Will G.M. Refuse To Pay Victims In Recall Lawsuits?

Court Considers Whether 2009 Bankruptcy Relieves Automaker of its Liability 

In 2009, a drowning General Motors was thrown a lifeline by the bankruptcy court. An expedited bankruptcy allowed the struggling company to rid itself of debt and start fresh on the solid ground that a controversial loan of $49 billion of taxpayer money provided.

Now G.M. is hoping to turn that life-preserver into easy sailing. The automaker was back in bankruptcy court last Tuesday asking a judge to consider whether provisions of the bankruptcy agreement relieved the “new G.M.” of liability on vehicles manufactured pre-bankruptcy.

In particular, G.M. is trying to squirm its way out of paying damages to victims injured and the families of people who died due to a defective ignition part that the company knew about and tried to cover up. So far, the ignition switch defect has been linked to at least 56 deaths and hundreds of injuries. G.M. had received 4,312 claims for damages as of this week.

“Enough to require a recall well before June 2009”

Judge Robert E. Gerber, who also presided over the 2009 bankruptcy proceedings, opened this week’s hearing with these strong words regarding G.M.’s conduct: “I’m prepared to assume that there was enough to require a recall well before June 2009 … and that old G.M. acted very badly with respect to a delay.”

Regardless of how he might personally feel about the issue, however, the judge must follow the law. Lawyers representing the injured victims contended that their clients were known creditors and that their due process rights were denied because they did not receive notice of the 2009 bankruptcy as required by the Bankruptcy Code. Attorneys for G.M. argued that vast media attention given to the 2009 bankruptcy proceedings served as adequate notice and that the victims were not known creditors because they had not filed claims by that time. Even after the court renders its decision weeks or months from now, the losing side is likely to appeal the case, meaning accident victims could face delays in reaching justice, at best, and eventually may lose their rights to compensation altogether.

G.M. is Now Swimming in Money

G.M. had a stellar 2014. The $25.2 billion profits the automaker announced at the end of the year includes the deduction of $3 billion in safety recall costs. The company was so profitable that a group of hedge fund investors are demanding an $8 billion stock buyback. G.M. also generously paid its employees bigger bonuses than required under the terms of their labor contracts.

The accident victims deserve justice. G.M. should not be let off the hook.


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