Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 1 of 13. PageID #: 521

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1 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 1 of 13. PageID #: 521 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO, EASTERN DIVISION HOLLAND, JR. ET AL. Plaintiffs, CIVIL ACTION NO. 1:15-cv v. FCA US LLC (FIAT CHRYSLER AUTOMOBILES U.S., LLC (F/K/A CHRYLSER GROUP, LLC)) HONORABLE DONALD C. NUGENT I. INTRODUCTION Defendant. PLAINTIFFS MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANT S MOTION TO TRANSFER FCA US LLC s ( FCA ) instant Motion inappropriately seeks to transfer this action as it has often done in other cases-- to the Bankruptcy Court for the Southern District of New York (hereinafter Bankruptcy Court ) to determine the effect of the Sale Order on the claims set forth in Plaintiff s Complaint. However, these Plaintiffs have not asserted any claims violative of the Defendant s predecessor s discharge in bankruptcy. Instead, Plaintiffs First Amended Complaint ( FAC ) raises non-bankruptcy liability issues predicated upon events, activities, and negligent conduct transpiring after the Bankruptcy closing, which are fully and fairly capable of disposition in this Court. The Plaintiffs respectfully urge this Honorable Court to exercise its discretion and deny the Motion to Transfer because our claims are not in conflict with the Bankruptcy Court s discharge, thereby negating a need to have another Court resolve the fact 1

2 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 2 of 13. PageID #: 522 and legal issues raised by this lawsuit. Indeed, the viability of the Plaintiffs instant state law failure to warn claims 1 has been confirmed by the Bankruptcy court in Burton v. Chrysler. As a result of the Bankruptcy, FCA who was not the Debtor s successor in interest asks for a delay in resolving its Motion to Dismiss and Motion for Summary Judgment claiming that the bankruptcy discharge immunized the successor in interest from its neglect. There is nothing in the discharge via the Sales Order warranting this argument and causing further delay to the Plaintiffs in having their grievance resolved by this Court. As alleged in this action, the Defendant s woeful inaction with respect to over 300,000 Pacifica model vehicles has exposed the Plaintiffs and Class Members to what many auto mechanics have described as ticking time bombs --because excessive rust and corrosion perforate the engine cradle to such a degree that the engine can fall out while driving down the road. Rather then delaying justice and burdening another Court with the simple resolution of the issue raised by way of this Motion to Transfer, we ask that this Honorable Court adjudicate the issue raised, and deny FCA s Motion to Transfer. II. RELEVANT FACTS As repeatedly pleaded throughout the FAC, and as described in Plaintiffs response to FCA s other pending motions, this action concerns duties that did not and could not have existed prior to the bankruptcy. The Plaintiffs have clearly alleged that FCA learned of the engine cradle defect after the Sale Order went into effect. See e.g., FAC at 55, 81, 113, 179. In addition to alleging that the duty arose after the bankruptcy closing, Plaintiffs have also alleged that the 1 The classification of Plaintiffs claims as successor liability or failure to warn claims is irrelevant in light of the Bankruptcy Court s recognition that the law may impose a separate duty to warn on New Chrysler. Burton v. Chrysler Group, LLC (In re Old Carco LLC), 492 B.R. 392, 405 (Bankr. S.D.N.Y. 2013). Plaintiffs seek to impose this separate duty on FCA. 2

3 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 3 of 13. PageID #: 523 Defendant s duty to warn of the engine cradle defect stems from state law. E.g., Id. at (Ohio common law), (Connecticut Products Liability Act), (Illinois common law). Finally, and most important to the resolution of the instant Motion, Plaintiffs have alleged, and this Court s review will confirm, that the Bankruptcy Court has already had occasion to review the propriety of failure to warn claims against New Chrysler in the wake of the bankruptcy. Id. at 17. The Bankruptcy Court held the law may impose a separate duty on New Chrysler, and thus FCA, to warn of latent defects in pre-bankruptcy vehicles. Burton v. Chrysler Group, LLC (In re Old Carco LLC), 492 B.R. 392, 405 (Bankr. S.D.N.Y. 2013). As such, this Motion seeks to have the Bankruptcy Court render a duplicative decision that is well within the purview of this Court. III. ARGUMENT A. STANDARD OF REVIEW Under 28 U.S.C. 1412, a district court may transfer a case or proceeding under Title 11 to a district court for another district when transfer is in the interest of justice or for the convenience of the parties. A decision to transfer venue under 28 U.S.C is within the broad discretion of the district court. RFF Family P'ship, LP v. Wasserman, 2010 U.S. Dist. LEXIS 57191, *27 (N.D. Ohio Jan. 29, 2010) (citations omitted). The moving party bears the burden of demonstrating that transfer is warranted. Id. In deciding whether transfer of an action under 1412 would be in the interest of justice, courts must consider the following non-exhaustive factors: 1) the economics of estate administration, 2) a presumption in favor of the home court, 3) judicial efficiency, 4) the ability to receive a fair trial, 5) the state s interest in having local controversies decided within its 3

