Court ruling opens GM to billions in death, injury claims

A federal appeals court upended General Motors Co.’s plan to shed hundreds of customer lawsuits over ignition switch defects, ruling that such litigation was not automatically barred by the company’s 2009 bankruptcy sale to a new corporate entity.

In its opinion, the appeals court said it is not confident that the deal for New GM to leave bankruptcy protection would have been approved “if Old GM had revealed the ignition switch defect in bankruptcy”. But it had earlier won a bankruptcy court ruling that protected it from some lawsuits involving cars made before “Old GM” declared bankruptcy in 2009 and was succeeded by “New GM”.

The bankruptcy court hearing was still continuing after 4:30 p.m. Wednesday.

Plaintiffs attorneys who have battled the automaker in court quickly hailed the decision.

The revived lawsuits include claims over some of the carmaker’s most egregious behavior, said Robert Hilliard, a lawyer representing hundreds of GM customers including at least 300 whose cases are affected by the ruling. Those customers didn’t have a chance to challenge the transaction before it was approved by the U.S. Bankruptcy Court in NY seven years ago, the court said. “These folks will have their day in court”.

The ruling also could affect 399 injury and death cases settled for GM by compensation expert Kenneth Feinberg for a total of $594.5 million.

General Motors Co. said Wednesday that it was reviewing the impact of the ruling, which the company said does not decide whether claims are valid. “Even if some claims are ultimately allowed to proceed, the plaintiffs must still prove their cases”, he said. “GM consumers got a major victory in their ignition switch lawsuits that were previously barred by the US bankruptcy court”, he said.

The court said GM remained obligated to disclose the defect in 2009 despite a speedy bankruptcy case that aimed to keep the auto maker from the financial brink only months after the onset of the global financial crisis.

“Old GM – if reasonably diligent – surely should have known about the defect”, the 2nd Circuit wrote. The company has repeatedly apologized and acknowledged it failed to fix the defect for more than a decade following a series of bureaucratic mishaps, communication mistakes and engineering blunders.

“New GM essentially asks that we reward debtors who hide claims against potential creditors”, the court wrote.

“This is a huge victory for us”, said plaintiffs lawyer Steven Berman of Hagens Berman Sobol Shapiro.