BENCH DECISION 1 ON APARTHEID CLAIMANTS' MOTION FOR CLASS CERTIFICATION, AND ON DEBTORS' OBJECTION TO APARTHEID CLAIMANTS' UNDERLYING CLAIMS
ROBERT E. GERBER, Bankruptcy Judge:
In the jointly administered chapter 11 cases of Debtor Motors Liquidation Company, formerly General Motors Corporation ("
The lawsuits were brought by residents of South Africa under the Alien Tort Statute,
In the first of the two contested matters now before me, the Apartheid Claimants move for certification of their claims as class proofs of claim, on behalf of themselves and other victims of apartheid. In the second of two contested matters before me, the Debtors seek to disallow the claims, on a class basis or otherwise.
For the reasons that follow, I conclude, notwithstanding my abhorrence of apartheid, that:
My Findings of Fact, Conclusions of Law, and bases for the exercise of my discretion in connection with these determinations follow.
Findings of Fact
1. Procedural History
The claims pending before this Court were first raised in plenary non-bankruptcy litigation—in two related lawsuits brought by 26 named plaintiffs in two separate groups (the "
The earlier lawsuits had a lengthy and somewhat convoluted history, the specifics of which need not be laid out at length in this Decision. It is sufficient for present purposes to say that until recently, it was held in the course of that litigation and related litigation that claims under the Alien Tort Statute for corporate aiding and abetting violations of international law were legally cognizable, and could be heard in the U.S. federal courts. That changed, at least in the Second Circuit, after the Circuit's Kiobel decision, discussed above and below.
On June 1, 2009, when those lawsuits were ongoing, the Debtors filed their chapter 11 cases. On September 16, 2009, I signed an order establishing November 30, 2009 as the "Bar Date"—the deadline for filing claims—in these chapter 11 cases, and setting forth procedures for filing proofs of claim against the Debtors.
On August 29, 2009, the Botha Plaintiffs filed a proof of claim against Old GM, and on October 9, 2009, the Botha Plaintiffs filed a second, largely similar, proof of claim. The Botha Plaintiffs' action had not been certified as a class action as of the time that the Debtors filed their chapter 11 cases. They first moved for class treatment of their claims in these chapter 11 cases on June 22, 2010, about a year after Old GM's chapter 11 filing, and about 10 months after the filing of their proofs of claim.
Similarly, the Balintulo Plaintiffs' action had not been certified as a class action as of the time that these chapter 11 cases were commenced. The Balintulo Plaintiffs filed their proof of claim on October 14, 2009, and first moved for class treatment on the same day that the Botha Claimants did, June 22, 2010.
2. Botha Claimants' Claims
The Botha Plaintiffs' claims in this Court, as in their complaint in the district court, allege causes of action for (i) "apartheid as a crime against humanity"; (ii) "extrajudicial killing"; (iii) "torture"; and (iv) "cruel, inhuman or degrading treatment."
As set forth in greater detail in their earlier complaint and proof of claim, the Botha Claimants seek recovery from Old GM based on Old GM's participation in South African apartheid, and/or aiding and abetting South Africa's apartheid system. It is alleged, for example, that Old GM produced military vehicles that were used by South African security forces in their efforts to maintain the apartheid regime,
The Botha Claimants seek compensatory damages, "including general and special damages"; punitive damages; disgorgement of profits, and costs of suit, including attorneys' fees. The Botha claim describes the amount of the claim as "TBD," since "[t]he amount of this claim is contingent based upon pending litigation."
The Botha Claimants seek that relief on their own behalf and on behalf of a putative class of:
3. Balintulo Plaintiffs' Claim
The Balintulo Claimants' claim alleges two "counts" against the Debtors. The first, on behalf of four putative classes, described momentarily, is "for the crime of apartheid." It alleges that Old GM provided substantial assistance to the South African security forces knowing that the security forces were violating international law;
The second, on behalf of one of those four classes only, is for "the crime of extrajudicial killing," and makes aiding and abetting allegations substantially similar to those in the first count.
The Balintulo Claimants seek, among other things, a declaration that "Defendants knowingly and intentionally aided and abetted the commission of a tort in violation of international law enforceable in this court as federal common law and the law of nations," compensatory damages, punitive damages, and costs.
The Balintulo Claimants' claim proposes four distinct classes:
I consider the two separate contested matters in turn.