4 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 4 of 13. PageID #: 524 borders, 6) the enforceability of any judgment, and 7) the plaintiff s choice in forum. RFF Family P'ship, LP, 2010 U.S. Dist. LEXIS at *24. B. PLAINTIFFS CLAIMS DO NOT REQUIRE RENEWED EVALUATION BY THE BANKRUPTY COURT 1. Burton Clearly Affirmed the Duties at Issue in this Action As a threshold matter, the Bankruptcy Court s holding in Burton is not subject to varying interpretations. Burton expressly held as follows 2 : 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, (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, 451 N.E.2d 195, 199, 464 N.Y.S.2d 437 (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. Burton v. Chrysler Group, LLC (In re Old Carco LLC), 492 B.R. 392, 405 (Bankr. S.D.N.Y. 2013). Thus, when FCA argues that it vehemently disputes Plaintiffs interpretation of Burton (Motion to Transfer at p. 12), it is really arguing that it disagrees with the Bankruptcy Court. FCA s disagreement is not sufficient reason to have this action transferred. The threshold issue 2 See also, Burton, 492 B.R. at 395 ( [t]he Sale Order obviously does not bar claims concerning vehicles manufactured or sold by New Chrysler after the closing or injuries resulting from the breach of duties that arose under non-bankruptcy law after the closing. )(italics added). 4

5 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 5 of 13. PageID #: 525 in this action is not whether transfer is appropriate, but rather whether FCA established a sufficient relationship with pre-bankruptcy Pacifica owners such that state law imposed an independent duty to address the engine cradle defect. 3 Moreover, the decision in Burton, and more specifically the viability of independent postbankruptcy duties based on state law, was recently reaffirmed by the Bankruptcy Court in In re Motors Liquidation Co., 2015 Bankr. LEXIS 1296 (Bankr. S.D.N.Y. 2015). In In re Motors Liquidation Co, the Bankruptcy Court reiterated the simple point the Plaintiffs seek to make herein [w]hen you are talking about free and clear of liens, it means you don t take subject to claims which, in essence, carry with the property. It doesn t absolve you from compliance with the law going forward. Id. at 143 (citations omitted) (emphasis added). 2. Other Courts Decisions to Transfer to the Bankruptcy Court are Distinguishable While various courts have transferred actions against New Chrysler to the Bankruptcy Court for disposition, they have predominantly done so because those actions raised novel questions concerning the effect of the bankruptcy. See e.g., Miller v. Chrysler Group, LLC, 2012 U.S. Dist. LEXIS (D.N.J. Dec. 7, 2012) (variety of claims including breach of contract, breach of express warranty and violations of the Magnusson-Moss Warranty Act); Quesenberry v. Chrysler Group LLC, 2012 WL (E.D.Ky. 2012)(attached hereto as Exhibit 1) (punitive damages); In re Old Carco LLC, Wolff v. Chrysler Group LLC, Case No , Adv. Proc. No (S.D.N.Y. July 30, 2010)(attached to Motion to Transfer as Exhibit 4)(breach of contract and promissory estoppel); Sculfort v. Chrysler Group LLC, Case No. 3:12-3 FCA disputes the existence of this relationship. See FCA s Reply in Support of Its Motion to Dismiss Plaintiffs First Amended Class Action Complaint, Document No. 25. This dispute is clearly capable of just resolution in this Court. 5

