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Eric T. Chaffin
Eric T. Chaffin
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GM May Lose Bankruptcy Protection in Economic Ignition Switch Lawsuits

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General Motors went bankrupt in 2009. In the U.S. bail out, the company’s assets were sold to “General Motors Co.,” with liabilities assigned to the “Old GM” trust. Legally, that would mean any plaintiffs seeking compensation for injuries related to vehicles made before the bankruptcy would have to go after the trust for damages.

Plaintiffs who have filed so-called “economic” lawsuits against GM, however, have been pushing for an exception in this case. Because GM reportedly knew about the problems regarding its defective ignition switches long before the bankruptcy, they say, and because the company failed to take meaningful action to protect the public, it should be held liable for the alleged reduced value of their vehicles.

Federal Judge Robert Gerber recently indicated that should it be determined that GM violated car owner’s rights by concealing knowledge of the ignition switch defect during bankruptcy, he would consider the plaintiffs’ position.

Should GM Be Protected Under Bankruptcy?

GM has been relying on the bankruptcy to shield it from some liability for some time now. In April 2014, the company requested the federal judge in their bankruptcy proceedings protect them from liability related to ignition switch lawsuits.

Back in June of 2014, the Wall Street Journal reported the company’s lawyers were arguing that the bankruptcy protected it from liabilities surrounding the ignition switch issue. The company’s position was that it should not have to pay for liabilities, as the nature of the bankruptcy is that it allows the company to start over.

In rare occasions, however, creditors are allowed to re-open a bankruptcy to process old claims, and this may be one of those occasions. If GM concealed the ignition switch problem, for example, that means that creditors were not given the chance to recover damages before the bankruptcy. It may also mean that the company was trying to dodge their obligation to injured vehicle owners.

GM’s bankruptcy is still in proceedings in Manhattan under Judge Robert Gerber. He is expected to make a decision in the coming months on whether plaintiffs may go after the company for economic-loss lawsuits, in which they seek damages for the alleged reduced value of their vehicles.

Gerber must determine whether the company was in a position to go public with the defect prior to the 2009 bankruptcy. Evidence revealed in other lawsuits has indicated that indeed, the company knew about the issue for at least a decade before they began recalls in 2014. At issue, however, is just who was aware—employees or top officials? If it’s found that only employees were aware, GM may be able to win the argument on the basis that their decision makers were not properly informed of the issue.

GM’s Ignition Switch Defect

In February 2014, GM began recalling millions of vehicles that could be affected by an ignition switch defect. This defect could cause the ignition switch to turn to the “off” position without warning, robbing the air bags of power and potentially resulting in serious injuries and even death during an accident.

GM has already acknowledged 57 deaths and nearly 100 injuries associated with the defect, and has offered settlements to all the associated families through their independently run settlement fund. So far, the company has fought any economic loss claims, stating that their vehicles have not suffered reduced value because of the ignition switch problem.