GM moves to Freeze Lawsuits, Cut Customer Payouts by Billions

[PREMiERdrum]

General Motors Co. (GM)’s move to freeze ignition-defect lawsuits in California and Texas has solid legal precedent behind it and could help slash customer demands for compensation by billions of dollars.

 

GM asked federal judges in both states last week to delay litigation over the defect in several of its models until a U.S. bankruptcy judge in New York rules whether some accident victims’ claims can be brought without violating a sale order in its 2009 reorganization.

 

The aggressive legal strategy runs the risk of further damaging GM’s image with lawmakers and the public. Offsetting that impact is GM’s customer-focused hiring of lawyer Kenneth Feinberg to advise on how to compensate people who had accidents in recalled Cobalts, Saturns and other GM models. Feinberg ran funds for victims of the Sept. 11 terror attacks and the BP Plc oil spill in the Gulf of Mexico.

 

“They’re running on parallel tracks but the trains are going to different stations,” said Chip Bowles, a bankruptcy lawyer at Bingham Greenebaum Doll LLP, who called the freeze maneuver “clever.”

 

 

http://www.bloomberg.com/news/2014-04-16/gm-move-to-freeze-lawsuits-may-cut-customer-payouts-by-billions.html

[PREMiERdrum]

Once again demonstrating their uncanny ability to mismanage a crisis...

 

Good grief.

 

An interesting take from a GMI member...

GM is taking a very risky step here. As mentioned above:

 

one of the requirements for the deposit of the claims in the old corporation and the release of liability for the new corporation is that the bankruptcy filing must be complete. That is, GM must disclose to the court all potential liabilities that it might have. GM has already admitted to federal officials investigating the car safety defects that it was aware of the safety problems as early as 2001. GM has also disclosed to NHTSA investigators that it explored fixes for the ignitions in 2004 and 2005, but took no action.

 

This means that if GM did not fully disclose the ignition switch issue during the bankruptcy proceedings, they committed a bankruptcy fraud. The fact that they actually changed the part in 2007 without documenting it is a very strong argument in any lawyer's hands that GM did know and kept it hidden from the bankruptcy judge. The worst outcome for GM could be that all bankruptcy agreements may be thrown out, and "new GM" will not only liable for issues associate with "old GM", but will also have to compensate people who lost money on the bankruptcy (for example bond holder who got pennies on the dollar).

I think this move was a knee-jerk by some mid-level GM lawyer and will cost them dearly. They will end up paying way more than settling with victims' families.

 

[AlRozzi]

I very much disrespect GM not only for this action but also in the way taxpayers were forced to bail them out and then not get full payback in return. The company has sufficient liquidity and a large cash horde? That's nice. Why not return what is owed taxpayers? Make annual payments if necessary, but make it right. Large banks did. Fannie Mae and Freddie Mac did.

[PREMiERdrum]

The company has sufficient liquidity and a large cash horde? T

 

For now...

 

[akirby]

I thought recalls were not included in the bankruptcy decision? Anything that results from them should likewise not be exempt.

 

If they actually try to play this card the results will be far worse than the resulting lawsuits and fines.

[jpd80]

I thought recalls were not included in the bankruptcy decision? Anything that results from them should likewise not be exempt.

 

If they actually try to play this card the results will be far worse than the resulting lawsuits and fines.

They knew about the switch problems well before bankruptcy but took no action, I think that opens up a can of works...

GM should now be forced to pay back to the government any shortfall caused by the sell down of stock.

 

Corporate misdeed and dishonesty should not be rewarded with a clean slate at someone else's expense.

Edited April 17, 2014 by jpd80

[AlRozzi]

I thought recalls were not included in the bankruptcy decision? Anything that results from them should likewise not be exempt.

 

 

One would think so.

 

There is a logical connection between product and liability.

 

With regard to its bankruptcy, GM obviously could not have been exemted from recalls as defective vehicles would otherwise be left unchecked and would leave customers fully responsible for any financial costs related to a defect. The cost to the company of angering a large body of customers as well as harmed non-customers would have been too great.

 

As for liability claims GM was stictly serving self interest.

 

I suspect GM's move centers on "confidence." If the company had confidence in the quality of its products it would not have had a need to shield itself from litigation.

 

I believe that by exempting "new" GM from any potential litigation, it is very telling that the company had no confidence in the products it sold before 2009.

 

Managment was well aware of the quality issues involved with many of its vehicles and siezed upon the opportunity to preserve company assets by building in the firewall within the protection of bankruptcy.

[akirby]

Actually Al, it's standard practice in bankruptcy to alleviate the new company from the sins of the old company - to an extent. In this case the extent was safety related recalls not because GM didn't want to look bad (they're doing that now) but because it's not good for the safety of GM drivers to not be able to force a recall when necessary. GM wasn't given a choice as far as I know - that was a mandate.

 

If they're not exempt from safety recalls then they should be liable for any related damages. I hope this is just legal posturing and they don't stick with this position or the public backlash will be even more severe than it already is.

[RichardJensen]

I thought recalls were not included in the bankruptcy decision? Anything that results from them should likewise not be exempt.

 

If they actually try to play this card the results will be far worse than the resulting lawsuits and fines.

 

Recalls are different from liability. Recall inheritance is dictated by statute, liability can be negotiated away in bankruptcy.

[akirby]

 

Recalls are different from liability. Recall inheritance is dictated by statute, liability can be negotiated away in bankruptcy.

 

I understand that, I just don't agree with it. Then again I don't agree with the whole premise of old GM new GM as it applies specifically to GM (not all bankruptcy cases) because nothing really changed - they were still making the same vehicles in the same plants with the same workers and basically the same management. Liability for debts and financial obligations and contracts are one thing. Liability for product defects should never be negotiated away in a case like this.

[AlRozzi]

 

Then again I don't agree with the whole premise of old GM new GM as it applies specifically to GM (not all bankruptcy cases) because nothing really changed - they were still making the same vehicles in the same plants with the same workers and basically the same management.

I could not agree more. I could understand some of the moves being made if, say, Renault/Nissan had taken over GM, for example.