6 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 6 of 13. PageID #: 526 cv-2209 (N.D. Ohio), Docket No. 26 (attached to Motion to Dismiss as Exhibit 5) (assumed responsibility for safety recalls); Tatum v. Chrysler Group, LLC, 2011 U.S. Dist. LEXIS (D.N.J. Dec. 16, 2011) (Order granting dismissal attached as Exhibit 3 to Motion to Transfer) (violations of New Jersey Consumer Fraud Act). Unlike these actions, Plaintiffs claims do not raise any novel issues regarding FCA s independent duties. As explained above, the Bankruptcy Court has already recognized that failure to warn claims that concern post-bankruptcy conduct are not barred by the Sale Order. Burton, 492 B.R. at Plaintiffs Have a Constitutional Right to Adjudicate their Postbankruptcy Claims At the heart of FCA s argument that this action should be transferred to the Bankruptcy Court is the assertion that individuals who have claims arising out of harm suffered after the closing are bound by the terms of the Sale Agreement and can only obtain financial relief if the Sale Order permits it. This argument is inconsistent with the Due Process Clause of the United States Constitution and Morgan Olson L.L.C. v. Frederico (In re Grumman Olson Indus.), 467 B.R. 694 (S.D.N.Y. 2012). In Grumman Olson, the Bankruptcy Court to which FCA seeks transfer ruled that a Sales Agreement providing for the sale of assets free and clear of claims arising after the Sale Order cannot be discharged. Thus, the factual and legal arguments underpinning FCA s position have been rejected by the Bankruptcy Court and must be rejected here. Grumman Olson answers the issue left unanswered in the Chrysler bankruptcy litigation. Succinctly, the Grumman Olson court defined the issue as follows: This case ultimately turns on the potential reach of a Section 363 "free and clear" sale order to extinguish a claim against a purchaser that is based on pre-bankruptcy conduct of the debtor that did not cause any harm to an identifiable claimant until after the bankruptcy closed. (For the sake of simplicity, the Court will refer 6

7 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 7 of 13. PageID #: 527 Id. at 704. to this type of claim as a "future claim," and holders of this type of claim as "future claimants.") This requires the Court to examine the treatment of future claims in general in bankruptcy proceedings. Specifically, because the Sale Order in Grumman Olson was virtually identical in its terms and treatment of future claims as the Sale Order reviewed by the United States Second Circuit Court of Appeals in the Chrysler case, the District Court was constrained to review it:... The Second Circuit recently acknowledged these concerns, but declined to resolve them one way or the other. In In re Chrysler LLC, the Second Circuit addressed objections to the Bankruptcy Court's approval of an order pursuant to Section 363. That order authorized the sale of the car manufacturer's assets while extinguishing the right to pursue claims against the purchaser "on any theory of successor or transferee liability[,] whether known or unknown as of the Closing, now existing or hereafter arising, asserted or unasserted, fixed or contingent, liquidated or unliquidated." In re Chrysler LLC, 576 F.3d at 127. The court ruled that claimants with existing product liability claims against "Old Chrysler" (the debtor) could have their claims extinguished by the sale order, in part because "[t]o allow [those] claimants to assert successor liability [**35] claims against the purchaser while limiting other creditors' recourse to the proceeds of the asset sale would be inconsistent with the Bankruptcy Code's priority scheme." Id. at 126 (quoting Trans World Airlines, 322 F.3d at 292). However, the court declined to rule on whether the sale order could be enforced against "claimants who, although presently unknown and unidentified, might have claims in the future arising from Old Chrysler's production of vehicles." Id. at 123. The court affirmed the order itself "insofar as it constituted a valid exercise of authority under the Bankruptcy Code," but "decline[d] to delineate the scope of [*708] the bankruptcy court's authority to extinguish future claims, until such time as [the court is] presented with an actual claim for an injury that is caused by Old Chrysler, that 7

