Judge Could Weaken GM’s Bankruptcy Liability Protection

By | February 18, 2015

A judge said on Tuesday that if General Motors Co is found to have violated car owners’ constitutional rights by hiding ignition-switch defects during its bankruptcy, he would consider narrowing the legal protections afforded the company under its 2009 bankruptcy sale.

Judge Robert Gerber, at a hearing in U.S. Bankruptcy Court in Manhattan, provided his views for the first time on a fight between GM and plaintiffs who demand billions of dollars for the loss of car value stemming from last year’s massive recall.

The claims surround defective ignition switches that cut power to brakes, steering and airbags, a problem that resulted last year in the recall of an initial 2.6 million vehicles, and prompted GM to issue further recalls on other defects.

GM’s 2009 bankruptcy resulted in a sale of the company’s profitable assets to the entity that now operates as General Motors Co. Its burdensome liabilities were shed and assigned to the “Old GM” trust, a shell with limited assets. GM says the plaintiffs must seek compensation from the trust because their claims pertain to cars made before bankruptcy.

GM has already agreed to pay compensation for those injured or killed due to ignition defects. The compensation will be paid from an out-of-court fund.

Plaintiffs say they should be able to seek compensation from GM, rather than the trust, because the company concealed the defects when the bankruptcy sale was approved, violating their right to due process.

Gerber is not expected to rule for weeks or months. But his comments suggested he was not swayed by either side.

For example, GM has argued that it has no duty to the plaintiffs, because even if a due process violation occurred, it was perpetrated by Old GM.

But Gerber said on Tuesday that if due process was violated, he would be “inclined to” reassess the terms of the sale order and might narrow it to keep GM on the hook for ignition-switch defects it knew about after the sale.

“As I read the sale order, it’s a ‘get out of jail free’ card,” Gerber said. “That is a matter of concern for me.”

However, plaintiffs did not want a modified sale order, but rather wanted Gerber to determine it did not apply to them.

Plaintiffs have filed more than 165 lawsuits against GM in other courts, and want to keep pursuing those cases.

(Additional reporting by Jessica Dye in New York; editing by Matthew Lewis)

Was this article valuable?

Here are more articles you may enjoy.