in
which they arose. He ruled that the only warranty-related obligations that New Chrysler
assumed under MTA § 2.08(g) were the limited written warranties issued in connection with the
vehicle pursuant to which the Debtors were obligated to “‘cover the cost of all parts and labor
needed to repair any defective item on [a] truck supplied by [the Debtors] that is defective in
material, workmanship or factory preparation.’” Tulacro, at 6. These obligations corresponded
to the Repair Warranty. New Chrysler did not assume any other warranty-related obligations
except for (1) certain Lemon Law claims (under Sale Order ¶ 19) and (2) Product Liability
Claims arising from accidents (under MTA § 2.08(h), as amended, (see Amendment No. 4 ¶ 1)).
Tulacro, at 6-7.
Judge Gonzalez reiterated his interpretation in his bench ruling granting New Chrysler’s
motion to dismiss the complaint in Tatum v. Chrysler Group LLC (In re Old Carco LLC), Adv.
Proc. No. 11-09411 (AJG), slip op. (Bankr. S.D.N.Y. Feb. 15, 2012) (ECF/Adv. Proc. No. 11-
09411 Doc. # 73). He explained that as originally drafted, the MTA excluded all claims relating
to vehicles sold prior to the Closing Date. Certain amendments carved out narrow exceptions.
New Chrysler assumed written warranties, limited to the costs of parts and labor, and did not
assume any other warranty-related claims. If the repair was not effective, no further liability was
assumed. 11 Otherwise, MTA § 2.09(i), as amended (see Amendment No. 4, at ¶ 2), barred all
warranty claims.
11 	As discussed later in the text, the inability to repair a defect might nonetheless give rise to a Lemon Law
claim.
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 8 of 24

9
His conclusion is bolstered by the language added to MTA § 2.08(g) through Amendment
No. 1. Under section 2.08(g), as originally written, New Chrysler assumed liability for “product
warranties, product returns and rebates” on vehicles sold before the closing. Amendment No. 1
inserted the parenthetical phrase “including extended services contracts purchased from one of
the Debtors” following the phrase “product warranties.” An “extended service contract” is an
additional warranty “to cover repair costs not otherwise covered by a manufacturer’s standard
warranty, by extending either the standard-warranty coverage period or the range of defects
covered.” BLACK’ S LAW DICTIONARY 1725 (9th ed. 2009). Its placement suggests that it is a
species of “product warranties,” and “product warranties,” like the “extended service contracts,”
a limited to the repair and replacement of defective parts.
C. 	This Action
On November 29, 2011, five of the current plaintiffs (Autumn Burton, Matthew Cox,
Dan Gulick, Rodney Lafleur, and James Spitler) filed a class action complaint in the Superior
Court of the State of Delaware against New Chrysler. (See Class Action Complaint, dated Nov.
29, 2011 (“Complaint”) (ECF Doc. # 1, Part 2).) Each plaintiff had apparently purchased and
owned a used 2005 or 2006 Dodge Durango or Jeep Wrangler manufactured by Old Carco.12
(Complaint ¶¶ 18-22.) The plaintiffs alleged that the 2005-2010 Jeep Wranglers and 2005-2008
Dodge Durangos suffered from the “fuel spit back” design flaw and the attendant safety defects
and hazards. (Id. ¶ 9.) New Chrysler removed the action to the District Court of Delaware on
January 3, 2012, and immediately moved to dismiss the complaint. (Chrysler Group LLC’s Brief
in Support of its Motion to Dismiss, dated Jan. 10, 2012 (ECF Doc. # 1, Part 9).)
12 	Each of the plaintiffs had purchased a prior model year, suggesting that the vehicles were bought used.
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 9 of 24