A. Class Certification of Claims in Bankruptcy Cases
While I normally start with textual analysis in any dispute where such is relevant,
Bankruptcy Rule 9014(c), captioned "Application of Part VII rules," provides that "[e]xcept as otherwise provided in this rule, and unless the court directs otherwise, the following rules shall apply...." Rules 9014(c) continues with a fairly long listing of Part VII Rules that (unless the court directs otherwise) apply to contested matters, but Rule 7023 is not one of them. Thus Rule 7023 doesn't apply in contested matters, "unless the court directs otherwise." But while at least implying that a bankruptcy court has the power to "direct otherwise," and thus to apply Rule 7023 (and hence Fed.R.Civ.P. 23) in claims allowance contested matters, Rule 9014 is silent as to standards under which courts should do so.
Thus, as in so many areas where the Code and Rules are silent, bankruptcy courts look to caselaw to fill the gaps. That caselaw is extensive, with much of it from bankruptcy courts in this district— which, while not, strictly speaking, binding upon me, I am on record as following in the absence of clear error.
In this district, it has been held that while class proofs of claim in bankruptcy are not prohibited, the right to
Accordingly, the proponent of a class claim must (1) make a motion to extend the application of Rule 23 to some contested matter; (2) satisfy the requirements of Rule 23; and (3) show that the benefits derived from the use of the class claim device are consistent with the goals of bankruptcy.
B. Class Certification Here
1. Traditional Fed.R.Civ.P. 23 Considerations
Here I assume, without deciding, that the requested class certification satisfies the requirements of Fed.R.Civ.P. 23(a), which requires that the class be so numerous that joinder of all members is impracticable, that at least some questions of law or fact exist that are common to the class; that claims of the representative parties be typical of claims of members of the class, and that the representative parties will fairly and adequately protect the interests of the class. But more difficult issues exist with respect to requirements of Rule 23(b)—and in particular, Rule 23(b)(3), which in this case, where species of torts are alleged, would provide the basis, if any, for asserting claims of this character as a class action in the Bankruptcy Court.
Rule 23(b)(3) provides:
Courts considering whether Civil Rule 23(b) has been satisfied thus consider two separate requirements: (1) predominance of common issues, and (2) superiority of class action treatment in considering the underlying issues.
(a) Predominance of Common Issues
As the Supreme Court observed in Amchem, Fed.R.Civ.P. 23(b)(3)'s predominance requirement is "far more demanding" than the commonality requirement of Rule 23(a)(2).
The Amchem court went on to highlight the many differences between the members of the proposed class:
These numerous individual issues ultimately defeated class certification.
When resolution of class questions will still require case-by-case analysis of facts with respect to each member of the class, class certification may not be appropriate.
Here I think that while some common issues would plainly exist, individual issues would predominate. As the claims before me make clear, what people refer to under the general umbrella of "apartheid" hurt people in many different ways. While one of the two claimant groups here (the Balintulo Claimants) tried to address that by identifying subclasses of types of claims— extrajudicial killing, torture and rape, detention, and cruel, inhuman and degrading treatment—the most actionable wrongful acts were in substance wrongful acts by themselves—apart from being concrete examples of ways by which apartheid was a "crime against humanity." And the latter, while I can see it as being actionable in many individual cases, would raise many individual issues when coming up with "injury-action-purpose" combinations. For both the more general claim of "crime against humanity," on the one hand, and the more specific ways by which people were injured, on the other, I just see too many individual issues.
The complication (and in my view it's a major one) is the difficulty in establishing, for so many people's unique injuries, causation and the requisite purpose on the part of Old GM personnel with respect to whatever was being done to cause or facilitate the particular injury alleged by the claimant (or class member) involved— which in my view is not just a matter of damages but a matter necessary to fix liability in the first place.
Civil actions involving mass torts are often not certified for class action treatment,
In Talisman Energy, Judge Cote denied class certification because the plaintiffs would have to show with respect to each individual class member that the injuries for which they were claiming damages were actually caused by the campaign of genocide and crimes against humanity targeting non-Muslim African Sudanese. To conduct this inquiry, factual questions that were individual to each attack would have to be determined.
Here analogous factors cause me to conclude that with respect to individuals' claims against Old GM, individual issues would predominate. While I assume, without finding, that hundreds of thousands or millions of individuals were injured, in many cases grievously, by the apartheid system as a whole, or by specific means by which it was implemented, their rights to recover against Old GM for such injuries would depend not just on their individual damages (which, if that were all, would
The Botha Claimants and Balintulo Claimants cite authority going the other way or implying a contrary conclusion, Does I v. The Gap, Inc.,
First, Judge Cote found Gap distinguishable, and I think she was plainly right in that respect. In Gap, the court granted a motion for class certification under Rule 23(b)(3) for approximately 30,000 factory garment workers in Saipan, Northern Mariana Islands, who alleged that they were held in a system of peonage and involuntary servitude created through a conspiracy among garment manufacturers in the district.
