GM Loses Legal Bid to Limit Fallout From Ignition Switch Cases -- Update
April 24 2017 - 1:34PM
Dow Jones News
By Katy Stech and Mike Spector
The nation's top court on Monday rejected a request from General
Motors Co. to limit the fallout from its ignition-switch
defect.
The U.S. Supreme Court denied the Detroit auto maker's request
to review a lower-court ruling that gave some victims' families the
power to sue over defective ignition switches, exposing the company
to billions of dollars in potential new claims.
GM had tried to overturn a July ruling from the Second U.S.
Circuit Court of Appeals that said the auto maker should have
disclosed the ignition-switch defect when its operations were sold
during its 2009 bankruptcy. Under bankruptcy law, a company's
operations can be sold "free and clear" of past liabilities,
blocking future lawsuits over claims that arose before the
sale.
The decision could expose GM to hundreds of additional wrongful
death and personal injury cases.
The potential legal claims could total more than $10 billion,
according to a bankruptcy judge's estimate, though the ultimate
financial fallout could be far less if plaintiffs don't prevail in
court or reach settlements. GM has already reached ignition-switch
settlements with consumers, shareholders and federal prosecutors
totaling more than $2 billion.
Those settlements included roughly $600 million from a
compensation fund that GM set up for ignition-switch victims, which
allowed some people with pre-bankruptcy claims to receive money.
Still, the bankruptcy shield remained intact in other cases,
blocking others from moving forward with lawsuits.
GM recalled 2.6 million older cars in 2014 with the defective
switches, which can slip from the run position, cause vehicles to
stall and disable safety features including air bags. The company
acknowledged that employees knew of problems for more than a
decade. The defect has been linked to 124 deaths and led GM to
settle a federal criminal case.
In its request for Supreme Court review, GM lawyers said the
lower-court ruling "threatens to undermine one of the largest
bankruptcies in history."
The appeals court found that GM should have known of the
ignition-switch defect -- or strongly suspected it -- at the time
of its bankruptcy case and therefore should have disclosed it.
Failing to do so violated consumer rights that are built into the
chapter 11 bankruptcy process, the court said. GM "essentially asks
that we reward [bankrupt companies] who conceal claims," the court
said.
Without the Supreme Court's intervention, the lower court's
ruling stands.
A spokesman for the plaintiffs couldn't immediately be reached
for comment Monday.
GM spokesman Jim Cain said the Supreme Court's move "was not a
decision on the merits" of the case and said plaintiffs will still
have to win their individual lawsuits over the defect.
GM's bankruptcy was the fourth-largest case in U.S. history at
the time and came a little more than a month after Chrysler filed
for chapter 11 protection.
During the bankruptcy, the U.S. Treasury bought GM's financially
strongest operations. The Obama administration later sold its
shares, returning the company to private hands.
In court papers, GM lawyers called the ability to sell assets in
bankruptcy "free and clear" of liability a "cornerstone
provision...because purchasers would not buy the assets if doing so
could expose them to the liabilities that put the seller into
bankruptcy."
As a consumer protection, though, the law calls for the bankrupt
company to reach out to people and businesses who may lose out on
claims because of the sale. GM notified creditors of the sale, and
the case was also publicized in more than 1,250 news stories,
according to court papers.
GM officials promised to honor some warranties after the sale.
Consumer advocates and state attorneys general protested the deal's
"free and clear" provision, urging the buyer to take on all of its
liabilities -- both known and unknown. A bankruptcy judge dismissed
their objections.
Several bankruptcy experts said the Supreme Court's rejection is
troubling for the uncertainty it casts over the bankruptcy sale
process -- a popular tool used by major companies such as Eastman
Kodak and TWA Airlines. Justices missed a chance to clarify the
rules and ease the concerns of purchasers who take over bankrupt
companies, they said.
"It's going to put a heavier burden on purchasers," said Debra
Dandeneau, a Baker & McKenzie bankruptcy lawyer who isn't
involved in the GM litigation.
Some business groups, including the National Association of
Manufacturers, joined the auto maker in urging the Supreme Court to
overturn the ruling, arguing that it is unfair to punish a buyer
when the noticing process is the seller's responsibility.
The U.S. Chamber of Commerce, in a brief, said the lower-court
ruling revived "the very type of abusive, lawyer-driven class
actions of dubious merit that cause enormous harm to the business
community."
Brent Kendall contributed to this article.
Write to Katy Stech at katherine.stech@wsj.com and Mike Spector
at mike.spector@wsj.com
(END) Dow Jones Newswires
April 24, 2017 13:19 ET (17:19 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
General Motors (NYSE:GM)
Historical Stock Chart
From Aug 2024 to Sep 2024
General Motors (NYSE:GM)
Historical Stock Chart
From Sep 2023 to Sep 2024