Ever since General Motors announced the recall of 1.6 million vehicles because of a faulty ignition switch, lawyers across the country have been preparing to sue the automaker.
One law firm in San Francisco said that they received phone calls from more than 200 potentials litigants, most of who were victims of crashes involving the recalled cars or the victims’ relatives, in just this last week.
Some of the cases against General Motors may not be the typical product liability litigation seen in most recalled vehicles. Lawyers report that the cases could surround the fraud accusations that question the formerly bankrupt company’s existence.
The restructuring agreement helped the struggling automaker regain financial strength by protecting the company from legal claims dating back to incidents prior to the bankruptcy filing in 2009. Since several of the lawsuits involve crashes that occurred before General Motors declared bankruptcy in June 2009, and was rescued by the federal government, legal arguments are challenging the validity of the restructuring agreement credited with saving the automaker from dissolution, according to bankruptcy and plaintiff lawyers exploring possible litigation.
If successful, the challenges could send GM back into federal bankruptcy court. The lawyers suggest that the company fraudulently negotiated the restructuring agreement because, they contend, it knew about the dangerous ignition switch defect and did not disclose the potential for extensive, expensive litigation over it.
A GM spokesman said the company would not discuss how many lawsuits had been filed over the ignition issue and he declined to comment on the legal strategy of challenging the bankruptcy agreement.
GM is already facing growing questions, including a preliminary criminal investigation by the Justice Department, about its failure to address a problem it now acknowledges it knew about for at least a decade.
In announcing the recall last month, GM officials said the company had been aware since 2004 of the defective switches, which could, if jostled by a knee, keys or a bump in the road, suddenly shut down the car’s power and disable the air bags. It sent a notice to dealers in 2005 advising them to warn customers not to use cluttered and heavy key chains, but it did not move to fix the problem until now.
The Chapter 11 case split the company into “old” and “new” corporate entities. This was an unusual structure for a bankruptcy agreement.
The “old” GM was burdened with bad assets like closed assembly plants and made responsible for legal claims from accidents that happened before the bankruptcy filing.
The “old” company, which has since been dissolved into four separate trusts, settled 85 percent of the $275 billion in claims pending against it in 2011, most of which were product liability cases, an official said, though how many of those were related to the ignition problem is unknown. There are only two ignition cases, known publicly that have been settled. Details of the terms of those agreements cannot be discussed.
The “new” GM purchased, with the help of the federal government, all the “good” assets, including operating plants and office buildings, and was granted protection from previous claims though not future ones. It is the revitalized company that stands today with growing sales and profits. GM’s recovery has been so complete, that the government has recently sold its last stake in the company, and GM has posted 16 consecutive profitable quarters, with a net income of $3.77 billion in 2013.
Lawyers hope to support the concept of “successor liability” on the new company. In order to do that, they argue that because the new company was essentially the same as the old company; same leadership, same headquarters, same plants, same product lines, it is in fact liable in these cases and the bankruptcy agreement should be thrown out. Although this seems unusual, a similar approach has been tried in other bankruptcy cases.
It is alleged that GM knew all about it and sold to a newly funded entity.
To succeed, lawyers will have to prove that GM was not only aware of the defect, but in addition, realized how serious it was that it anticipated liability claims and willfully covered up that fact in negotiating the specifics of bankruptcy protection.
How do you feel about the “new” GM being exempt from any product liability cases that arise from vehicles produced during the “old” GM regime? Do you think the new GM is really a new and separate entity or a successor to the previous GM? Should bankruptcy provide a roadblock to product liability claims and exempt a company from product liability lawsuits? Remember, many product liability cases take time to materialize, as the defects may not become apparent immediately. Many people lost loved ones due to these vehicles’ defects and should be compensated. Feel free to comment on this blogpost.
For more information, contact one of our Gacovino Lake attorneys at 800-246-HURT (4878).