8 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 8 of 13. PageID #: 528 occurs after the Sale, and that is cognizable under state successor liability law." Id. at 127. Other courts, when presented with future claims in the context of Section 363 sale orders, have held that the claims cannot be extinguished without due process for the future claimants.... Id. at After carefully reviewing the rationale of many other cases addressing this issue, and studying the broad authority granted by Congress to bankruptcy courts to manage the estates of debtors, the Bankruptcy Court ruled that: Id. at The Fredericos did not receive adequate notice of their potential claim in the Grumman bankruptcy proceedings because, at the time of the bankruptcy, there was no way for anyone to know that the Fredericos ever would have a claim. Enforcing the Sale Order against the Fredericos to take away their right to seek redress under a state law theory of successor liability when they did not have notice or an opportunity to participate in the proceedings that resulted in that order would deprive them of due process. See Schwinn Cycling & Fitness Inc. v. Benonis, 217 B.R. at 797 ("Allowing the provisions of the Bankruptcy Court's orders to limit the rights of injured parties... who had no notice, and no reason at the time, to present an interest in the bankruptcy proceedings or to take action in response to the threatened deprivation of their rights, would violate due process and bankruptcy notice concerns."). Recently, the Bankruptcy Court reaffirmed the position it took in Grumman Olson. In In re Motors Liquidation Co., 2015 Bankr. LEXIS 1296 (Bankr. S.D.N.Y. 2015), the Honorable Robert T. Gerber held that economic loss plaintiffs whose claims were premised on New GM s own wrongful acts were denied due process and prejudiced by the overbreadth of the GMC Sale Order. Id. at

9 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 9 of 13. PageID #: 529 In this action, FCA stands in the same shoes as the purchaser/successor in the Grumman Olsen and In re Motors Liquidation Co. The terms of the Sale Agreement and Order approving those terms were essentially the same intending to cut-off the purchaser s liability for future claims resulting from defects in products sold by the debtor-seller. When the Bankruptcy Court attempted to address the unknown future claims of Chrysler owners, the Plaintiffs in this action did not have any reason to know of the latent engine cradle defect. Clearly, the instant Plaintiffs were not put on notice that the Bankruptcy Court would rule on the propriety of their future claims. Thus, allowing the provisions of the Bankruptcy Court's orders to limit the rights of injured parties who had no notice, and no reason at the time, to present an interest in the bankruptcy proceedings or to take action in response to the threatened deprivation of their rights, would violate due process and bankruptcy notice concerns. For this additional reason, transfer is not justified. C. DEFENDANT S MOTION FAILS TO SATISFY 1412 Assuming arguendo that this Court is constrained to consider transfer to the Bankruptcy Court, FCA nonetheless fails to establish that transfer is in interest of justice. In light of the above reasoning, and analysis of the seven factors as set forth in RFF Family P'ship, LP, 2010 U.S. Dist. LEXIS at *24, transfer must be denied. First, concern for the economics of estate administration does not weigh in favor of transfer. FCA essentially argues that Plaintiffs challenge of the Sale Order threatens the estate with additional financial liability. See Motion to Transfer at p. 9. However, the Bankruptcy Court has already held that failure to warn claims are viable. Burton, 492 B.R. at 405. Additionally, the Bankruptcy Court itself has acknowledged that Courts have rejected the premise that maximizing the value of the estate outweighs the due process rights of potential 9

10 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 10 of 13. PageID #: 530 claimants. Grumman Olson, 467 B.R. at 711 (citing Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159, 163 (7th Cir. 1994);Western Auto Supply Co. v. Savage Arms, Inc. (In re Savage Indus., Inc.), 43 F.3d 714, 720, (1st Cir. 1994)). Second, the presumption in favor of the home court is overcome on the facts alleged. Plaintiffs are not challenging the effect of the Sale Order, or the Bankruptcy Court s interpretation of it. FCA s refusal to recognize the Bankruptcy Court s holding that the law may impose a separate duty to warn on New Chrysler (Burton, 492 B.R.at 405) does not transform this action, which is based solely on that separate duty, into one that must be decided by the Bankruptcy Court. Third, judicial efficiency dictates that this action remain in this Court. The parameters of the Sale Order have been made quite clear through various opinions rendered by the Bankruptcy Court, and the legal issues raised by Plaintiffs claims do not challenge those parameters. Thus, the potential for inconsistent interpretations of the Sale Order, while generally true, is not at play in this action. Further, if this case is transferred to the Bankruptcy Court, it will undoubtedly be pending on that court s backlogged docket for several months. Moreover, transfer would be inefficient because the Bankruptcy Court would merely be charged with deciding the viability of failure to warn claims for a second time as it has already done so in Burton. That Bankruptcy Court is in no better of a position to analyze state successor liability law than this Court. This action has progressed in this Court, and indeed various dispositive motions are currently pending before this Court (FCA s Motion to Dismiss and Motion for Summary Judgment). This Court is fully and fairly capable of making a determination as to Plaintiffs state law claims. 10

