Chrysler Seeks To Clarify PA Lemon Law and NJ Lemon Law Claims and Suits

As reported in BankruptcyLaw360, the former Chrysler LLC has asked the bankruptcy court to approve a process to ease the implementation of the lemon law provision in Italian carmaker Fiat SpA’s $2 billion agreement to purchase the company.

The sale agreement, consummated June 10, allows for the sale of Chrysler’s principal assets to Fiat, creating a new company called Chrysler Group LLC, referred to in the bankruptcy proceeding as “New Chrysler.”

Under the deal, new Chrysler would also assume certain liabilities of the old company, and pay the old company $2 billion in cash.

Before the sale was approved, several state attorneys general and consumer groups pushed for the rights of consumers under state lemon laws be adequately protected under the deal.

To resolve these concerns, New Chrysler agreed to assume many of the lemon law obligations, including Pennsylvania lemon law and New Jersey lemon law claims, and a lemon law provision was inserted into the sale order.

Under that provision, New Chrysler took on many of the lemon law obligations, but did not assume certain forms of relief or liabilities, like punitive, exemplary or consequential damages or claims for personal injury. New Chrysler also did not take on liabilities for vehicles that were manufactured more than five years before the sale’s closing.

In addition, the provision did not detail exactly how New Chrysler is to assume the lemon law liabilities, particularly the pending lemon law actions against the debtors. Upon entering bankruptcy protecting, Chrysler was a defendant in some 1,350 lemon law actions in various states.

In the motion filed Tuesday, Chrysler requests that the court approve a clear process to allow pending and future lemon law claims against old Chrysler to be switched to New Chrysler, allowing the remaining debtor and the bankruptcy court to be freed of involvement from the cases.

“The debtors have been contacted by numerous lemon law claimants, including the lemon law firm David J. Gorberg & Associates, seeking to determine how to assert the assumed lemon law liabilities. The debtors have also received inquiries from various states seeking clarification regarding the best means to proceed in administering lemon law actions,” the motion said.

“Without a clear process to address these issues, the debtors anticipate that certain lemon law claimants may seek to proceed with their claims and lawsuits in a manner that violates the automatic stay or violates the limitations of the lemon law provision. Likewise the debtors expect that the may be faced with numerous motions to modify the automatic stay to permit the pursuit of the assumed lemon law liabilities,” the motion said.

Old Chrysler is asking the bankruptcy court to allow a plaintiff to switch its lemon law case to New Chrysler in one of three ways.

The first method would involve filing the appropriate papers in the lemon law case to indicate that New Chrysler is being substituted for a defendant, and stating that only the assumed liabilities are being pursued against New Chrysler.

The second method involves dismissing the lemon law action and filing a new action solely against New Chrysler.

The third allows for any similar arrangement deemed acceptable by both the debtors and New Chrysler, as long as no claims are pursued against the debtors and no excluded liabilities are pursued against New Chrysler.

Any lemon law plaintiff who follows those procedures will not be deemed in violation of the automatic stay, the debtors proposed.

Responses to the request are due July 10; a hearing will be held July 16.

*The above information was reported in BankruptcyLaw360.

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