GM petitions U.S. Supreme Court over bankruptcy shield

Melissa Burden
The Detroit News

General Motors Co. said late Tuesday it has asked the U.S. Supreme Court to reverse a Second U.S. Circuit Court of Appeals decision that has opened GM to potentially billions of dollars in lawsuits related to pre-bankruptcy claims over defective ignition switches.

GM agreed to certain liabilities as it emerged as a new company in 2009 following its bankruptcy restructuring, but as a new company was protected from some liabilities related to the old company. That is known as its bankruptcy shield.

The new GM agreed to be liable for claims related to accidents occurring after — but not before — it emerged as a new company, even though the vehicles were built previous to that.

A number of injury, wrongful death and economic loss lawsuits have been filed against GM over its faulty ignition switches and recall of nearly 2.6 million older vehicles in 2014. GM has admitted it knew of the defect for years but did not recall the cars for more than a decade and has paid fines to the National Highway Traffic Safety Administration and the Department of Justice.

The ignition switch defect, which allowed the key to inadvertently move to the “off” position and disabled air bags, ultimately was tied to 124 deaths and hundreds of injuries.

In July 2016, the federal appeals court ruled that ignition switch cases aren’t automatically barred by the company’s bankruptcy shield. It said GM did not allegedly provide adequate notice to possible creditors.

“We are asking the Supreme Court to review the Second Circuit’s ruling because the panel departed substantially from well-settled bankruptcy law that good-faith purchasers everywhere rely on to provide certainty and predictability in bankruptcy sales,” the automaker said in a statement.

“The decision also threatens to undermine one of the largest bankruptcies in history, and to deprive bankruptcy estates large and small of a critical tool for protecting creditors by selling assets expeditiously before the dynamic that put the debtor in bankruptcy further erodes their value,” GM argued in the petition. “The need for this Court’s review is thus truly imperative.”

It’s likely the Supreme Court would decide in the spring if it will hear GM’s case and if so, arguments would take place next year, GM said. If the Supreme Court does not weigh in, the appeals court decision will stand.

“This case presents exceptionally important questions, and the Second Circuit’s answers were exceptionally wrong. The Court should grant review,” GM's lawyers wrote in the petition filed Tuesday.

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