11 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 11 of 13. PageID #: 531 Fourth 4, this State does have a cognizable interest in having this controversy decided within its borders. FCA incorrectly dismisses Ohio s interest in this action on the assumption that this case does not have a sufficient local nexus. See Motion to Dismiss at p. 11. While Plaintiffs do seek certification of a nationwide class, they alternatively seek certification of state subclasses, including a separate subclass based on the laws of Ohio. See FAC at 60, Fourth- Seventh Claims for Relief. Despite the fact that this is a class action, there is a local controversy that implicates the interests of this state, and this Court is better suited to apply Ohio law regarding the failure to warn. Indeed, this state has more of an interest in Plaintiffs state law claims than New York since Plaintiffs do not seek the certification of a New York state subclass. Finally 5, the Plaintiffs choice of forum is both consistent with the residency of the lead Plaintiff in this action and is not a stand alone factor that is insufficient to defeat transfer. See Motion to Dismiss at p. 11. Unlike the plaintiffs in RFF Family P'ship, LP, the lead Plaintiff herein is a citizen and resident of Ohio. When combined with Ohio s interest in this action, concerns of judicial efficiency and Plaintiffs Constitutional right to pursue their state law claims, this factor also militates against transfer. IV. CONCLUSION For the foregoing reasons, Plaintiffs respectfully request that this Court deny Defendant s Motion to Transfer. 4 The third factor Plaintiff s Ability to Receive a Fair Trial is not at issue given FCA s agreement that it would not oppose remand to this Court for the adjudication of all surviving claims against FCA. See Motion to Transfer at p. 5. As such, this factor does not weigh for or against transfer. 5 Plaintiffs agree with FCA s position that the sixth factor the enforceability of judgment does not weigh for or against transfer given FCA s prospective agreement to remand surviving claims to this Court. 11

12 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 12 of 13. PageID #: 532 Respectfully submitted, ANAPOL SCHWARTZ By: /s/ Sol H. Weiss Larry E. Coben, Esquire Sol H. Weiss, Esquire Paola Saneaux, Esquire 1710 Spruce St. Philadelphia, PA CLARK PERDUE & LIST CO., L.P.A. /s/ Andrew List D. Andrew List ( ) 471 East Broad Street, Suite 1550 Columbus, Ohio (614) (614) (facsimile) LOWE, EKLUND & WAKEFIELD /s/ James Allison Lowe. James Alison Lowe 610 Skylight Office Tower 1660 West Second Street Cleveland, OH (216) Attorneys for Plaintiffs 12

13 Case: 1:15-cv DCN Doc #: 27-1 Filed: 06/16/15 13 of 13. PageID #: 533 CERTIFICATION OF COMPLIANCE WITH LOCAL RULE 7.1 This case has been assigned to a standard track. The undersigned hereby certifies that this Memorandum adheres to the page limitations set forth in Local Rule 7.1(f) for the United States District Court for the Northern District of Ohio. /s/ Sol H. Weiss. CERTIFICATE OF SERVICE The undersigned certifies that on this 16th day of June, 2015, a copy of Plaintiffs Memorandum of Law in Opposition to Defendant FCA US LLC s Motion to Transfer was electronically filed with the Clerk of the Court using the CM/ECF system which sent notification of such filing to all counsel of record. /s/ Sol H. Weiss. 13

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reg Doc Filed 05/27/14 Entered 05/27/14 17:07:45 Main Document Pg 1 of 9 Pg 1 of 9 FINKELSTEIN, BLANKINSHIP, FREI-PEARSON & GARBER, LLP D. Greg Blankinship Todd S. Garber 1311 Mamaroneck Avenue White Plains, New York 10605 Tel: (914) 298-3281 Fax: (914) 824-1561 gblankinship@fbfglaw.com