GM, plaintiffs turn to courts to help in ignition system lawsuits

GM hopes that the fact it went through bankruptcy will protect it from class action lawsuits on an allegedly defective ignition system

Attorneys from both sides in class action lawsuits against General Motors are turning to the courts to get help in advocating for their clients.

On the one hand, attorneys representing plaintiffs who had defective ignition systems want the court to rule that GM cannot use bankruptcy as a way to protect itself from any liabilities, according to a news report.

But GM has filed a motion in federal bankruptcy court to “enforce a bar on lawsuits” related to cars sold before the company filed for bankruptcy in 2009, Reuters said. The company is apparently arguing such claims need to be filed against the “old” GM entity, not the “new” GM, which came after reorganization. It is seeking a declaratory judgment in the motion. 

"New GM's recall covenant does not create a basis for the plaintiffs to sue new GM for economic damages relating to a vehicle or part sold by old GM," GM said in a filing made in the Bankruptcy Court for the Southern District of New York, Reuters reported. 

The plaintiffs are blaming at least 13 deaths and 31 crashes on the allegedly defective ignition system. It also has led to the recall of 2.6 million GM cars. 

The fact that GM is looking for protection from the bankruptcy court is not a surprise, according to Alberto Bernabe, a professor at John Marshall Law School in Chicago. He explained in a blog post, GM wants to be “shielded from products liability suits concerning defects and crashes prior to July 2009, when GM exited bankruptcy.” 

“Originally, GM wanted to be protected from all possible litigation, but after much debate, it agreed to assume responsibility for all future liability claims filed after the automaker emerges from bankruptcy,” Bernabe added in the blog post. “However, it continued to claim it should be protected from claims for injuries that happened before 2009.  That's the protection it is now claiming.” 

However, because of alleged fraud, GM should not be given liability protection, the plaintiffs in the ignition system case argue. 

"GM's argument suggests that the U.S. Government would have agreed to extend $40 billion of taxpayer money for GM's restructuring, and supported shielding it from liability through the sale order, had it known of GM's intentional misconduct," the lawsuit against GM said. 

GM also wants to stop litigation on the ignition system issues until a judicial panel decides on consolidating lawsuits and the bankruptcy court issues a ruling, Reuters reported.

In his analysis of the case, George Washington Law School Professor Jonathan Turley said that when GM went into bankruptcy in 2009, “it was facing about 2,500 lawsuits of various kinds and was able to just pay pennies on the dollar. There are already about three dozen lawsuits over the ignition defect.” 

“What I find most disturbing is the possibility that GM knew about the defect in 2009 when it filed for bankruptcy. Documents suggest that the company may have known before the company sought the status — and sought the bailout. Yet, it did not mention this looming liability issue. If there was an effort to conceal that knowledge, both the bankruptcy and bailout could be viewed as a rather dishonest anticipatory move before the onset of lawsuits. As it stands, the government has effectively subsidized a company in the allegedly knowing release of a lethal product. The billions simply given to the company without repayment will likely cover much of the damages for GM. That will add to the criticism of the government bailing out this company rather than leaving such matters to the market,” Turley added in a blog post.

GM could not be reached for immediate comment on the allegations. The company said in the past it does not comment on pending litigation.

In a related matter, there now appears to be two recalls at GM. The first was related to defective ignition switches, CNN reported. That problem was known since 2004, but was announced to the public in February. It relates to the 2.6 million cars.

“A second recall, announced in late March, involved problems with power steering and affected 1.3 million U.S. vehicles, including Saturn Ions from model years 2004 to 2007,” CNN reported. “Twelve accidents have been tied to the defect, though no deaths.” 

Earlier this year, GM CEO Mary Barra was grilled by a bipartisan group of Senators and Representatives about the company’s defective ignition switch and its corporate response.

While her company’s strategy was to delay most comments until an internal company investigation is complete, a plaintiffs’ class action lawsuit is moving forward. At this point there are several cases filed across the United States against GM, InsideCounsel reported.

GM is hiring Kenneth Feinberg, an attorney who was special master to the victims in the Sept. 11 attacks, as well as working on the BP oil spill and the Boston Marathon bombings, to help it in the case. It also retained a former U.S.  Attorney, Anton Valukas, for an internal investigation.

“General Motors has taken responsibility for its actions and will keep doing so,” a spokesman for the company said in a statement sent to InsideCounsel on Tuesday. “GM has also acknowledged that it has civic and legal obligations relating to injuries that may relate to recalled vehicles, and it has retained Kenneth Feinberg to advise the company what options may be available to deal with those obligations.” 

When it comes to the motion, GM has asked the Bankruptcy Court to rule on whether the growing number of lawsuits alleging purely economic damages resulting from the ignition switch recall may proceed.  The newly filed motion does not concern accidents or injuries. In fact, the motion says it “does not address any litigation involving an accident or incident causing personal injury, loss of life or property damage.”  And it adds it “does not involve whether New GM should repair the ignition switch defect.  New GM has committed to replacing the defective ignition switch as a result of the recall.” 

And many of these class actions were actually brought by or on behalf of individuals who were not injured as the result of any failure of the ignition switch, sources said.   

On April 22, James Cain, a company spokesman said in response to the reported delay in the recall, “We have acknowledged that the recall should have happened much sooner.  We have an ongoing investigation led by a former U.S. Attorney, and he is exploring all of the issues that led up to the recall.” Meanwhile, GM said it is not commenting on pending litigation.

 

Further reading:

 

General Motors reveals it knew about ignition switch issues in 2001

GM CEO faces tough questions on recall issue

New motions filed in GM class action over ignition system

 
 
 

Contributing Author

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Ed Silverstein

Ed Silverstein is a veteran writer and editor for magazines, websites and newspapers. A graduate of Harvard's Kennedy School of Government, he has won several...

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