General Motors seeks to shed Old GM’s liabilities amid recall woes

April 24, 2014 in News by The Manimal

Source: Detroit News

General Motors Co. is asking a U.S. bankruptcy court to shield it from legal liabilities tied to the Old GM, a move that likely stalls more than 50 lawsuits across the country linked to an ignition switch recall.

The lawsuits in GM’s sights involve only class action and individual cases seeking compensation — mainly for the declining value of the recalled cars. Wrongful death or injury cases are not part of GM’s motion, which was filed late Monday in the Bankruptcy Court for the Southern District of New York.

Lawyers for plaintiffs in one of the questioned lawsuits, filed in federal court in Texas, argued they are not suing the pre-bankruptcy Old GM, but going after the New GM created in 2009.

Texas attorney Bob Hilliard, representing a couple who own a recalled Chevy Cobalt, said in an email to GM’s attorneys that seeking bankruptcy protection “exhibits a stunning and new level of corporate entitlement and arrogance. This is such a bone-headed maneuver on so many levels that history is now assured, GM’s legacy will always be one of epic betrayal of its customers and its country.”

Hilliard also called GM “morally bankrupt.”

GM had no response to his comments.

In a letter to Judge Robert Gerber, who presided over GM’s bankruptcy, the company’s attorneys said it believes the lawsuits in question involve cars manufactured and sold by the Old GM and that the claims are “retained liabilities” of the pre-bankruptcy company — not the GM created in 2009. It wants the judge to dismiss those cases.

GM faces at least 54 class actions and individual action lawsuits from across the country tied to its February and March recall of 2.59 million older vehicles, including Chevrolet Cobalts and Saturn Ions, with faulty ignition switches. GM says they are related to 13 deaths.

The lawsuits in question, it says, have been filed in more than 20 federal courts and two state courts.

The motion, according to the filing, involves only litigation in which the plaintiffs seeking to cover economic losses for the vehicle’s lower value and for loss of its use, along with the cost of alternative transportation, child care or lost wages while awaiting repairs.

The automaker maintains that through its bankruptcy-approved sale, New GM acquired Old GM assets “free and clear of all liens, claims, liabilities” other than: post bankruptcy sale accidents involving Old GM vehicles that caused injury, death or property damage; repairs provided under its “Glove Box Warranty,” and Lemon Law claims tied to the failure to honor a warranty.

The company is not asking the court to rule on fixing the faulty ignition switches in the recalled vehicles. GM has committed to do so and the first repairs have begun.

Bob Rasmussen, dean of the University of Southern California’s Gould School of Law, said GM’s filing for protection in bankruptcy court was expected.

“GM’s bankruptcy case clearly delineated what stayed with the Old GM and what went to the New GM,” Rasmussen said in a telephone interview. “It’s a pretty strong argument that all the claims based on cars manufactured before the bankruptcy stayed with Old GM. The New GM has a very strong argument that ‘We’re a different company.’ ”

While GM has a good legal argument, Rasmussen said that given public pressure and moral obligation, the company might agree to some sort of compensation for those who file lawsuits for economic losses.

“In the court of public opinion, there’s just GM,” he said.

In a statement released Tuesday, GM said it has “has taken responsibility for its actions and will keep doing so. GM has also acknowledged that it has civic and legal obligations relating to injuries that may relate to recalled vehicles…”

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.”

Lawyers for eight plaintiffs also filed a class-action lawsuit in bankruptcy court in southern New York late Monday. That lawsuit contends that GM for years knew of problems with ignition switches but made a “business decision to conceal its existence.”

“GM fraudulently concealed the ignition defect as it took billions of dollars in taxpayer money from the U.S. government and obtained the U.S. government’s sponsorship of a plan of reorganization that salvaged the company’s very existence,” according to the lawsuit.

The lawyers are seeking an order from the bankruptcy court declaring GM’s sale order as part of its bankruptcy can’t be used by the automaker to shield it from liability from defect claims.

Alexander H. Schmidt, a New York lawyer for plaintiffs in the class action filed Monday, declined comment.

GM had no comment on those allegations.

In some lawsuits, federal judges have delayed proceedings until the bankruptcy court ruling and a judicial panel’s ruling that would consolidate at least 19 lawsuits for pre-trial issues, a figure that the automaker expects will grow. The panel is scheduled to meet May 29in Chicago.

Late Tuesday, Gerber scheduled an on-the-record conference May 2 related to the motion filed by GM Monday. He said no “substantive matters will be decided at the conference” but it will be used for procedural issues with the parties and possibly setting a briefing schedule.