GM Told No Bankruptcy Protection for Defect | News | HMG LLP

2nd Circuit tells GM No Bankruptcy Protection for Ignition Switch Defect

August 31, 2017

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Corpus Christi, TX (July 13, 2016) “ The Second Circuit today sided with the victims of the ignition switch defect scandal that GM covered up for over a decade. The Federal Circuit Court ruled that victims who were killed or injured as a result of the defect, but were prevented from seeking justice solely as a result of GM's asserting bankruptcy protection, may now have their day in court.

Robert Hilliard, co-lead counsel with primary responsibility for personal injury and death cases in the federal GM said: "It is hard to overstate this appellate earthquake." The 2nd circuit, in a sound and substantive way, called GM out for its cover up, its lies, and its attempts to use bankruptcy as a way to hide from the victims.

GM had started to believe its own turned over a new leaf rhetoric even though it knowingly was willing to leave thousands of victims dead and injured with no chance at just compensation. Today, the sharp and bright rays of justice finally broke out from behind decades of GM dark clouds, and this type of sunshine is the best disinfectant.

Hilliard states, "As the court says due process applies even in a company's moment of crisis." I would go even further and say GM's moment of crisis, a financial collapse of its own making, is dust in the wind compared to the emotional and human crisis the car company's decisions visited upon thousands of American families. I look forward to beginning the process of trying the pre-bankruptcy cases and having a jury's verdict speak on behalf of the victims, just as the 2nd Circuit this morning, spoke on behalf of the victims.

Quotes from Second Circuit Opinionâ€

…the only contingency was Old GM telling owners about the ignition switch defect‐‐ a contingency wholly in Old GM's control and without bearing as to Old GM's own knowledge. New GM essentially asks that we reward debtors who conceal claims against potential creditors. We decline to do so. See Grogan, 498 U.S. at 286‐87.

Due process applies even in a company's moment of Crisis.

We need not decide whether prejudice is an element when there is inadequate notice of a proposed $363 sale, for even assuming plaintiffs must demonstrate prejudice, they have done so here. After examining the record as a whole, we cannot say with fair assurance that the outcome of the $363 sale proceedings would have been the same had Old GM disclosed the ignition switch defect and these plaintiffs voiced their objections to the ʺfree and clearʺ provision. Because we cannot say with any confidence that no accommodation would have been made for them in the Sale Order, we reverse.

At the outset, it is difficult to evaluate in hindsight what the objections would have been had plaintiffs participated in the 363 sale. Perhaps they would have tried to identify some legal defect in the Sale Order, asked that economic losses or pre‐closing accidents arising from the ignition switch defect be exempted from the free and clear provision, or requested greater priority in any GUC Trust distribution. But this uncertainty about the content of plaintiffs objections is the natural result of the lack of any meaningful opportunity to be heard in the 363 sale proceedings.

The facts paint a picture that Old GM did nothing, even as it knew that the ignition switch defect impacted consumers. From its development in 1997, the ignition switch never passed Old GM's own technical specifications. Old GM knew that the switch was defective, but it approved the switch for millions of cars anyway.

Once the ignition switch was installed, Old GM almost immediately received various complaints. News outlets reported about the faulty ignition switch. NHTSA approached Old GM about moving stalls and airbag nondeployments. A police report, which Old GM's legal team possessed, linked these breakdowns to a faulty ignition switch. Old GM even considered warning dealers (but not consumers) about moving stalls. By May 2009, at the latest, Old GM personnel had essentially concluded that the ignition switch, moving stalls, and airbag non‐deployments were related. Considering the airbag issues, they believed that one of the two most likely explanation[s] for the power mode signal change was . . . a problem with the Ignition Switch. J. App. 9783. A bankruptcy court could reasonably read from this record that Old GM knew about the ignition switch defect. Old GM knew that the defect caused stalls and had linked the airbag non‐deployments to the defect by May 2009. Even assuming the bankruptcy court erred in concluding that Old GM knew, Old GM ‐‐ if reasonably diligent ‐‐ surely should have known about the defect. Old GM engineers should have followed up when they learned their ignition switch did not initially pass certain technical specifications. Old GM lawyers should have followed up when they heard disturbing reports about airbag non‐deployments or moving stalls. Old GM product safety teams should have followed up when they were able to recreate the ignition switch defect with ease after being approached by NHTSA. If any of these leads had been diligently pursued in the seven years between 2002 and 2009, Old GM likely would have learned that the ignition switch defect posed a hazard for vehicle owners. Such reckless disregard of the facts [is] sufficient to satisfy the requirement of knowledge.McGinty v. State, 193 F.3d 64, 70 (2d Cir. 1999). In the face of all the reports and complaints of faulty ignition switches, moving stalls, airbag non‐deployments, and, indeed, serious accidents, and in light of the conclusions of its own personnel, Old GM had an obligation to take steps to acquire full or exact knowledge of the nature and extent of the defect. United States v. Macias, 786 F.3d 1060, 1062 (7th Cir. 2015). Under these circumstances, Old GM had a duty to identify the cause of the problem and fix it. Instead, the Valukas Report recounts a corporate culture that sought to pin responsibility on others and a Sisyphean search for the root cause. Further, even if the precise linkage between the ignition switch defect and moving stalls and airbag non‐deployments was unclear, Old GM had enough knowledge. At minimum, Old GM knew about moving stalls and airbag non‐deployments in certain models, and should have revealed those facts in bankruptcy. Those defects would still be the basis of claims, even if the root cause (the ignition switch) was not clear.

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Hilliard Martinez Gonzales LLP (HMG) specializes in mass torts, personal injury, product liability, commercial and business litigation, and wrongful death. Hilliard Martinez Gonzales LLP has been successfully representing clients in the United States and Mexico since 1986. Bob Hilliard obtained the Largest Verdict in the country in 2012 and the #1 verdict in Texas in 2013.

HMG is actively seeking to represent other victims of GM's defective vehicles.

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