Ruling shields GM from $10B in ignition suits

David Shepardson and Melissa Burden
The Detroit News

General Motors will not have to face dozens of lawsuits — and as much as $10 billion in damages — stemming from its decade-long failure to disclose an ignition-switch defect that has been blamed for more than 200 deaths and injuries.

U.S. Bankruptcy Judge Robert Gerber Wednesday upheld a legal shield that protected the "new" GM from claims originating before its 2009 bankruptcy and restructuring. That includes millions of vehicle owners — 2.59 million of whom had cars with the faulty ignition switch.

Gerber's ruling applies to a small number of suits stemming from crashes before July 2009, but the vast majority of claims seeking as much as $10 billion are for economic losses — such as diminished resale value due to the defects or those who unknowingly bought used cars. It applies to as many as 70 million GM cars and trucks that were on the road before the company's exit from bankruptcy.

The decision stalls more than 140 lawsuits across the country.

GM praised the ruling, saying Gerber "properly concluded" that claims based on old GM's conduct are barred.

But Bob Hilliard, a Texas lawyer who represents numerous plaintiffs suing GM, blasted Gerber's decision.

"This ruling padlocks the courthouse doors. Hundreds of victims and their families will go to bed tonight forever deprived of justice," Hilliard said. "GM, bathing in billions, may now turn its back on the dead and injured, worry-free."

Observing that "this is a matter of considerable public importance," Gerber ruled that the suing owners may immediately seek an appeal before the U.S. Court of Appeals.

Hagens Berman Sobol Shapiro LLP, a law firm representing owners of millions of recalled GM vehicles in litigation against GM, said it plans to do just that.

"It cannot be the law that Old GM could hide the defects, and subsequently use the bankruptcy court as a shield. As Judge Gerber agreed, due process required that Old GM give notice to owners of cars with defects, and consumers did not get notice," Steve Berman, managing partner of Hagens Berman and co-lead counsel representing plaintiffs in nationwide litigation against GM, said in a statement. "The law must provide a remedy."

Savings for shareholders

The ruling is a potential win for shareholders, as it could save GM billions in payouts. Shares of GM stock were up about 1 percent after trading closed to $37.26, up $0.32.

Some Wall Street analysts had worried that if the bankruptcy shield were set aside, new GM could face other claims against the old company.

"New" GM, established after the automaker's bankruptcy in 2009 as part of a $50 billion U.S. bailout, has accepted legal liability for crashes and death and injury claims for accidents that took place after June 2009, even if the vehicles were built by GM before the bankruptcy. GM also has extended the ignition compensation program to cover crashes that took place before the 2009 bankruptcy.

But consumers who hoped to sue GM over the lower values of older cars, particularly Saturn Ions and Chevrolet Cobalts with the defective ignition switch, may be out of luck.

Lawyers representing GM owners argued that they had been given no formal notice in 2009 that they were losing their rights to sue in the bankruptcy. They also argued that GM committed fraud by not disclosing, until after bankruptcy, the ignition switch defects that dated back to 2005 — or that some GM employees allegedly knew about the problems but didn't tell superiors.

Gerber noted that GM was in bankrutpcy for just 40 days in 2009 and faced "extraordinary urgency" and "was bleeding cash at an extraordinary rate." The U.S. Treasury had threatened to withdraw support, which came in the form of a bailout, without a speedy exit from bankruptcy. Gerber said it would have been "wholly unreasonable to expect actual notice ... to have been mailed to the owners of the 70 million GM cars on the road."

The Detroit-based automaker may face class action or injury lawsuits for conduct that took place after it became a new company.

Gerber said GM owners claiming economic losses can sue "new" GM "for any causes of action that might exist arising solely out of new GM's own, independent, post-(bankruptcy closing) acts, so long as those plaintiffs' claims do not in any way rely on any acts or conduct by old GM."

GM still faces a long road before the ignition switch issue is behind it. The Justice Department aided by the FBI and a federal grand jury in New York, the Securities and Exchange Commission, 49 state attorneys general and Transport Canada are all investigating. Many Wall Street analysts think GM will have to pay billions to resolve the investigations into its delayed recalls.

The company has retained Kenneth Feinberg, an attorney who headed the government's U.S. Sept. 11 victims' compensation fund and administered the assistance fund for victims of last year's Boston Marathon bombing, "to advise the company what options may be available to deal with those obligations."

GM's compensation fund has approved 84 death claims and 157 injury claims and promised to pay at least $1 million for all death claims. GM has set aside $400 million to $600 million to pay all claims. Feinberg's team is still reviewing about more than a thousand claims.