GM Seeks to Reaffirm Bankruptcy Shield From Economic Claims

Apr 22, 2014 5:13 pm ET

(Updates with judge’s prior ruling in fifth paragraph.)

April 22 (Bloomberg) -- General Motors Co. asked a judge to reaffirm its protection from economic claims stemming from pre- bankruptcy malfeasance in a bid to block about 50 car-owner lawsuits demanding compensation for faulty ignition switches.

Economic losses include a decline in a vehicle’s value and the loss of use or wages for time spent getting it repaired. GM isn’t seeking court action on lawsuits over accidents that caused injury, loss of life or property damage, nor its obligation to repair defects, GM said yesterday in a filing in U.S. Bankruptcy Court in Manhattan.

Before GM exited bankruptcy in 2009, U.S. Bankruptcy Judge Robert Gerber freed it from most of its predecessor’s liabilities, leaving some warranty obligations and responsibility for accidents occurring after it reorganized. That order should be enforced to bar any plaintiff from suing over a drop in the value of an old-GM vehicle, the automaker said.

“Those types of claims were never assumed by New GM and are barred by the court’s sale order and injunction,” it said. “New GM cannot be held liable for old GM’s alleged conduct, either directly or as old GM’s alleged ‘successor.’”

Gerber reaffirmed his rulings once before, telling plaintiffs in 2010 that new GM wasn’t liable for its predecessor’s “implied” or stated warranties for Saturn cars. They could file a “far less valuable claim” against the old GM, he said at a hearing in Manhattan.

Two-Pronged Strategy

The automaker is using a two-pronged strategy to restrict lawsuits while protecting its reputation by taking care of customers hurt by its cars, with help from 9/11 claims administrator Kenneth Feinberg. In a statement today, GM said it retains “civic and legal obligations relating to injuries that may relate to recalled vehicles” and would consult Feinberg on options for dealing with them.

Bob Hilliard, a lawyer for plaintiffs suing over their cars’ loss of value, said in a court filing yesterday in Texas that their claims aren’t related to old GM. His clients learned of GM’s “wrongful conduct and wrongful omissions” only when it recalled the cars for allegedly long-known defects, he said.

For that reason, the federal district court should continue to handle their case, not the bankruptcy court, Hilliard said. GM was making a false claim of “a nexus to a bankruptcy case,” according to the filing in Corpus Christi.

GM Recalls

GM has recalled 2.59 million cars with ignition defects linked to 13 deaths. The Detroit-based company, which is offering repairs with free rentals for customers who take their cars to dealers, said Gerber dealt with plaintiffs in 2010 by accusing them of ignoring bankruptcy law as they litigated in another court.

“I’m talking about what talks and walks and quacks like an intentional runaround of something that’s properly on the watch of the U.S. Bankruptcy Court for the Southern District of New York,” GM quoted the judge as saying.

A California lawsuit over the ignition defects was delayed today by a federal judge until Gerber rules on whether some compensation claims can be brought against GM without violating the 2009 order.

Mark Pifko of Baron & Budd PC, a lawyer for the California plaintiffs, said they would decide when the stay is lifted whether to press GM again for more information on its handling of defective cars, with a view to asking the judge to ground them pending thorough repairs.

Texas Case

GM has asked a federal judge in Texas to postpone similar litigation. Since the request, lawsuits seeking compensation from GM over the ignition switches have multiplied to 50 from about 37. Most seek to represent other plaintiffs.

The U.S. aided GM’s reorganization by buying its new stock. As an “absolute condition” of the purchase, the company took on only limited obligations from old GM “based on the independent judgment of U.S. Treasury officials as to which liabilities, if paid, would best position New GM for a successful business turnaround,” the automaker said in the filing.

“That was the bargain struck by new GM and old GM, and approved by the court as being in the best interests of old GM’s bankruptcy estate and the public interest,” according to the filing.

Last week, GM defeated a consumer bid for a Texas court order requiring the company to tell owners of recalled vehicles to stop driving their cars until the defect is fixed.

The case is In re Motors Liquidation Co., 09-bk-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).