Docket: Case No. 09-50026 (MG) (Jointly Administered)
Court: United States Bankruptcy Court, S.D. New York; March 22, 2019; Us Bankruptcy; United States Bankruptcy Court
American Axle Manufacturing, Inc. filed a motion to include certain real property located at 2390 and 2392 Kenmore Avenue, Tonawanda, New York, in the Revitalizing Auto Communities Environmental Response Trust (RACER Trust). Alternatively, it sought permission to file a late claim against the General Unsecured Creditors Trust (GUC Trust). The motion was supported by a memorandum of law and met with objections from three parties: the United States Government, Wilmington Trust Company (administrator of the GUC Trust), and RACER Trust. American Axle's claim arises from environmental contamination at the Site, which it acquired from General Motors Corporation (Old GM) in 1994 and sold in 2008. Despite knowing about the contamination and participating in related administrative proceedings before Old GM's bankruptcy in 2009, American Axle failed to file a proof of claim by the established bar date of November 30, 2009. The court denied the motion entirely, citing several reasons: American Axle cannot modify the consent decree regarding the RACER Trust; due process was not violated; it held a prepetition, contingent claim; its failure to file on time does not constitute excusable neglect; and its claim is disallowed under section 502(e)(1)(B). The Site, previously part of Old GM's engine plant, was contaminated with hazardous materials, including PCBs, as disclosed in the asset purchase agreement, which also outlined remedial measures.
In 2002 and 2003, an administrative proceeding by the New York State Department of Environmental Conservation revealed that the soil and groundwater at a site owned by American Axle and Old GM contained elevated PCB levels. Old GM filed for Chapter 11 bankruptcy on June 1, 2009, seeking approval to sell its assets to New GM, which was granted by the Court after addressing objections. The sale closed on July 10, 2009. Subsequently, Old GM requested a Bar Date for filing prepetition claims, which the Court established as November 30, 2009. The order specified that failure to file a proof of claim would bar holders from asserting claims against the Debtors. American Axle, a known creditor, received all required notices but did not file a proof of claim. On March 29, 2011, the Court confirmed the Debtors' second amended joint Chapter 11 plan, resulting in the establishment of the GUC Trust, which has distributed approximately 29.6% of allowed claims to unsecured creditors.
The RACER Trust was established in March 2011 to manage the cleanup and redevelopment of properties owned or operated by Old GM at the time of its bankruptcy, as directed by a Consent Decree involving the Debtors, the United States, 14 states, and the Saint Regis Mohawk Tribe. The Decree addressed 89 contaminated properties requiring environmental remediation. In exchange for their participation, governmental entities agreed that their claims against Old GM for remediation costs would be satisfied, receiving no further bankruptcy distributions related to those claims. American Axle is concerned about future remediation costs for a Class 2 site now owned by a defunct entity, Lewis Brothers LLC, and is seeking to add this site to the RACER Trust for cleanup funding. If this addition is not possible, American Axle requests permission to file a late claim against the GUC Trust.
The document discusses the constraints on modifying the Consent Decree, which governs the RACER Trust's responsibilities. Modifications to consent decrees require satisfying specific legal standards under Rule 60(b) of the Federal Rules of Civil Procedure, which allows modification if it is no longer equitable or for other justified reasons. Consent decrees are considered both contracts and judicial orders, and courts maintain authority to amend them as necessary. Importantly, non-parties cannot challenge or appeal consent decrees without intervening in the original case.
A party seeking to modify a consent decree under Rule 60(b) must demonstrate a significant change in circumstances that justifies the revision. This burden can be satisfied by showing substantial changes in factual conditions or legal context. If met, the court evaluates if the proposed modification is appropriately tailored to the new circumstances. Equity allows for modification if a better understanding of the facts indicates the decree is not effectively achieving its goals.
In the case of American Axle, despite its standing to seek modification, it did not successfully establish a significant change in circumstances, as its argument regarding New York State's lawsuit did not meet the necessary legal threshold. Even if this change were acknowledged, the proposed modification to include a site was incompatible with the RACER Trust's objectives, which focus on remediating specific former GM properties. The Consent Decree does not assign the RACER Trust responsibility for sites no longer owned by GM as of the petition date. Allowing such modifications could undermine the trust's mission by diverting its resources and creating a precedent that could lead to similar claims for other contaminated sites, jeopardizing its effectiveness.
