In re Motors Liquidation Co.

General Motors Corporation (GM) filed for bankruptcy and paid out part of its loans to the Term Lenders (defendants), a group of creditors who initially owned a perfected security interest in GM’s assets. To continue its bankruptcy process, GM was renamed Motors Liquidation Company and attempted to sell off many of its factory assets, both real property and machinery, to a new company, NGMCO, Inc. The Avoidance Action Trust (Avoidance) (plaintiffs), a group representing GM’s unsecured creditors, filed suit against the Term Lenders, challenging particular security interests, specifically the status and value of GM’s manufacturing assets. The Term Lenders claimed that the machines used in the manufacturing process were fixtures under the law and part of their perfected security interest, and that they should be valued according to their replacement cost. Avoidance claimed that the assets were not fixtures, were not part of the security interest, and should be valued at their liquidation value. The assets in question included over 200,000 pieces of machinery. The court issued a memorandum opinion on the fixture classification of a group of representative assets, including machine presses, conveyor belts, and welding robots. The machine presses contained massive concrete pits and pillars and were vital to the production line. Some of the presses were unleased, but others were leased and designated by GM as not part of real property. The conveyor belts were modular in nature and assembled in pieces, but they wound throughout the facility and were attached to the buildings and most of the manufacturing system. The welding robots, although small and portable, were highly interconnected with the manufacturing systems. Each of these assets was custom designed or modified to suit the specific manufacturing needs of GM at its facilities.