Old GM says it can’t pay owners of recalled cars – The Detroit News
General Motors Co. asked a federal bankruptcy judge to throw out more than $10 billion in lawsuits seeking compensation for lost value of cars. The suits claim GM committed fraud because it did not disclose ignition switch defects before its 2009 bankruptcy reorganization.
The Detroit automaker claims sweeping immunity from claims stemming from building millions of defective cars before its restructuring. It rejected claims that even if the reorganized GM sold cars with defective switches built before 2009, it had no duty to pay claims for economic losses of vehicle owners.
GM didn’t disclose ignition switch defects in 2.59 million Chevrolet Cobalts, Saturn Ions and other cars that weren’t recalled until February of this year. The switches can allow the key to accidentally turn off the engine and disable power steering, power brakes and air bags. The defect is linked to at least 30 deaths and 31 injuries.
The Justice Department, 48 state attorney generals and the Securities and Exchange Commission are investigating whether GM committed bankruptcy fraud, and whether it misled the National Highway Traffic Safety Administration.
Dozens of lawsuits have been filed, arguing GM’s actions reduced not only the value of the recalled cars, but all GM cars on the road. GM is trying to use its bankruptcy liability shield to get the suits tossed out.
GM lawyer Arthur Steinberg wrote in a court filing late Wednesday that unless GM expressly agreed otherwise, “new GM has no obligation to the vehicle owner. It is not more complicated than that.”
Even though engineers and company lawyers accused of mishandling the ignition switch problems stayed at GM after the bankruptcy sale, that shouldn’t mean the suits should go forward, the automaker argued: “The fact that some Old GM employees, who were investigating alleged product defects while at Old GM, became (new GM employees)” doesn’t mean the company should lose its bankruptcy shield.
GM argued that owners can’t sue because automakers didn’t meet their obligations to the National Highway Traffic Safety Administration. “Individual consumers do not have standing to seek damages for alleged violations of a car manufacturer’s reporting and recall-related obligations to NHTSA,” it said.
Furthermore, GM said it didn’t commit fraud on the court, which is limited to “only the most egregious misconduct, and requires a showing of an unconscionable plan or scheme which is designed to improperly influence the court.”
Meanwhile, a federal judge in New York set a Jan. 11, 2016, trial date for the first personal injury case connected to an ignition switch failure, said Bob Hilliard, a Texas lawyer who is lead counsel for the hundreds of plaintiffs who have sued GM. U.S. District Judge Jesse Furman is handling more than 130 suits filed against GM across the country. Many involve economic loss claims based on vehicles with allegedly defective parts, and some include claims for personal injuries.
“This trial setting will allow a jury to determine the conduct of GM sooner rather than later,” Hilliard said.
GM emerged as a new company after getting $60 billion in U.S. and Canadian government bailouts and left behind most “bad assets,” including product liability claims from accidents or incidents before the sale.
The Old GM trust held about $1.1 billion in assets as of June 30. It said it expected to distribute $225 million by Nov. 30 as it continues to pay some claims of creditors. Old GM was formally dissolved in December 2011. Initially, there were $270 billion in claims filed against GM that was dramatically reduced. To date, $31 billion of general unsecured claims were allowed — far more than the assets available to pay creditors.
In a separate legal filing, the Old GM trust says it shouldn’t be paying for the claims, either.
GM has agreed to pay claims relating to deaths and injuries stemming from the 2.59 million cars and has created an independent fund. It expects to pay $400 million. The fund has approved 30 death claims and 31 injury claims and has received more than 1,700 claims. It will accept claims through Dec. 31.