Old vs. New GM at Issue in Ignition Switch Class Action

By | November 10, 2014

General Motors Co. told a judge that claims in a $10 billion customer class-action over ignition flaws are “misleading” and should be dismissed.

The 68 named plaintiffs in the group lawsuit argue that the design defect and alleged concealment at the heart of the case are the responsibility of the new GM, which was born after a 2009 bankruptcy. Of those customers, the automaker argued, more than 44 own cars manufactured by the old GM, and they should be told to file claims with that company.

“The majority of named plaintiffs are asserting economic loss claims for old GM vehicles that were resold by dealers or third parties (but not new GM),” the Detroit-based company said in a Nov. 5 court filing in federal bankruptcy court in New York.

GM has recalled about 32 million cars this year, at a cost of $2.7 billion. A report by lawyer Anton Valukas found that GM engineers and lawyers knew about a switch defect for at least a decade before those cars were recalled. That led customers, who say resale prices have tumbled since the cars were recalled for repairs, to sue GM for exposing them to accidents and economic loss.

Losing Bankruptcy Liability Shield Could Cost GM $2 Billion

GM says 44 plaintiffs own cars made before its mid-2009 bankruptcy or earlier, while 13 own model year 2010 vehicles, some or all possibly made by its predecessor, old GM. Only nine of the customers drive cars from model year 2011 or later. Two of the plaintiffs didn’t list their car’s model year in the suit.

Past Errors

GM’s argument marks the start of a process that will help U.S. Bankruptcy Judge Robert Gerber decide whether rulings he made in 2009 are still valid. The automaker argues that Gerber freed it from responsibility for past errors when he approved the bankruptcy as part of a $49.5 billion U.S. bailout of GM. Customers are scheduled to respond by Dec. 16.

Gerber has said he’ll schedule a hearing in January and probably take more than a month to make a “difficult” decision on GM’s liability to car owners.

About 130 car-price lawsuits against GM have been combined in two class actions in Manhattan federal court. The smaller group suit is over cars made before the bankruptcy, while the larger one, which seeks $10 billion, is for automobiles purchased afterward. Combined, the suits seek compensation for almost 30 million recalled cars, of which 14.7 million were made pre-bankruptcy.

The automaker has denied that its cars have lost value since the recalls.

Price Declines

Even so, GM says isn’t at fault for any defects and price declines in older cars, as it didn’t make them.

Steve Berman, one of the lawyers leading the group suit, disagreed.

“New GM sells a car in, let’s say 2011, with a known bad part,” he said in an e-mail yesterday. “Even if made by old GM, it’s new GM lying to consumers at this point, and we don’t believe they can take refuge behind the bankruptcy of old GM.”

Earlier this week, the old GM creditor trust said that new GM had wrongly “tried to inject it” into the legal battles. It couldn’t pay customers with faulty switches without hurting existing creditors, including lender JPMorgan Chase & Co., it told Gerber in a separate filing.

The suit’s $10 billion demand is for penalties as well as money to cover price declines in recalled cars. The Old GM trust calculates that plaintiffs want $7.4 billion of the total for value losses alone. Berman says that’s accurate.

The car-price suits are In re General Motors LLC Ignition Switch Litigation, 14-md-02543, U.S. District Court, Southern District of New York (Manhattan). The bankruptcy case is In re Motors Liquidation Co., 09-bk-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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