10
The plaintiffs eventually filed the SAC, and joined Mike Burke, Eric Malloy, Mike
Gasman and Ryan Gillette as additional plaintiffs. The nine plaintiffs own the following
vehicles:
Plaintiff 	Vehicle Owned
Autumn Burton 	2006 Dodge Durango
Matthew Cox 	2005 Jeep Wrangler
Dan Gulick 	2005 Jeep Wrangler
Rodney LaFleur 	2005 Jeep Wrangler
James Spitler 	2006 Jeep Wrangler
Mike Burke 	2007 Jeep Wrangler
Eric Malloy 	2005 Dodge Durango
Mike Gasman 	2005 Jeep Wrangler
Ryan Gillette 	2005 Jeep Wrangler
The gravamen of the SAC centers on the failure to warn the vehicle owners of the “fuel
spit back” design flaw and related safety issues, or correct the problem. The SAC includes the
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 10 of 24

11
following eight counts:
Count 	Relevant Vehicles 	Nature of Claim
I 	2009-2010 Jeep
Wranglers
Negligence regarding duties assumed under the February
2011 TSB, in failing to include Jeep Wranglers with the “fuel
spit back” defect sold after the Closing Date, rectify the defect
or provide adequate notice of the defect and its hazards. (SAC
¶¶ 44-50.)
II 	2007-2008 Jeep
Wranglers
Negligence regarding duties assumed under the February
2011 TSB, in failing to rectify the “fuel spit back” defect,
provide adequate notice to the owners regarding the defect
and advise them that repairs should promptly take place. (Id.
¶¶ 51-54.)
III 	2006-2008 Dodge
Durangos
The January 2012 TSB and a January 25, 2012 letter, which
advised the owners that they might have to replace a portion
of their vehicle’s fuel system because of the “fuel spit back”
problem and granted a life-time warranty to obtain certain
parts regarding this defect, failed to provide appropriate and
necessary measures to correct the defect. (Id. ¶¶ 55-58.)
IV 	2007-2008 Jeep
Wranglers
The February 2011 TSB failed to reasonably notify all owners
or provide an effective remedy to correct the design flaw. (Id.
¶¶ 59-63.)
V 	2005-2010 Jeep
Wranglers and 2005-
2008 Dodge
Durangos
New Chrysler failed to extend the warranties covered by the
February 2011 TSB and January 2012 TSB to all of the
vehicles that suffered from the same design flaw, and
generally failed to warn of the hazards of the “fuel spit back”
problem, repair the vehicles, notify the owners of the need for
repairs, and carry out appropriate remedial measures to
eliminate the hazards and safety issues and loss of fuel from
“fuel spit back” in these vehicles. (Id. ¶¶ 64-71.)
VI 	2005-2009 Jeep
Wranglers and 2005-
2008 Dodge
Durangos
The sale of the vehicles with the “fuel spit back” design
defect constituted breaches of the implied warranties of
merchantability and fitness for a particular purpose, which
were assumed by New Chrysler. (Id. ¶¶ 72-87.)
VII 	2009-2010 Jeep
Wranglers
The sale of the vehicles with the “fuel spit back” design
defect constituted breaches of the implied warranties of
merchantability and fitness for a particular purpose. (Id. ¶¶
88-102.)
VIII 	2007-2008 Jeep
Wranglers and 2006-
2008 Dodge
Durangos
The sale of the vehicles with the “fuel spit back” design
defect constituted breaches of the implied warranties of
merchantability and fitness for a particular purpose. (Id. ¶¶
103-116.)
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 11 of 24

