GM Continues to Seek Shield From Ignition-Switch Suits
August 11 2016 - 6:14PM
Dow Jones News
By Tom Corrigan
General Motors Co. wants a second shot at a favorable court
ruling that would protect it from hundreds of potential lawsuits
and billions of dollars in liabilities tied to faulty ignition
switches.
In court papers filed Wednesday, lawyers for GM said a federal
appeals court made two "fundamental errors" when it recently ruled
against the company's efforts to use its 2009 bankruptcy to shield
itself from the litigation over the ignition switches.
GM says the ruling "makes no sense and is flatly contrary to the
bankruptcy code and decisions from other courts." In addition to
exposing the company to potentially enormous liabilities, GM said
the court's decision, if not corrected, would permanently damage
the bankruptcy process that saved it from collapse during the Great
Recession.
Last month, the Second U.S. Circuit Court of Appeals in
Manhattan denied GM's attempt to use its bankruptcy to block
lawsuits asserting more than $10 billion in potential claims on
account of the defective ignition switches, which are now linked to
124 deaths. The ruling overturned a bankruptcy judge's earlier
decision to bar those claims.
Steve Berman, who leads a group of ignition-switch plaintiffs,
said Thursday that the Second Circuit rarely grants requests for a
rehearing and that a rehearing was even more unlikely because the
court's first decision was unanimous.
"I'm not too worried," he said.
The appeals court said that during its bankruptcy, the auto
maker had evidence that the ignition switches were faulty and, in
some cases, disabled safety features including air bags. GM didn't
disclose the defect until early 2014 despite employees knowing of
problems with the switch more than a decade earlier. The company
later faced criminal charges for covering up the defect, which it
settled.
By not disclosing what it knew about the ignition switches, the
appeals court ruled that GM had violated some consumers'
constitutional due process rights. Had customers been properly
informed, the court determined they would likely have had a greater
voice in GM's restructuring.
"Due process applies even in a company's moment of crisis," the
appeals court wrote in its July 13 ruling.
GM did allow ignition-switch victims to sue for compensation,
setting up an approximately $600 million fund run by an outside
attorney. And the company also reached settlements with the U.S.
Justice Department, shareholders and thousands of consumers
totaling more than $2 billion.
But now GM says it wants the matter tried again before a panel
of appeals court judges, claiming the court's most recent decision
was "invented out of whole cloth and conflicts with decades of
precedent."
The company said in court papers that bankruptcy law didn't
require it to notify consumers of the ignition-switch defect during
its bankruptcy seven years ago and that the bankruptcy sale of its
core operations left the company with a clean slate free from the
specter of litigation tied to its past actions -- including the
flawed ignition switches.
General Motors Corp., known as Old GM, is the corporate shell
left behind by the company's bankruptcy. New GM, General Motors
LLC, bought the company's assets out of bankruptcy and is now
fighting to keep them "free and clear" of any litigation tied to
Old GM.
Should the appeals court's decision stand, GM says it would
"destroy" protections for purchasers of troubled assets in
bankruptcy sales, threatening the future viability of a key
lifeline for troubled companies.
GM also said allowing new lawsuits to go forward now would be
unfair to litigants who were forced to navigate the company's
complex chapter 11 process and whose claims were paid only after
other creditors received their share.
"The opinion allows certain plaintiffs alone to sidestep that
process, jump to the front of the line, and seek payment in full
from the good-faith purchaser," GM's lawyers wrote.
Trade group the National Association of Manufacturers supports
GM's request for a rehearing, warning that the current ruling
"eviscerates the finality" of bankruptcy sales and would
"widespread negative repercussions."
Write to Tom Corrigan at tom.corrigan@wsj.com
(END) Dow Jones Newswires
August 11, 2016 17:59 ET (21:59 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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