General Motors LLC is attempting to get the Second Circuit Court of Appeals to uphold a bankruptcy court’s ruling that bankruptcy protections block most car owners seeking to sue “New GM” over the ignition switch defect. Lawyers for GM say the consumers seeking to hold the new company liable aren’t entitled to “special treatment.” The appellate court was told by GM that the consumers are asking for an “extraordinary, one-sided ‘do-over’ ” of what they label as “a necessary deal that girded the national economy.” Some will refer to what the government did as a “bailout.” GM said in a brief filed with the Court:
The sale would not have occurred without this liability shield, and if there were no sale, the impact on appellants and the public – the resulting loss of jobs, the negative cascading effect on the vulnerable domestic economy, and the loss of value for Old GM creditors (and many others) – would have been catastrophic.
GM is trying to convince the court that the ignition switch claims are solely against Old GM. This is according to the latest iteration of the company. Three groups of consumers had urged the Second Circuit in November to overturn U.S. Bankruptcy Judge Robert Gerber’s April 2014 ruling that General Motors is protected from most of the suits. This is a recap:
One group, owners and lessees of cars made by “Old GM” who seek to recoup economic losses after it was revealed that both Old GM and New GM purposefully hid the ignition switch defect, said the New York bankruptcy court correctly held in its April 15 ruling that they were entitled to actual notice of the sale order and injunction that separated out Old GM’s liabilities from the assets New GM bought. U.S. Bankruptcy Judge Robert Gerber had agreed that they were denied notice under due process because of GM’s knowledge of the defect during bankruptcy hearings, but the ignition switch plaintiffs say he erred when he ruled that they weren’t prejudiced by that lapse.
Another group of consumers, a proposed class that filed suit in May claiming that GM’s general counsel knew about the defect when the company filed for bankruptcy in 2009, backed the ignition switch plaintiffs in their own brief. These consumers said that they were prejudiced because they had no opportunity to even try to persuade the government or the bankruptcy court to carve out a provision in the sale order to protect victims of “GM’s massive fraud.” They are also prejudiced because the judge’s ruling bars them from suing the reborn company for its pre-bankruptcy actions.
And a third group of consumers who are asserting claims against New GM based on non-ignition switch hazards in cars made by Old GM also urged the Second Circuit to reverse the bankruptcy court’s ruling. However, they argue that the bankruptcy court lacked subject matter jurisdiction to render its decision to bar them from asserting claims against New GM for non-ignition switch defects in Old GM cars.
GM’s wrongful cover-up of a known defect was made known to the public, but only after a decade of cover-up. The ignition switch defect caused hundreds of deaths and injuries and led to subsequent recalls that ultimately affected about 30 million GM vehicles. The Plaintiffs have claimed that their due process rights were violated when GM did not disclose the latent defect during the reorganization process.