12
After hearing New Chrysler’s motion to dismiss, the Delaware District Court transferred
the civil action by order dated August 28, 2012 to the United States District Court for the
Southern District of New York for referral to this Court. (Order to Transfer, dated Aug. 28,
2012, attached as Exhibit B to Plaintiffs’ Opposition.) The transfer order stated that “[i]f the
bankruptcy court determines that any of the claims asserted in Plaintiffs’ Second Amended
Complaint are not barred by the Sale Order, Chrysler Group LLC shall abide by its
representations made in this Court and stipulate that any remaining claims be remanded back to
this Court for further proceedings.” (Id. ¶ 3.)
D. 	This Motion
New Chrysler filed a motion in this Court to dismiss the SAC on February 28, 2013. (See
Chrysler Group LLC’s Memorandum of Law in Support of Its Motion to Dismiss the Second
Amended Complaint, dated Feb. 28, 2013 (ECF Doc. # 7).) It contends that all of the plaintiffs’
claims are barred by the Sale Order. In addition, it argues that none of the plaintiffs purchased a
vehicle that was manufactured after the closing, and they cannot, therefore, assert the rights of
post-closing purchasers.
Although the SAC alleges several breaches of duty that arose prior to the Closing Date,
the plaintiffs primarily contend that the SAC alleges the breach of duties that arose under or
relate to the TSBs issued after the closing and do not implicate the Sale Order. (See Plaintiffs’
Opposition ¶¶ 32-33, 38-40.) Relying on Morgan Olson, LLC v. Frederico (In re Grumman
Olson Indus., Inc.), 445 B.R. 243 (Bankr. S.D.N.Y. 2011), aff’d, 467 B.R. 694 (S.D.N.Y. 2012),
the plaintiffs also maintain that the Sale Order could not cut off their claims if they were not
injured until after the closing. (Plaintiffs’ Opposition ¶¶ 41, 65-66.) In addition, they argue that
New Chrysler assumed Old Carco’s warranty obligations under the Sale Order, (id. ¶¶ 43-44),
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 12 of 24

13
and through statements made by Old Carco and New Chrysler before, during and after the sale
that the warranties would be honored. (Id. ¶¶ 45-50.) Finally, the plaintiffs contend that they
have asserted valid Lemon Law claims, (id. ¶¶ 56-58), but if they have not, they request
permission to amend the SAC to assert Lemon Law claims. (Id. ¶¶ 59-60.)
New Chrysler filed a reply reaffirming its position, maintaining that the 2011 and 2012
TSBs did not create the duties that form the bases of their claims and denying Grumman’s
applicability. (See Chrysler Group LLC’s Reply Memorandum in Support of its Motion to
Dismiss the Second Amended Complaint, dated Mar. 28, 2013 (“Chrysler Reply”) (ECF Doc.
#16).)
DISCUSSION
A. 	Standard for a Motion to Dismiss
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citations omitted); accord Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). Iqbal outlined a two-step approach in deciding a motion to dismiss. The court begins by
“identifying pleadings that, because they are no more than [legal] conclusions, are not entitled to
the assumption of truth.” Iqbal, 556 U.S. at 679. “Threadbare recitals of the elements of a cause
of action supported by conclusory statements” are not factual. See id. at 678. Next it gives all
“well-pleaded factual allegations” an assumption of veracity to determine whether, together, they
plausibly give rise to an entitlement of relief. Id. at 679.
In deciding the motion, “courts must consider the complaint in its entirety, as well as
other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 13 of 24

14
particular, documents incorporated into the complaint by reference, and matters of which a court
may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007). The court may also consider documents that the plaintiff relied on in bringing suit and
that are either in the plaintiff’s possession or that the plaintiff knew of when bringing suit.
Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); Brass v. Am. Film Techs.,
Inc., 987 F.2d 142, 150 (2d Cir. 1993); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-
48 (2d Cir. 1991), cert. denied, 503 U.S. 960 (1992); McKevitt v. Mueller, 689 F. Supp. 2d 661,
665 (S.D.N.Y. 2010). Where the complaint cites or quotes from excerpts of a document, the
court may consider other parts of the same document submitted by the parties on a motion to
dismiss. 131 Main St. Assocs. v. Manko, 897 F. Supp. 1507, 1532 n. 23 (S.D.N.Y. 1995).
The Court has considered several documents outside the pleadings in judging the legal
sufficiency of the SAC. These include the contents of numerous documents docketed with the
Court relating to the sale (the MTA, Amendment No. 4, the Sale Order). They are subject to
judicial notice, and the transfer order requires that I consider their provisions. 13 In addition, the
plaintiffs relied on and referred to the February 2011 TSB and the January 2012 TSB in the SAC.
B. 	Grumman, Successor Liability and Due Process
As a threshold matter, the plaintiffs argue that under Grumman Olson, a Bankruptcy
Code § 363 sale order cannot cut off successor liability for injuries suffered after the closing. In
Grumman Olson, the debtor manufactured and sold truck bodies to motor vehicle manufacturers
who, in turn, incorporated the truck bodies into a complete vehicle, which they sold to the public.
13 	In addition, the SAC alleges that “the class members do not include those who own vehicles sold before the
Bankruptcy Sale Order date that are not subject to the assumption of warranty liabilities set forth in Paragraph 19 of
the Sale Order.” (SAC ¶ 40.) The plaintiffs incorporated this allegation into every Count other than Count II.
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 14 of 24