But Gap was distinguished by Judge Cote in Talisman Energy, since "the class [in Gap] suffered an identical injury— peonage—from a common source, the garment production system on one island. . . . If the plaintiffs succeeded . . . all that remained to be shown would be the amount of an individual's damages."
In Hilao, in which claims were brought for torture, extrajudicial killing and disappearance against the Estate of Philippine strongman Ferdinand Marcos, the Ninth Circuit reviewed a lower court order which had certified claims under Rule 23(b)(3) and established phased proceedings and sampling methods to quantify the damages the Marcos Estate owed to the almost 10,000 Filipinos he had injured. The panel, by a 2-1 vote as to this issue, affirmed a class judgment premised on statistical analysis as a kind of proxy for individualized proof of injury and causation—rejecting arguments, among others, that the typicality requirement wasn't satisfied. But Judge Cote observed in Talisman Energy that Hilao "preceded Amchem, and would be unlikely to survive today."
Also, of course, the Hilao claims were brought against the Estate of Ferdinand Marcos himself, who was charged with authorizing the killing, torture and disappearances personally, and the Hilao action did not involve the additional issues incident to claims of secondary liability for aiding and abetting, which at least normally requires showings not just of the primary violation, but of additional matters applicable to the alleged aider-and-abettor, such as substantial assistance, and a purpose or intent to advance the primary violation.
Finally, Karadzic involved a failure to defend and a limited fund that made it an unusual case under the Alien Tort Statute. The claims were brought by victims (and/or survivors of victims) of genocide against Radovan Karadzic, who had declared himself president of a self-proclaimed republic within Bosnia-Herzegovina, and allegedly directed a campaign of ethnic cleansing against Bosnian Croats and Muslims. But Karadzic did not defend, on either class action treatment or the merits. He wrote a letter to the court informing it of his intention not to contest the action,
(b) Class Action Superiority
Additionally, Civil Rule 23(b)(3)(D) requires me to consider the superiority of the class action mechanism when determining whether or not to certify a class.
For individual claimants who were victims of acts in furtherance of apartheid, it wouldn't be that hard, if Old GM objected to their individual claims, for each individual claimant to tell his or her story, and to then ascertain whatever Old GM did and intended as relevant to that claim. But to proceed on a class action basis, I'd have to choose between holding one or more trials of extraordinary complexity, on the one hand, or taking inappropriate shortcuts as to individual issues of wrongful conduct, causation and requisite purpose and assistance, on the other. Like Judge Cote, I think the dissent in Hilao was better reasoned, and I think any shortcuts that would have to be taken to make class action treatment superior as an administrative matter would have to come at the expense of due process concerns.
Also, the inherent simplicity of the bankruptcy process tends to make class action treatment not superior, as a general matter and in this case, because an individual claimant would need only to fill out and return a proof of claim form. And the deterrence class actions often provide would be of little utility in a case like this one, where Old GM is liquidating, and any punishment for any wrongful Old GM conduct would be borne by Old GM's innocent creditors.
Thus I cannot find that the requirements of 23(b)(3) have been satisfied here.
2. Consistency With Bankruptcy Needs and Concerns
Even more clearly, I here must find that entertaining these claims on a class action basis would significantly complicate the Debtors' chapter 11 case, making this huge case even more difficult to manage—with the likelihood, if not certainty, that consideration of these claims on a class basis would materially delay the distributions to the Debtors' thousands of other creditors. Thus, on a matter where
As Judge Rakoff observed in Ephedra, "bankruptcy significantly changes the balance of factors to be considered in determining whether to allow a class action and. . . class certification may be `less desirable in bankruptcy than in ordinary civil litigation.'"
Similarly, as Judge Lifland very recently explained, in Blockbuster:
Here I have material concerns as to the adverse effect that consideration of these claims would have on the Debtors' other creditors, by reason of the delay in seeking class certification and the further delay (even if the Apartheid Claimants were blameless) and the burdens on the bankruptcy system that would be occasioned by the need to consider and/or estimate their claims.