American Axle contends that its due process rights were violated by being unable to pursue a late claim in Old GM's bankruptcy. However, it received actual notice of significant proceedings, including the Sale, Confirmation Order, and Bar Date, through multiple notifications from Old GM's claims agent. The due process requirement mandates that creditors receive notice reasonably calculated to inform them of the bankruptcy proceedings and allow them to present objections. Despite American Axle's claim of insufficient notice regarding its interests, due process does not require debtors to inform creditors about the specifics or potential merits of their claims. Creditors are responsible for investigating their claims independently. Old GM fulfilled its due process obligations by notifying American Axle of the bankruptcy case and bar date. Additionally, American Axle was aware of environmental issues at the Site before the bankruptcy, having participated in cleanup efforts and administrative proceedings related to contamination. Therefore, even if due process required notice of individual interests, American Axle had that awareness. Furthermore, the definition of a "claim" under Section 101(5)(A) of the Bankruptcy Code encompasses all rights to payment, including contingent claims, reinforcing the broad relief intended for debtors in bankruptcy proceedings.
The term "claim" is defined broadly in bankruptcy law, encompassing any potential right to payment, as established by the Second Circuit and supported by the Supreme Court. A claim can exist under the Bankruptcy Code even before a right to payment is recognized under non-bankruptcy law. A creditor does not need a ripe cause of action outside of bankruptcy to have a pre-petition claim. Contingent claims, which are dependent on future events that may not occur, are explicitly included in the Code’s definition of claims. The GUC Trust argues that American Axle failed to pursue its claim prior to filing a motion and misunderstood the nature and timing of claims in bankruptcy, contending that American Axle has a contingent claim under section 101(5)(A) of the Bankruptcy Code. American Axle acknowledges the contingent nature of its claim but focuses on the conditions under which a claim arises. Its claim is contingent because it hinges on the future event of potential liability for cleanup costs. American Axle has not been found liable nor paid for any cleanup, indicating that its claim remains speculative. The Court concurs with the GUC Trust that the difference over time for American Axle is merely its realization of needing to seek contribution from Old GM. American Axle’s motion lacks specificity regarding its claim against the GUC Trust, and it is unlikely that the claim arises from the Agreement due to a release related to environmental matters and the expiration of indemnification obligations after ten years, as stipulated in the Agreement.
American Axle argues in its Reply that its claim is based on the right to pursue Old GM for its CERCLA liability; however, it fails to clarify how this would convert its contingent claim into a legally actionable one. American Axle lacks a CERCLA claim against the GUC Trust because it has not resolved its liability to the United States or any state. The concern prompting American Axle to file the Motion stemmed from discussions with the New York State Attorney General regarding its potential cleanup liability for the Site.
The Second Circuit applies both the "prepetition relationship test" and the "fair contemplation test" in environmental claims. In Elliott v. General Motors LLC, the court established that a claim exists in bankruptcy when (1) the conduct causing the claim occurred before the petition, and (2) there is a minimum relationship between the parties such that the creditor's rights do not rely solely on future events. A contingent claim must arise from prepetition conduct that clearly supports that claim.
In this case, the conduct leading to the claim occurred long before Old GM's bankruptcy, with contamination at the Site identified by the New York State Department of Environmental Conservation as involving PCBs, which were banned in the 1970s. Although American Axle claims not to have used PCBs, contamination likely occurred before 1994, when it took possession of the property, thus predating Old GM's bankruptcy by at least 15 years. Moreover, American Axle acknowledges that the environmental contamination at the Tonawanda Forge Site resulted from Old GM's pre-bankruptcy actions. Therefore, the first requirement of the prepetition relationship test is met.
Courts require a minimum level of contact or relationship between a claimant and debtor to establish a prepetition relationship, aimed at preventing practical and constitutional issues associated with future claims. This relationship must involve mutual awareness of potential liability, as recognized in contract or tort law. In the case of American Axle and Old GM, their legal relationship began in 1994 with a contractual agreement concerning the Site, establishing clear privity. American Axle's contingent claim for payment arose from this relationship, demonstrating that it was not merely dependent on future occurrences but was firmly rooted in their contract. Consequently, American Axle was obligated to file a proof of claim by the Bar Date to participate in the GUC Trust distribution.
Additionally, under the "fair contemplation test," a contingent claim qualifies as a "claim" if the parties contemplated the triggering event at the time of their original relationship. American Axle's potential liability for cleanup costs related to contamination at the Site was within the contemplation of both parties, as evidenced by the extensive provisions in their agreement addressing environmental issues. The agreement dedicated significant space to "Environmental Matters" and included mechanisms for inspections, reporting, and remediation, indicating their shared awareness of potential environmental liabilities. Furthermore, General Motors' obligation to indemnify American Axle for environmental claims further underscores the parties' consideration of future liabilities throughout their relationship.
In 2002 and 2003, administrative proceedings centered on environmental remediation, with American Axle recognizing its environmental liabilities by 2003. Despite American Axle’s claim of ignorance regarding its contingent claim against Old GM, the Agreement and prior legal precedents indicate that such liabilities were anticipated. Although no environmental liability was incurred at the time of Old GM's bankruptcy, American Axle was aware that future liabilities were probable. Consequently, American Axle had a prepetition, contingent claim at the Bar Date, which necessitated the filing of a proof of claim.