15
Prior to bankruptcy, the debtor allegedly sold a truck body that was incorporated into a vehicle
sold to FedEx. The debtor thereafter filed for bankruptcy in this Court and sold its assets free
and clear of liens, claims, interests and encumbrances. The sale order also included a provision
that exonerated the buyer from claims against the debtor based on successor liability.
Years later, the plaintiff, a FedEx employee, was seriously injured when the FedEx truck
she was driving hit a telephone pole. She and her husband sued the debtor’s buyer under New
Jersey’s successor liability laws, contending that the buyer was liable for the debtor’s defective
design and manufacture of the truck body involved in the accident. The buyer brought an
adversary proceeding in this Court seeking a declaration that the sale order was a complete
defense to the successor liability claim. The sole issue was whether the sale order provided a
complete defense to the plaintiffs’ claims.
The Court granted the plaintiffs’ motion for summary judgment and dismissed the
complaint concluding that the sale order was no bar. The plaintiffs had no prior contact with the
debtor, and did not have a claim against the debtor at the time of the sale, years before the
accident had occurred. Grumman Olson, 445 B.R. at 253. In addition, permitting the buyer to
rely on the sale order as a defense would result in a denial of due process. The plaintiffs did not
receive meaningful notice of the bankruptcy proceedings because prior to the accident, they
would have had no basis to pay any attention to the bankruptcy case or do anything about it. Id.
at 254.
Here, the plaintiffs’ invocation of Grumman Olson is correct in one sense. New
Chrysler, like the defendant in Grumman Olson, is an entirely different entity from the debtor.
Wolff v. Chrysler Group LLC (Old Carco LLC), Adv. Proc. No. 10-05007, slip op. at 11 (Bankr.
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 15 of 24

16
S.D.N.Y. July 30, 2010) (ECF/Adv. Proc. No. 10-5007 Doc. # 43) (“New Chrysler is not a
related debtor, nor is it responsible for all of Old Carco’s obligations. Old Carco and New
Chrysler are distinct entities against which different claims may be asserted.”) Otherwise,
Grumman Olson is distinguishable. The plaintiffs or their predecessors (the previous owners of
the vehicles) had a pre-petition relationship with Old Carco, and the design flaws that they now
point to existed pre-petition. At a minimum, they held contingent claims because “the
occurrence of the contingency or future event that would trigger liability was ‘within the actual
or presumed contemplation of the parties at the time the original relationship between the parties
was created.’” Id. at 252 (quoting United States v. LTV Corp. (In re Chateaugay Corp.), 944
F.2d 997, 1004 (2d Cir. 1991) (quoting In re All Media Props., Inc., 5 B.R. 126, 133 (Bankr.
S.D. Tex. 1980), aff’d mem., 646 F.2d 193 (5th Cir. 1981)). Anyone who owns a car
contemplates that it will need to be repaired, particularly when, as here, Old Carco had already
issued at least two and possibly three recall notices for the “fuel spit back” problem for certain
Durango and other Old Carco vehicles before the original purchasers bought their vehicles from
Old Carco.
C. 	Breach of Implied Warranties (Counts VI, VII and VIII)
As noted, the Assumed Liabilities under the MTA included “product warranties,”
including extended service contracts, but expressly excluded “Product Liability” claims (other
than claims arising from accidents), defined, inter alia, to include claims for “damage resulting
from exposure to, or any other warranty claims, refunds, rebates, property damage, product
recalls, defective material claims . . . .” (MTA (Definitions Addendum) at 90, as modified by
Amendment No. 1, at ¶ 36.) Construing the relevant provisions of the MTA, as amended, and the
Sale Order, Judge Gonzalez ruled that the product warranty claims were limited to the costs of
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 16 of 24

