Battling over bankruptcy protections
General Motors Co. and a battalion of trial lawyers are preparing for an epic court fight over whether GM is liable for the sins of its corporate past.
The company is asking a U.S. bankruptcy court to shield it from legal claims for actions that took place before the company’s 2009 bankruptcy.
But lawyers who are suing GM say it shouldn’t get the usual benefits of bankruptcy protection because it concealed a deadly ignition switch problem when the court was making bankruptcy decisions.
They also say the company’s motion is part of a broader strategy to force settlements in dozens of lawsuits alleging the ignition switches caused deaths and injuries.
Late Monday, GM filed a motion in New York asking the court to bar claims that GM small cars lost value because of the ignition-switch problem, which has led to the recall of 2.6 million older small cars worldwide. The company has admitted knowing about the problem for more than a decade, yet it failed to start recalling the cars until February to replace the defective switches.
The faulty switches, which GM says have caused at least 13 deaths, can move unexpectedly from the “run” position to “accessory” or “off,” shutting down the engine and knocking out power-assisted steering and brakes. If that happens, steering can become difficult and surprised drivers can lose control of their cars and crash. If the engine is off, the air bags won’t inflate.
GM’s behavior has brought allegations of a cover-up from members of Congress, who earlier this month had hearings on the recall. The National Highway Traffic Safety Administration, the government’s road- safety watchdog, and the Justice Department also are investigating GM’s delayed recall.
The Detroit automaker contends in its motion that under the bankruptcy, which ended July 10, 2009, assets and liabilities of the old General Motors Inc. were split in two, with good assets sold under court order to “New GM” and bad ones and most liabilities going to the “Old GM,” which was left behind. The recalled cars were made and sold by the old company.
The new GM, the motion asserts, took on only three categories of liabilities after bankruptcy: Those for post-bankruptcy crashes involving cars made by “Old GM” that caused injuries, deaths or property damage; and warranty and lemon-law claims.
“Plaintiffs assert claims for liabilities that, under the sale order and injunction, were retained by Old GM,” the motion states. It asks the court to dismiss about 50 class-action lawsuits seeking damage for lost car values, and for an order stopping similar new claims.
But Robert Hilliard, a lawyer who has several wrongful death lawsuits pending against GM, says the motion is an implied threat to those who have filed such lawsuits against GM: Either settle or risk getting nothing because the company will argue that claims should go against the Old GM, which has few assets.
GM has hired Kenneth Feinberg — who handled the fund for the victims of the Sept. 11, 2001, terrorist attacks, the Boston Marathon bombing and the BP oil spill in the Gulf of Mexico — to explore ways to compensate victims. No decision has been made yet on just what GM will do.