Judge rejects claims against GM over ignition switch

A federal judge has rejected certain claims against General Motors for economic damages stemming from the company’s massive ignition switch recall.

On April 14, U.S. District Judge Robert Gerber strictly enforced the terms of the bankruptcy, which shields the automaker from pre-bankruptcy liabilities. The judge, who also presided over the GM bankruptcy, ruled that only economic-loss cases that involve the post-bankruptcy company can move forward. He estimated that the total claims for economic damages could have amounted to $7 billion to $10 billion spread across the millions of cars subject to the GM recall.

The defect has been blamed for 84 deaths in accidents that occurred when a bumped or jostled ignition switch shut off power to the car, which also disabled the airbags. General Motors has set aside an unlimited fund to compensate accident victims or their families, administered by attorney Kenneth Feinberg. Those claims are not subject to yesterday’s ruling.

The question was whether loss-of-value damages stemming from the defective ignition switch, which was designed by “Old GM,” should be treated like warranty and recall liabilities and borne by the “New GM,” as the post-bankruptcy company is known.

Learn more in "The truth about recalls."

Under the terms of GM’s bankruptcy, the company was divided into good and bad halves: The New GM got all of the profitable assets, while the Old GM got most of its liabilities – everything from underperforming factories to bad loans and legal claims.

Any claims filed before the June 1, 2009, bankruptcy would be paid by the old, broke GM, now renamed Motors Liquidation Company. According to a Reuters report, those claimants are receiving 29 cents on the dollar for their assets. Claims filed after that point, along with the costs of certain warranty repairs and recalls on older models would be borne by the new, profitable GM.

These economic damage claims include those for “diminution of value” of GM cars because of the harm to their reputation, as well as for lost wages from time spent getting the recall work done, attorneys’ fees, and punitive damages.

Some claims also involve accident and injury damage claims from before the bankruptcy, but those victims are potentially eligible for compensation from the Feinberg fund. And those victims who had already agreed to compensation from the fund are ineligible to bring additional lawsuits against GM based on those claims.

Consumers Union, the advocacy arm of Consumer Reports, thinks consumers should be compensated for their losses. “Last year, Consumers Union pressed GM to do the right thing and set up a compensation fund for victims and their families," said William Wallace, policy analyst for Consumers Union, the advocacy arm of Consumer Reports. "While this fund has reportedly issued some payouts for pre-bankruptcy incidents, we are concerned that the court's ruling may close off legal avenues for other victims or their families to hold GM accountable. GM should take responsibility for all valid claims, regardless of whether an incident took place before or after its bankruptcy."

This ruling stands in sharp contrast to a $1.4 billion settlement Toyota made in 2013 for economic damages in its recall of 5.8 million vehicles for unintended acceleration. Toyota didn’t have bankruptcy protection to shield it.

GM issued a response to the ruling, saying: “Judge Gerber properly concluded that claims based on Old GM's conduct are barred, and that the [bankruptcy] Sale Order and Injunction will be enforced for such purposes. With respect to any claims that were not expressly barred, Judge Gerber's decision doesn't establish any liability against GM and the plaintiffs still must prove the merits of their claims.”

Plaintiffs’ attorneys have vowed to appeal, and Judge Gerber has recommended the case to the 2nd U.S. Circuit Court of Appeals in New York.

—Eric Evarts

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