17
the parts and labor associated with the repair, i.e., the Repair Warranty. Tulacro, at 6; accord
Ricks, 2013 WL 1856330, at *3. No further liability was assumed if the repair was ineffective.
Ricks, 2013 WL 1856330, at *4.
Counts VI, VII and VIII purport to assert claims based on breach of the implied
warranties of merchantability and fitness for a particular purpose on behalf of owners of vehicles
manufactured and/or sold before and after the closing. Under the Sale Order, the owners of the
vehicles that were manufactured and sold prior to the closing are limited to the Repair Warranty
and are not entitled to damages or any other remedy beyond that unless the breach of warranty
forms the basis for a Lemon Law claim discussed below.
The plaintiffs nonetheless argue that New Chrysler assumed these pre-existing implied
warranties based on certain public statements pointing to the following:
1. 	After the bankruptcy filing but prior to the sale, Old Carco CFO Ronald E.
Kolka stated that preserving Old Carco warranty obligations was essential to
maintaining customer loyalty and to ensuring the least amount of detriment to the
debtors’ estate. (Plaintiffs’ Opposition ¶ 45).
2. 	When Old Carco announced the sale, its Chairman and CEO, Bob
Nardelli, wrote an open letter to the public stating that “[t]he company will
seamlessly honor all warranty claims.” (Id. ¶ 46.)
3. 	The motion to approve the sale stated that New Chrysler would be
assuming “[l]iabilities for product warranties, product returns and rebates on
vehicles sold pre-closing,” and “[w]arranty obligations and product recall
liabilities related to vehicles sold pre-closing.” (Id. ¶ 47.)
4. 	During the sale hearing, Kolka testified that New Chrysler “plans on
paying the warranty claims.” (Id. ¶ 48.)
5. 	After the sale closed, New Chrysler stated in a letter to Senator Richard
Durbin on August 27, 2009 that “the company will accept product liability claims
on vehicles manufactured by Old Carco before June 10 that are involved in
accidents on or after that date. This is in addition to our previous commitment to
honor warranty claims, lemon law claims, and safety recalls regarding these
vehicles.” (Id. ¶ 49 (quoting Plaintiffs’ Opposition, Ex. H).)
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 17 of 24

18
6. 	Ronald Bloom of President Obama’s Task Force on the Automotive
Industry stated that New Chrysler “decided to honor the warranty claims of prior
owners of their cars because on a commercial basis, the last buyer of a GM or
Chrysler is the most likely candidate to be the next buyer.” (Id. ¶ 50 (quoting
Plaintiffs’ Opposition, Ex. I).)
Initially, the SAC did not rely on or quote these statements, and did not allege that New
Chrysler had assumed implied warranties by virtue of these statements. Hence, they should not
be considered in judging the legal sufficiency of the SAC. In addition, the SAC does not allege
that Kolka worked for or had authority to speak on New Chrysler’s behalf, and New Chrysler
denies that he did. (See Chrysler Reply at 5.) The quoted statement attributed to Nardelli does
not appear in the exhibit that supposedly contained it, (see Plaintiffs’ Opposition, Ex. F), and
moreover, Nardelli made the statement as an employee of Old Carco, not New Chrysler.
Similarly, the SAC does not allege facts indicating that Bloom, a member of the President’s Task
Force, had authority to speak for New Chrysler.
In any event, all of the statements are consistent with New Chrysler’s position and this
Court’s interpretation of the Sale Order. New Chrysler did agree to honor warranty claims—the
Repair Warranty. None of the statements attributed to New Chrysler state or imply that it
assumed liability to pay consequential or other damages based upon pre-existing defects in
vehicles manufactured and sold by Old Carco.
The claims asserted on behalf of the post-closing purchasers raise different issues. New
Chrysler argues that the plaintiffs lack standing to assert these claims because none of the
plaintiffs own a vehicle that was manufactured or sold post-closing by New Chrysler. In
addition, none of the plaintiffs own a model year 2008 or 2009 vehicle, or a 2007 Dodge
Durango. The plaintiffs counter that in a class action involving the same motor vehicle, the
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 18 of 24

