GM’s legal department reportedly being investigated in internal inquiry, company pays record fine

The legal battle involving GM is likely to continue as the company pays a record fine to the government in connection with recalled cars.

Shortly after an announcement that General Motors agreed to pay a maximum $35 million fine for violating federal laws in regards to how it handled a defective ignition system, it was reported that the company’s legal department was being investigated in an internal inquiry.

In addition to the fine, the Department of Transportation announced on Friday that GM agreed in a Consent Order to make “significant and wide-ranging internal changes to its review of safety-related issues.”

GM had failed to report a safety defect in its cars to the government in a “timely manner,” according to federal officials. The defect led to a recall of about 2.6 million vehicles, and class-action lawsuits.

Meanwhile, on Saturday The New York Times reported that a review of internal documents, e-mails and interviews show that “high-ranking officials, particularly in G.M.’s legal department, led by the general counsel Michael P. Millikin, acted with increasing urgency in the last 12 months to grapple with the spreading impact of the ignition problem.”

“And as the automaker finally began to face up to the issue, G.M. lawyers moved to keep its actions secret from families of crash victims and other outsiders,” the report added.

Meanwhile, Anton R. Valukas, a former U.S. Attorney, is leading an internal investigation at GM on the issues. The federal government is also investigating GM’s activities in response to the recall, including the Justice Department and the Securities and Exchange Commission.

GM has said that there were 13 fatalities associated with the defective ignition switches, and the company’s response was criticized by the federal government.

“Safety is our top priority, and today’s announcement puts all manufacturers on notice that they will be held accountable if they fail to quickly report and address safety-related defects,” U.S. Transportation Secretary Anthony Foxx said in a statement on Friday.

He added the department wants Congress to increase fines from $35 million to $300 million, so the government can send “an even stronger message that delays will not be tolerated.”

Federal law requires all auto manufacturers to notify the government within five business days after finding out about a safety-related defect or finding that a vehicle is not in compliance with safety standards, and to promptly conduct a recall.

In the Consent Order, GM agreed to provide full access to the results of its internal investigation into the recall, ensure its employees report safety-related concerns to management, and to speed up the process for GM to decide whether to recall vehicles.

The GM recall covers the 2005-2010 Chevrolet Cobalt, 2007-2010 Pontiac G5, 2003-2007 Saturn Ion, 2006-2011 Chevrolet HHR, 2006-2010 Pontiac Solstice and 2007-2010 Saturn Sky.

In addition, the government said GM’s “decision making, structure and process stood in the way” of communicating to the public about safety problems, David Friedman, acting administrator of the National Highway Traffic Safety Administration, was quoted in the news media. GM also “discouraged workers from using terms like defect, dangerous and safety-related,” he added. The list of banned words was given to GM employees in 2008 to guide them when communicating internally on safety issues. "For anything you say or do, ask yourself how you would react if it was reported in a major newspaper or on television," GM said during the 2008 presentation.

“We have learned a great deal from this recall. We will now focus on the goal of becoming an industry leader in safety,” GM CEO Mary Barra said in a company statement. “We will emerge from this situation a stronger company.”

“We are working hard to improve our ability to identify and respond to safety issues,” Jeff Boyer, vice president of Global Vehicle Safety at GM, added in the statement. “Among other efforts, GM has created a new group, the Global Product Integrity unit, to innovate our safety oversight; we are encouraging and empowering our employees to raise their hands to address safety concerns through our Speak Up for Safety initiative, and we have set new requirements for our engineers to attain Black Belt certification through Design for Six Sigma.”

On the other hand, Bob Hilliard, a Texas attorney representing families suing GM, said Friday’s agreement between GM and the government is “a complete victory for GM,” and called government regulators a “toothless tiger,” news reports add.

In addition, U.S. Sen. Richard Blumenthal (D- Conn.) said, “This fine may be the maximum allowable, but it is regrettably a pittance for GM and a powerful reminder of the need for legislative reform. The appropriate penalty would be many multiples of this number in light of the devastating injuries, death and damage caused by GM’s seriously defective cars.”

“The victims deserve stronger justice, and GM deserves harsher penalties,” he added in the statement. “Changes to GM’s internal process of handling recall issues are vital in preventing future tragedies of this nature. This preliminary step, however, should not distract from the urgent needs that remain. GM must warn drivers of recalled vehicles to stop driving them until they can be repaired – regardless of how much weight is on the ignition key. It must provide sufficient repair parts to dealers, and release accurate information about how many parts have been shipped, as soon as possible. GM must also compensate injured drivers and victims’ families who were barred from meaningful recovery from GM’s concealment of these defects during its 2009 bankruptcy filing. As federal authorities’ investigation into the timeline of GM’s handling of this defect continues, I hope that continued scrutiny will keep the company’s focus on these obligations.”

A case is now pending before Bankruptcy Court in New York City regarding the economic loss experienced by car owners in connection with the faulty ignition system, InsideCounsel reported.

Overall, the total number of recalled vehicles this year, so far, worldwide, for GM is 12.8 million, InsideCounsel adds. Recently, new recalls relates to five different safety concerns. They include taillight issues, steering problems, and concerns with wiring, electronic stability control, windshield wipers and brakes.

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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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