G.M. to face long, expensive haul in vehicle recall lawsuits

The company could be charged with liability and fraud for knowing about a defect before it negotiated a restructuring agreement with the U.S. government

General Motors’ recall of 1.6 million vehicles — specifically Chevrolet, Pontiac, Saturn and Opel models around the world — because of faulty ignition switches that have led to the deaths of 13 people has been one of the most high-profile recall cases in U.S. history. Lawyers across the country are bracing for lawsuits against the automaker that will incorporate varied levels of allegations against the company including liability and fraud.

The New York Times reported that the level of complexity awaiting lawyers in the courtroom is due to G.M.’s bankruptcy filing in 2009, and the subsequent restructuring agreement that helped G.M. get its feet back on the ground. After its bankruptcy filing, the federal government bailed out the automaker and helped it regain financial stability with a restructuring agreement that protected G.M. from legal claims levied against the company prior to its bankruptcy. But some of these legal claims are now part of the plethora of cases being brought against G.M., which calls into question the agreement put together to rescue the company from financial ruin. 

The main claim that will have to be settled in court is whether or not G.M. knew about the faulty ignition defect before its restructuring agreement was implemented. If it is determined that G.M. negotiated the agreement fraudulently — knowing about the ignition problem — the company could return to federal bankruptcy court.

Different law offices will handle the cases in different ways. The Times quotes Shelby A. Jordan, a bankruptcy specialist at the Texas-based law firm Jordan, Hyden, Womble, Culbreth & Holzer on the matter, and his opinion: “The new G.M. knew all about it…G.M. didn’t change officers or personnel. All it did was sell to a newly funded entity…The ability to impose successor liability on the new G.M. is the avenue that this litigation is going to go through.”

G.M. has admitted that it knew about the faulty ignition issue prior to filing for bankruptcy in 2001. How this admission will affect its liability and fraud charges remains to be determined in court, but either way, it is going to be expensive for G.M. And the public awaits explanations from the company aside from its fraudulence activity; G.M. will have to come up with some explanation for why it took so many years to order a fix for such a widespread hardware problem.

 

Further reading:

Judge rebuffs GM retirees’ request for pay out

GM contemplates blocking Saab sale to Chinese automakers

Supreme Court weighs securities fraud case changes

Contributing Author

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Juliana Kenny

Juliana Kenny is a contributor to InsideCounsel.com, covering a range of topics including patent litigation, conflict mineral laws, executive compensation, and antitrust regulation. Juliana earned B.A.s...

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