Bankruptcy Order Could Shield GM from Ignition Switch Claims

By and | March 20, 2014

Lawyers looking to sue General Motors Co. after its global recall of 1.6 million vehicles over an ignition defect may find their path blocked by a judge’s order five years ago in the company’s reorganization.

Allegations about deaths or economic losses occurring before July 2009 were barred by a bankruptcy judge when he approved the sale of the automaker’s assets to the new GM. Attorneys are now examining pre-bankruptcy deaths and claims with a view to getting the ban lifted.

Clarence Ditlow, executive director of the Washington-based Center for Auto Safety, said he would like GM to set up a fund as a sign of goodwill. Such a move may resolve claims that deaths and injuries were tied to the faulty ignition switches, a problem GM admitted it knew of more than a decade ago and failed to fix.

“For every incident that gets reported to the automaker, there are usually nine or 10 more,” said Ditlow. “You can expect the number of deaths associated with this recall to rise.”

By court order, the new GM can’t be held responsible for any product-related liabilities, such as wrongful death, personal injury or property damage, except those arising on or after July 10, 2009, when the new entity was born. Challenging GM’s immunity would require asking the judge who oversaw the historic U.S.-backed bankruptcy to reconsider his ban on claims.

Time Passed

The time to revoke court orders dating from GM’s bankruptcy “has long past,” said Harvey Miller of Weil Gotshal & Manges LLP, the automaker’s bankruptcy lawyer. He said the company’s creditors diligently examined its liabilities and potential exposure for possible damage suits.

Bob Hilliard, a plaintiffs’ lawyer based in Corpus Christi, Texas, has a different view. He is representing the families of two teenagers who died in a 2006 crash of a Cobalt, one of the recalled GM models. Hilliard, who hasn’t filed a wrongful death suit, said the bankruptcy judge wasn’t advised of the full extent of GM’s ignition-switch liabilities.

To persuade U.S. Bankruptcy Judge Robert Gerber in New York to reopen the case, Hilliard would need to prove that the old GM knowingly deceived the judge, said Chip Bowles, a bankruptcy lawyer with Bingham Greenebaum Doll LLP who wasn’t involved in the GM liquidation.

Judge Gerber declined to comment.

The automaker’s statement on the crashes suggests it may eventually help more drivers than it’s legally obliged to.

“GM is focused on ensuring the safety and peace of mind of our customers involved in the recall,” GM spokesman Greg Martin said. “It is true that new GM did not assume liability for claims arising from incidents or accidents occurring prior to July 2009. Our principle throughout this process has been to put the customer first, and that will continue to guide us.”

He declined to say if that could include compensating victims of pre-bankruptcy incidents.

Topics Claims

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