19
named plaintiffs can represent the owners of other vehicles with the same problem. (See
Plaintiffs’ Opposition ¶ 62 n. 2.)
I do not decide the standing question because it appears to be intertwined with the class
certification issues that will be decided by the Delaware District Court. Nor do I decide whether
the post-closing purchasers have alleged legally sufficient breach of warranty claims under non-
bankruptcy law. It is enough to say that the Sale Order does not affect any claims held by
owners who purchased cars manufactured or sold by New Chrysler after the closing.
D. 	Other Claims
1. 	Counts I and V
Counts I and V assert claims on behalf of pre-closing and post-closing customers who
own vehicles that suffer from the “fuel spit back” problem but were not covered by the February
2011 TSB and January 2012 TSB. The plaintiffs allege that New Chrysler negligently and
wrongfully failed to include these vehicles in the TSBs, warn the owners of the defect or correct
the defect.
It bears repeating that New Chrysler 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. New Chrysler had no duty to extend lifetime warranties to any
owner of an Old Carco vehicle. Its duty to repair and replace the “fuel spit back” flawed
components as to those owners who did not receive the benefit of a lifetime warranty is limited
to the Repair Warranty, or possibly, the applicable Lemon Law.
The “duty to warn” raises a more difficult question. New Chrysler did not assume Old
Carco’s duty to warn its customers about the “fuel spit back” problem, and any claim based on
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 19 of 24

20
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., 451 N.E.2d 195, 199 (N.Y. 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.
Here, the Sale Order bars the claim that New Chrysler breached a duty to warn Old Carco
customers that their vehicles had a design flaw, to wit, the “fuel spit back problem.” 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. The plaintiffs in this case do not allege subsequent personal injuries. For example, they
do not allege that fuel splashed back in their eyes as a result of the defect while refueling their
vehicles. Instead, they seek monetary and injunctive relief based on a pre-Closing Date design
flaw. (SAC ¶¶ 1, 38.) Each purchased a defective vehicle manufactured by Old Carco that
requires more servicing and is worth less money. New Chrysler’s failure to warn them that they
purchased a defective vehicle manufactured by Old Carco did not proximately cause their
economic injury, and each plaintiff’s failure to warn claim “is a typical successor liability case
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 20 of 24

21
dressed up to look like something else, and is prohibited by the plain language of the bankruptcy
court’s Order.” Otoski v. Avidyne Corp., No. CV. 09-3041-PK, 2010 WL 4739943, at *7 (D.Or.
Oct. 6, 2010) (report and recommendation), adopted, 2010 WL 4737815 (D.Or. Nov. 15,
2010).14
The claims asserted on behalf of the post-closing purchasers are not affected by the Sale
Order. I do not consider whether the SAC alleges legally sufficient claims as to these
purchasers.
2. 	Counts II, III and IV
Counts II, III and IV assert similar claims (failure to warn, failure to correct) based on the
February 2011 and January 2012 TSBs.15 The vehicles covered by these counts were
manufactured and sold to the original buyer prior to the Closing Date. For the reasons stated, the
Sale Order would cut off these claims beyond those under the Repair Warranty and the Lemon
Laws unless New Chrysler voluntarily assumed post-closing obligations under the TSBs. The
Sale Order, in this regard, did not prevent New Chrysler from voluntarily assuming obligations
that it did not have, such as extending a lifetime warranty to repair or replace a defective fuel
assembly. I do not opine on the scope of the duties that New Chrysler assumed when it issued
the TSBs or the legal sufficiency of these claims under non-bankruptcy law except to note that
they would not be barred by the Sale Order.
14 	In addition, the SAC does not allege that New Chrysler serviced the plaintiffs’ vehicles or that New
Chrysler is aware of each plaintiff’s location. As noted, the original plaintiffs apparently purchased used vehicles,
and New Chrysler may not even have a record of their ownership.
15 	Count IV appears to duplicate Count II.
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 21 of 24

