GM avoids $1B stock payment over secret settlement
The trust set up to handle General Motors Co.’s bankruptcy claims acted in bad faith in reaching a $15 million class-action settlement that would have forced the automaker to contribute as much as $1 billion in new stock, a U.S. judge ruled in throwing out the accord.
Wilmington Trust, the M&T Bank Corp. unit that manages the GM trust, had struck the deal to resolve hundreds of personal-injury cases stemming from GM’s faulty ignition switches, as well as a class-action suit over millions of vehicles that allegedly lost value due to a series of 2014 recalls. GM argued the deal had been negotiated in secret and couldn’t be enforced.
U.S. Bankruptcy Judge Martin Glenn in New York ruled Thursday that the settlement was unenforceable. He said the entity, known as the GUC Trust, had backed out of signing the deal at the last minute in a bid to squeeze financial concessions out of GM.
It was more than a case of “cold feet before marriage,” Glenn said in his ruling. “The GUC Trust’s dishonesty – or bad faith — is not lost on this court.”
The case, which Glenn called a “very troubling dispute,” pitted the automaker against the General Unsecured Creditors Trust, known as”Old GM,” for the first time since the 2009 bankruptcy sale created the split to save the company from ruin.
Under the accord, the trust intended to pay plaintiffs $15 million and accept $10 billion in previously disputed claims, adding to previous accepted claims to push the total beyond a $35 billion threshold. That would have triggered a provision of the 2009 sale that would have forced GM to contribute $1 billion in stock to help pay the claims.
GM alleged the trust only agreed to accept the $10 billion in claims in order to trigger the provision. GM spokesman David Caldwell declined to comment.
Attorney Steve Berman, who represents the plaintiffs, said in a statement that he was disappointed in the ruling.
“All parties will have to assess next steps, including whether Wilmington Trust should be removed as trustee given the court’s unequivocal findings that Wilmington Trust acted in bad faith,” Berman said.
Daniel Golden, the trust’s attorney, didn’t immediately return a call for comment. Kent Wissinger, a spokesman for Wilmington Trust, also didn’t return a call.
GM’s attempt to avoid the suits over economic losses was dashed in July 2016 when the federal appeals court in Manhattan ruled the bankruptcy sale didn’t prevent claims by some people who were injured or whose vehicles lost value as a result of the recalls. The court determined that customers weren’t given a proper chance to challenge the hurried sale before its approval.