Source: Wall Street Journal by Peg Brickley and Mike Spector
A federal appeals court in New York has dealt a blow to General Motors Co., ruling that a 2009 bankruptcy sale that created the company from certain assets of its predecessor won't shield it from lawsuits over defective ignition switches.
The decision overturns lower court rulings that said the free and clear sale that saved GM from the economic upheaval of 2009 immunize the company from an onslaught of litigation over the defective switches that have been linked to 124 deaths and dozens of serious injuries.
Earlier, a bankruptcy judge issued an injunction blocking class-action suits over the potentially lethal defect, which left cars vulnerable to a sudden shutdown that disabled brakes, steering and air bags. The injunction affected claims from accidents before the bankruptcy, due to the defect.
On Wednesday, the U.S. Second Circuit Court of Appeals reversed that decision, finding that consumers shouldn't be shut out of remedies by the bankruptcy sale, which closed in 2009. GM launched recalls of cars with the defective switch problem in 2014.
"We are reviewing the ruling and its impact," GM spokesman Jim Cain said in an emailed statement. Even if some claims are ultimately allowed to proceed, the plaintiffs must still prove their cases.
"Finally, a majority of the victims whose claims have been languishing under a bankruptcy stay will have their day in court," said Texas attorney Bob Hilliard, one of the lawyers representing the plaintiffs.
GM agreed to pay for personal injuries incurred after the sale closed and make repairs. The auto maker has also taken financial charges in the past to settle lawsuits related to the switch, and it also created a victims compensation fund to cover certain claims.
But new GM the company that had emerged from bankruptcy, said it couldn't be held to account for cars made by â€œold GM,â€ the prebankruptcy company.
According to the appeals court, the amount of liability GM was able to evade was substantial---an estimated $7 to $10 billion in economic losses, not to mention damages from pre-closing accidents.
The 74-page appellate ruling noted a long history of accidents related to the defect that reached the desks of GM lawyers in the years before the bankruptcy. A report GM commissioned by former U.S. attorney Anton Valukas found the auto maker failed for more than a decade to recall older vehicles with the defective switches despite internal evidence of the safety problem.
GM has admitted that it failed for more than a decade to recall the vehicles, which have been linked to deaths, despite internal evidence of a safety problem. The auto maker has so far reached ignition-switch settlements with consumers, shareholders and the U.S. Justice Department totaling more than $2 billion.
In September the auto maker agreed to pay $900 million to settle a U.S. Justice Department case, which charged GM with wire fraud and scheming to conceal a deadly safety defect from U.S. regulators.
Lawyers for GM have also been defending the company in a number of so-called bellwether trials in New York. The first of the planned trials ended abruptly after GM uncovered evidence that the plaintiff committed fraud. A second trial resulted in a jury finding that the ignition switch wasn't to blame for the crash despite the part being defective.
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