American Axle's failure to file this proof of claim does not constitute "excusable neglect" under Bankruptcy Rule 9006(b)(1) as defined by the Supreme Court in Pioneer Inv. Servs. Co. v. Brunswick Assocs. L.P. Ignorance of the claim or legal misperceptions do not satisfy the excusable neglect standard, particularly when a chapter 11 plan has been completed, warranting caution in such evaluations. Courts assess four Pioneer factors: risk of prejudice to the debtor, length of delay, reason for the delay, and the movant's good faith. In American Axle's case, the reason for the delay—either unawareness of the claim or misunderstanding of claim emergence—precludes a finding of excusable neglect, aligning with a stringent application of the Pioneer standard by the Second Circuit.
American Axle's claim against Old GM is deemed barred due to its ignorance of the claim's existence, which does not qualify as excusable neglect under bankruptcy law. The company mistakenly believed its environmental liability had not accrued into a claim before the Bar Date, demonstrating a clear legal misunderstanding. Courts have ruled that ignorance of the law does not excuse failure to comply with filing deadlines. American Axle, as a sophisticated public company with significant resources, cannot argue its failure to file a proof of claim is excusable neglect.
Additionally, the potential prejudice to the debtor is significant, as allowing one late claim could encourage other creditors to seek similar leniency, potentially opening the floodgates for more late claims. This concern is supported by prior case law, demonstrating that litigation over late claims can be costly and burdensome to the estate. The delay in filing is also substantial, with American Axle submitting its Motion nearly nine years after the Bar Date, far exceeding typical delays considered substantial in similar cases. Overall, the factors weigh against a finding of excusable neglect in this instance.
Claims filed after the bar date, such as those made up to two years later, are generally at the limit of what courts accept. Delays of twenty-one months and fifteen months have been deemed substantial in prior cases. Even if American Axle's delay is measured from its notification in December 2017, a one-year inaction would still undermine a finding of excusable neglect. During American Axle's delay, significant case developments occurred, including the sale of assets and confirmation of a chapter 11 plan, indicating a lack of urgency on American Axle's part. Although American Axle acted in good faith, this factor alone does not meet the requirements for excusable neglect under the Pioneer standard.
Additionally, under section 502(e)(1)(B) of the Bankruptcy Code, American Axle's contingent claim is disallowed because it does not meet the criteria established for reimbursement or contribution claims, which applies to both contractual and statutory co-debtor situations. This section specifically disallows claims that are contingent at the time of allowance or disallowance. Bankruptcy courts have consistently held that creditors are barred from seeking contribution from a debtor when both parties are jointly liable under environmental statutes and the creditor has not yet incurred any expenses. For a claim to be disallowed under section 502(e)(1)(B), it must satisfy three conditions: the claimant must be jointly liable with the debtor, and the claim must be contingent at the time of its consideration.
The claim by American Axle for reimbursement or contribution is evaluated under three essential elements. First, American Axle acknowledges potential shared liability for the cleanup of the site, asserting that if the Debtors pay less than their fair share, it will incur higher costs, exemplifying co-liability. Second, the claim is contingent; it remains so until American Axle pays for cleanup expenses, as established in relevant case law, including that claims for future remediation costs are contingent until actual payment occurs. Currently, American Axle has not incurred any expenses for environmental remediation, leaving its claim contingent. Third, the claim falls under the definitions of "contribution" or "reimbursement," which encompass claims by co-debtors for expenses incurred related to a shared liability. American Axle's argument cites precedent suggesting that a contingent claim is not barred under section 502(e)(1)(B) if the primary obligee has waived its claim. However, this case is distinguishable because the State of New York has not settled with American Axle, leaving its claim contingent. As all three elements of section 502(e)(1)(B) are satisfied, the court denies American Axle’s request to file a late claim against the GUC Trust, citing that such filing would be futile under the statute. Consequently, the court orders the denial of American Axle's Motion in its entirety.
Affidavits of Service from Garden City Group, the court-appointed noticing agent for the Debtor, detail the issuance of several important notices related to the bankruptcy proceedings. These include a Notice of Interim Order that establishes notification procedures and imposes restrictions on certain transfers of interests in the Debtors' estates, as well as the scheduling of a final hearing. Additional notices inform about the sale hearing for substantially all of the Debtors' assets as per a Master Sale and Purchase Agreement with Vehicle Acquisition Holdings LLC, a purchaser backed by the U.S. Treasury. Notices also indicate bar dates for filing proofs of claim and provide a proof of claim form. Lastly, a notice confirms the entry of an order approving the Debtors' Second Amended Joint Chapter 11 Plan and mentions the effective date of that plan. Section 6.8 of the Agreement clarifies that General Motors has indicated to American Axle that the assets, including real property, may contain transformers and capacitors with potential PCBs or other dielectric materials.