22
E. 	Leave to Appeal
Lastly, the plaintiffs seek leave to amend the SAC to assert claims under applicable
Lemon Laws. Most if not all states have Lemon Laws that provide remedies to consumers who
purchase chronically defective vehicles that cannot be repaired after several attempts. See Ricks,
2013 WL 1856330, at *4 (discussing the Minnesota Lemon Law). New Chrysler assumed
Lemon Law claims under paragraph 19 of the Sale Order provided that the vehicle was
manufactured within five years of the Closing Date, or after June 10, 2004. The plaintiffs’
vehicles appear to satisfy the latter requirement, and hence, the Sale Order would not bar their
Lemon Law claims.
Whether they can assert legally cognizable Lemon Law claims is a different question.
The answer depends on the law that governs each plaintiff’s claim and whether the plaintiff can
plead facts that satisfy the requirements of the particular Lemon Law. I reject the plaintiffs’
contention that they have pleaded adequate Lemon Law claims in light of a settlement stipulation
between New Chrysler and other plaintiffs in another litigation involving a different vehicle with
different defects. (Plaintiffs’ Opposition ¶¶ 56-58.) The sufficiency of the claim and the
available remedies depend on the law that governs the claim. With some variation, the party
asserting a Lemon Law claim must typically plead and ultimately prove that (1) the vehicle does
not conform to a warranty, (2), the nonconformity substantially impairs the use or value of the
vehicle, and (3) the nonconformity continues to exist after a reasonable number of repair
attempts. E.g., Sipe v. Fleetwood Motor Homes of Penn., Inc., 574 F. Supp. 2d 1019, 1028 (D.
Minn. 2008) (applying Minnesota law), aff’d, Sipe v. Workhorse Custom Chassis, LLC, 572 F.3d
525 (8th Cir. 2009); McLaughlin v. Chrysler Corp., 262 F. Supp. 2d 671, 679 (N.D.W. Va.)
(applying West Virginia law), aff’d, 47 F.App’x. 659 (4th Cir. 2002); Baker v. Chrysler Corp.,
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 22 of 24

23
Civ. A. No. 91-7092, 1993 WL 18099, at *1-2 (E.D. Pa. Jan. 25, 1993) (applying Pennsylvania
law), aff’d, 9 F.3d 1539 (3d Cir. 1993); Palmer v. Fleetwood Enterp., Inc., Nos. C040161,
C040765, 2003 WL 21228864, at *4 (Cal. Ct. App. May 28, 2003) (applying California law);
Iams v. Daimler Chrysler Corp., 883 N.E. 466, 470 (Ohio Ct. App. 2007) (applying Ohio law);
DiVigenze v. Chrysler Corp., 785 A.2d 37, 48 (N.J. Super. Ct. App. Div. 2001), certification
denied, 794 A.2d 181 (2002) (applying New Jersey law). The SAC does not plead that any of
the plaintiffs brought their vehicles in for servicing, or that New Chrysler was unable to fix the
problem after a reasonable number of attempts. I do not rule on their request to file an amended
pleading and leave it to the Delaware District Court which will handle this matter.
CONCLUSION
In conclusion, the plaintiffs have not asserted any assumed products liability claims, and
the Sale Order bars all other pre-closing claims except Repair Warranty claims and Lemon Law
claims relating to vehicles manufactured within five years of the Closing Date. Accordingly, the
breach of implied warranty claims asserted in Counts VI, VII and VIII with respect to vehicles
manufactured and sold before the closing are dismissed, as are the claims asserted on behalf of
the same owners in Counts I and V that New Chrysler failed to extend the TSBs to these owners
or breached a duty to warn. With respect to all other claims, any repair claims are not dismissed
to the extent that they are based on the Repair Warranty. Finally, the Sale Order does not affect
any claims based on the manufacture or sale of vehicles by New Chrysler after the closing or
based on a duty that New Chrysler assumed after the closing under the TSBs or otherwise. The
Court has considered the remaining arguments made by the parties and concludes that they lack
merit.
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 23 of 24

24
The parties are directed to arrange for a status conference to discuss whether any further
proceedings in this Court are necessary or appropriate under the transfer order.
So ordered.
Dated: New York, New York
June 26, 2013
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
13-01109-smb Doc 18 Filed 06/26/13 Entered 06/26/13 12:53:30 Main Document
Pg 24 of 24