First, the Apartheid Claimants failed to file a motion for class treatment until 12 months after the Commencement Date and 8 months after the Bar Date. Given the substantial impact that these claims could have on the Old GM estate, the Apartheid Claimants should have sought class certification far sooner than they did. Since Ephedra, five years ago, the importance of filing a prompt motion for class certification (and without waiting for an objection to the claim) has been clear, and the cases requiring prompt filing have been uniform. And while there is law outside this district, somewhat dated, holding otherwise,
It is true, as observed by Judge Rakoff in Ephedra, that the "Code and Rules are so opaque as to the procedure governing class claims" that expungement may not be appropriate if it were based solely on procedural default.
Here the class certification motion was most decidedly not filed "at the earliest possible time." And a class claim allowance determination, or even estimation, could not be achieved without materially delaying distributions to creditors, and materially increasing the administrative costs of this already very expensive case.
Here the Debtors' plan, which has now been filed with acceptances being solicited, will be a liquidating plan, with the Debtors distributing to the value they have available (principally in the form of New GM stock), pari passu to their creditors. While in a fair number of liquidating plan cases, we can deal with contested claims requiring substantial litigation by establishing plan reserves (holding back distributions to creditors of the sum put in reserve to await liquidation of the disputed claim), here we'd have to estimate the claim, under section 502(c) of the Code,
The Apartheid Claimants' claims in this case can be contrasted to the asbestos injury claims in it, which, until a recent settlement, were to be estimated under section 502(c). There the estimation hearing was to be conducted with the testimony of three or four experts, basing their opinions as to the Debtors' likely liability for asbestos injuries based in material part on statistical analysis of the costs of settling earlier asbestos claims. The asbestos claims exposure was well suited to a kind of "macroeconomic" analysis that could estimate overall asbestos claim exposure without considering, in any material way, the strengths and weaknesses of any individual asbestos claimant's claims. But here, by contrast, there is no prior history to work from, and an estimation of the Debtors' liability, if any, for aiding and abetting apartheid couldn't be considered without extensive consideration of the diverse injuries to apartheid claimants, and whatever Old GM personnel did and intended to cause them.
It is conceivable, I suppose, that if Old GM had primary liability for apartheid (as Ferdinand Marcos did for the injuries he caused in Hilao), a section 502(c) estimation procedure might be simpler, as then
Three factors have traditionally been most influential in determining whether or not Civil Rule 23 should be applied in bankruptcy cases: (1) whether the class was certified pre-petition; (2) whether the members of the putative class received notice of the bar date; and (3) whether class certification will adversely affect the administration of the case.
The first of the other two factors also weighs against the Apartheid Claimants. There was no prepetition class certification here.
The last of the remaining matters presents closer issues. The Apartheid Claimants argue that the notice of the Bar Date to their class members was deficient, denying them due process, and that as a result, members of the putative class largely didn't get notice of the Bar Date. Implicit in that argument, of course, is that putative class members, while residents of South Africa, were entitled to the protections of the United States Constitution, from which the due process requirement emanates. The Debtors dispute both matters.
To put those issues in context, I note that the Debtors published extensive notice of the Bar Date internationally—in The Financial Times (Worldwide Edition), The Wall Street Journal (Global Edition), USA Today (Monday through Thursday), The New York Times (National), Detroit Free Press, Detroit News, Le Journal de Montreal (French), Montreal Gazette (English), The Globe and Mail, (National), and The National Post. It is undisputed that the first three of these, at least, were distributed in South Africa.
The publication was by the traditional means, and was well suited to providing notice to creditors of all of the usual types throughout the world, including in South Africa. But the Apartheid Claimants argue, with some force, that if one were more conscientiously trying to get notice to the victims of apartheid (most or at least many of whom, one would suppose, would be poor and uneducated), one would not choose these publications. And the Apartheid Claimants suggested two publications that would have been significantly more effective in targeting additional apartheid claimants without tremendous burden on the estate. I think it's true that for the purpose of reaching apartheid victims, a more targeted notice would have been preferable, as potentially being more effective in reaching the poor, and largely uneducated, putative class members living in South Africa.
Thus, dealing first with the assumption upon which the notice arguments were made—the existence of constitutional due process rights—the Debtors dispute the underlying premise. Citing one of the decisions in the A.H. Robins bankruptcy case,
The A.H. Robins court relied on four Supreme Court decisions to come to that conclusion,
The Apartheid Claimants respond by saying that since that A.H. Robins decision came down, "no . . . court has ever relied on that statement,"
The Debtors argue further that even if constitutional due process obligations were owed to the South African putative class members here, they were satisfied. Though this aspect of the matter is closer than the remainder of the issues, I agree.
