GM Can't Be Sued On Faulty Vehicles Sold Before Bankruptcy

Joann Muller

FORBES STAFF

In a huge victory for General Motors, a federal bankruptcy judge ruled that the product liability claims GM left behind in bankruptcy court in 2009 will stay there.

The long-awaited decision by U.S. Bankruptcy Judge Robert Gerber of New York means the automaker can’t be sued for losses on recalled cars sold before the bankruptcy. The ruling was a blow to plaintiffs in about 140 class-action lawsuits whose attorneys had argued that their clients never got a chance to fight the bankruptcy order because GM concealed its knowledge of defective ignition switches that have since been tied to 84 deaths.

Gerber found no evidence of a cover-up during bankruptcy proceedings, however, and allowed the liability shield that was a condition of the automaker’s exit from bankruptcy to remain in place for pre-bankruptcy claims. With the help of a $49.5 billion taxpayer bailout in July 2009, GM’s ”good” assets were sold to a new company called General Motors Co., while the “bad” assets were left in an entity called Motors Liquidation.

The ruling says that claims based on the conduct of “old GM” — personal injury cases or claims of economic loss — cannot proceed because these claims were rightfully against Motors Liquidation. Claims for lost economic value and  injuries that occurred after July 2009 may proceed, Gerber ruled.

“Judge Gerber properly concluded that claims based on Old GM’s conduct are barred, and that the sale order (which enabled New GM to exit bankruptcy) will be enforced,” GM said in a statement.

GM had attempted to head off lawsuits by creating an independent compensation fund administered by disaster relief expert Kenneth Feinberg to handle death and injury claims, regardless of when they occurred.

Rosie Cortinas holds a photograph of her son Amador Cortinas, who was killed in a General Motors Co. (GM) 2005 Chevrolet Cobalt accident, . Photographer: Andrew Harrer/Bloomberg via Getty Images

Feinberg received more than 4,300 claims, and so far has found 241 to be valid. He has linked 84 deaths to the faulty switches, and approved payment of at least $1 million to the families of each deceased victim. The fund has also approved payment offers to 11 victims who suffered catastrophic life-changing injuries and nearly 145 claims for less severe injuries. More than 1,100 claims for compensation are still under review.

GM estimates the total victim compensation through the Feinberg fund will be between $400 million and $600 million.

It is not clear how many people claiming bodily injury prior to 2009 chose to take their chances in court rather than participate in the Feinberg compensation program, which is now closed.

“This ruling padlocks the courthouse doors,” said Robert Hilliard, a Corpus Christi, Tex. attorney who represented plaintiffs who he says were seeking between $7 million and $10 million in damages. “Hundreds of victims and their families will go to bed tonight forever deprived of justice. GM, bathing in billions, may turn its back on the dead and injured, worry free.”

But Gerber’s ruling mostly affects those who bought their car prior to 2009 and now believe it has lost resale value because of the ignition switch recall. Under narrow circumstances, the judge said some plaintiffs can still file claims against the company for actions after it left bankruptcy protection in 2009.

While the ruling was a win for GM, its legal troubles are far from over. The U.S. Attorney for the Southern District of New York is conducting a criminal investigation into the automaker’s handling of the ignition switch crisis.