General Motors is facing an investigation from the National Highway Traffic Safety Administration over its handling of a recall affecting roughly 1.6 million cars, but the automaker may have found a legal shield from possible future consumer lawsuits. The solution hinges on the old, pre-bankruptcy GM, and the new company that emerged afterward. While the name is the same, on paper they are technically different firms.
According to Automotive News, the company negotiated with state attorneys general and consumer groups during its restructuring to only carry product liability on faults with vehicles from after it left bankruptcy in 2009. If any owners want to sue GM for issues that took place before that time, they would have to take it up with the "old GM" in a bankruptcy court. So far, all attempts to sue the new company for pre-2009 faults have failed.
"It is true that new GM did not assume liability for claims arising from incidents or accidents occurring prior to July 2009," said GM spokesperson Greg Martin to Automotive News.
Because the vehicles affected by the recall were built between 2003 and 2007, covering only claims after 2009 limits the number of possible cases. The current total of incidents related to the ignition switch fault sits at 31 accidents and 13 deaths. The General hasn't revealed when these crashes occurred, but Automotive News claims to know of at least one fatal crash in a Chevrolet Cobalt in December of 2009 that was caused by the airbag not deploying. Even if the automaker is able to limit product liability lawsuits, it's still facing a possible fine from NHTSA that could be as high as $35 million, a new record in the industry
As many as 303 deaths could have been caused by a defect that recently prompted General Motors to recall 1.6 million cars, according to a new report commissioned by an independent consumer watchdog group.
General Motors Co. announced in February it was recalling 1.6 million vehicles because of a defect in their ignition systems linked to at least 12 deaths. Claims over deaths or economic losses occurring before July 2009 were blocked by a bankruptcy judge in approving the sale of assets from the former GM to the current auto maker. Lawyers alerted by the recall are now examining pre-bankruptcy deaths and claims to get the ban lifted. Some have used online postings to acquire clients with banned claims.
Q. What claims are blocked?
A. By court order, the new GM can’t be held responsible for any product-related liabilities that arose before July 10, 2009.
Q. What claims for compensation are not barred?
A. GM can be held responsible for wrongful death, personal injury or damage to property caused by accidents on or after July 10, 2009.
Q. What happened to people with pre-2009 claims?
A. The bankruptcy judge set up a mediation process in 2010. They had to be willing to accept a reduced amount acceptable to the old GM to start negotiating.
Q. Is there a way to get around the bankruptcy ban?
A. Challenging GM’s liability immunity would require asking the judge who oversaw the historic U.S.-backed bankruptcy to reconsider its ban on claims. Harvey Miller of Weil Gotshal & Manges LLP, the automaker’s bankruptcy lawyer, said the time to revoke court orders dating from GM’s bankruptcy “has long passed.” He said the company’s creditors diligently examined its liabilities and potential exposure for possible torts. “No pertinent information was withheld from the court during the GM Chapter 11 case,” he said.
Bob Hilliard, a plaintiffs’ lawyer based in Corpus Christi, Texas, has a different view. He is representing the families of two teenagers who died in a 2006 crash of a Cobalt, one of the recalled models. Hilliard, who hasn’t filed a wrongful-death suit, said the bankruptcy judge wasn’t advised of the full extent of GM’s ignition-switch liabilities. “If you are aware of potential exposure to litigation and you don’t reveal it, that’s fraud,” he said. “I’m going to go back to that bankruptcy judge and say, ‘You have to undo this, the liability of old GM, because it was the new GM’s continued coverup after the bankruptcy that allowed people to be hurt or killed.”
To persuade U.S. Bankruptcy Judge Robert Gerber to reopen the case, he would need to gather evidence and prove that the old GM had knowingly deceived the judge, said Chip Bowles, a bankruptcy lawyer with Bingham Greenebaum Doll LLP who wasn’t involved in the GM liquidation. Judge Gerber declined to comment.
Federal authorities’ nascent investigation into General Motors is looking in part into whether the automaker committed bankruptcy fraud by not disclosing defects that could lead to expensive future liabilities, a person briefed on the inquiry said on Friday.
The question is whether G.M. knew about the defect — a faulty ignition switch — when it filed for bankruptcy in 2009, and failed to fully disclose the problem, while realizing that it could lead to a cascade of liability claims.
While it has been known that the Justice Department was investigating G.M., the interest in the bankruptcy filing is the first indication of what direction the inquiry may take.
G.M. has told federal regulators that it was alerted as early as 2001 to problems with the switches, which if bumped or weighed down by a heavy key ring, could shut down the engine and disable the air bags. Twice, it told regulators last month, it explored fixes to the switch but failed to do so in 2004 and 2005. G.M. has linked the faulty switches, which were in 1.6 million Chevrolet Cobalts and other small cars that were recalled last month, to 31 crashes and 12 deaths.
The investigation, which also is considering whether G.M. played down the defect problem to safety regulators, is being run by the same group of F.B.I. agents and federal prosecutors in Manhattan that built the fraud case against Toyota that led to a $1.2 billion settlement announced on Wednesday