But notice here was provided in the fashion that is customarily provided in large chapter 11 cases, and in plenary litigation generally. The notice here likely did not reach many potential claimants, but that does not make it deficient. For persons who are missing or unknown, "employment of an indirect and even a probably futile means of notification is all that the situation permits and creates no constitutional bar to a final decree foreclosing their rights."
Here the GM bankruptcy was an event that got worldwide attention. Actual notice was given to the Apartheid Claimants. While a more targeted publication notice for other potential claimants would have been better, I can't find that notice wasn't given, or that the notice that was provided failed constitutional muster, even assuming that U.S. constitutional requirements would apply.
While the notice in this situation was less than ideal, it was not wholly unsatisfactory. As the Debtors properly observe, no class has ever been certified in a bankruptcy court by reason of deficiencies in notice to prospective members of the putative class. And the factors as a whole— particularly the burdens on this estate and the delay that would result from a class certification here—weigh heavily in favor of denying the request to make Civil Rule 23 applicable. In an exercise of discretion, I cannot, consistent with the needs and concerns of the bankruptcy system and Old GM's creditors, make Civil Rule 23 applicable to apartheid claims in these chapter 11 cases.
Apart from the matter of class certification, the Debtors ask me to disallow the Apartheid Claims, whether on a class basis or insofar as Apartheid Claims might still be asserted by individual claimants. Under controlling Second Circuit authority, I must do so, and the claims must be disallowed.
On September 17, 2010, the Second Circuit held in Kiobel that U.S. courts do not have subject matter jurisdiction to adjudicate cases brought under the Alien Tort Statute when the allegations are against a corporation. The Circuit, speaking through Judge Cabranes, concluded that:
As discussed earlier, the claims of the Apartheid Claimants are based on the premise that Old GM, a corporation charged with aiding and abetting the violations of international law, may be found to be liable in the United States courts under the Alien Tort Statute. But Kiobel, binding authority from the Circuit, holds otherwise.
In oral argument here, the Apartheid Claimants pointed to the vigorous dissent by Judge Leval in Kiobel on the issue of amenability of a corporation to suit. They also stated that the issue was raised sua sponte by the Kiobel panel, not having been briefed by any party; that a petition for rehearing en banc in Kiobel had been filed, which is now pending before the Second Circuit; and that another Second Circuit panel—the one hearing the appeal involving the non-GM corporate defendants in the original apartheid lawsuits— had failed to issue the very quick similar decision that adherence to Kiobel might otherwise warrant.
Finally, in oral argument here the Apartheid Claimants recognized my inability, as a lower court judge, to hold inconsistently with binding Circuit authority, but urged that I defer deciding the Debtors' Kiobel-based objection to their claims, pending a decision by the Circuit on the Kiobel plaintiffs' motion for rehearing en banc.
While I share the abhorrence by most of the civilized world of apartheid, this decision cannot, of course, be premised on my personal feelings about that practice. It must instead be pegged to the principles of plenary and bankruptcy litigation jurisprudence that govern issues as to whether class certification should be granted, and substantive rules of law articulated for the lower courts to follow by the Second Circuit.
For the reasons set forth above, class certification must be denied, and the claims remaining before me must be disallowed.
Prior to 1988, many courts had held that section 501 of the Code provides an exclusive list of those who may file a representative claim and that class proofs of claims are invalid as a matter of law because class representatives are not listed in section 501. However, in In re American Reserve Corp., 840 F.2d 487 (7th Cir.1988) ("American Reserve"), the Seventh Circuit held that class proofs of claim are not barred by section 501, but may be allowed in the discretion of the bankruptcy court. See In re Ephedra Prods. Liab. Litig., 329 B.R. 1, 4 (S.D.N.Y.2005) (Rakoff, D.J., sitting as bankruptcy court after withdrawal of reference) ("Ephedra") (explaining the history and so holding). Though the Second Circuit hasn't addressed the issue, id., lower court decisions in this district since that time have held similarly.
Id. at n. 8 (citations omitted).
Thus, section 502(j) permits bankruptcy courts to reconsider the disallowance of claims. If, after consideration of the pending motion for reconsideration en banc, the Circuit rules in a fashion that would change the rule of law now binding on me, the Apartheid Claimants may have rights to seek reconsideration of this aspect of my ruling, under section 502(j) and Bankruptcy Rule 3008, or, perhaps, other applicable law or rules. In that event, all parties' rights as to any such request are reserved. Of course, by reason of my earlier rulings in Part I of this Decision, any such opportunity would necessarily apply only to the named claimants here.