DETROIT—A federal appeals court has decided that people injured in crashes caused by faulty General Motors Co. ignition switches can sue the company even if they were hurt before GM’s 2009 bankruptcy filing.
Under terms of the bankruptcy, the company that emerged, referred to as New GM, was indemnified against most claims against the pre-bankruptcy company, or Old GM. Retired U.S. Bankruptcy Judge Robert Gerber ruled in April 2015 that most ignition-switch claimants could not sue New GM for damages.
The July 13 ruling by the 2nd U.S. Circuit Court of Appeals in Manhattan overturns most of that decision and allows hundreds of pre-bankruptcy claims to proceed, including some lawsuits alleging that GM’s actions caused the value of its cars to drop.
Steve Berman, a lead attorney in the loss-of-value cases, said the appeals court ruled the bankruptcy order doesn’t protect New GM from claims that it misrepresented the safety of cars made by pre-bankruptcy GM. The 2nd Circuit Court, he said, determined that Old GM knew that the cars could stall and air bags wouldn’t work, and that those facts should have been revealed during the bankruptcy.
In its opinion, the appeals court said it is not confident that the deal for New GM to leave bankruptcy protection would have been approved “if Old GM had revealed the ignition switch defect in bankruptcy.”
Robert Hilliard, a lead attorney in the death and injury cases, says GM is now exposed to billions more in liabilities.
“This takes GM from the bottom of the ninth back to the first inning in regards to financial liability for the ignition switch defect,” he said.
GM said it was reviewing the impact of the ruling, which the company said does not decide whether claims are valid. “Many of the claims we face have been brought on behalf of car owners who want to be compensated even though they have not suffered any loss,” a company statement said.
In 2009, Gerber allowed “New GM” to emerge from bankruptcy protection free from liabilities of the company before bankruptcy. But plaintiffs’ lawyers argued that GM misled the court seven years ago because it knew about but failed to disclose the ignition switch problems. The switches, which can slip out of the run position and cause cars to stall unexpectedly, are linked to at least 124 deaths and 275 injuries.
In its ruling, the appeals court said that the desire to move GM through bankruptcy quickly to avoid its collapse was “laudable,” but it doesn’t do away with basic constitutional principles. It took only 40 days for the bankruptcy to end, an unprecedented period at the time.
“Due process applies even in a company’s moment of crisis,” the court wrote.
Hilliard estimated that about 1,000 injury and wrongful death lawsuits were put on hold waiting for the appeals court to rule, including 265 that he filed. General Motors’ filings with securities regulators say there are another 101 U.S. lawsuits pending that allege that GM’s actions caused vehicle values to decline.
The ruling also could affect 399 injury and death cases settled for GM by compensation expert Kenneth Feinberg for a total of $594.5 million. GM says those who settled gave up their legal rights to sue the company, but Hilliard said he will look into whether some of those claims could be reopened in light of the court’s ruling.