2009 Bankruptcy May Not Fully Protect GM From Ignition-Switch Lawsuits

February 18, 2015

In 2009, General Motors Corporation underwent a very quick, very contentious bankruptcy. In the course of just a few short weeks, the automaker transformed into General Motors Company.

The name change may not have seemed significant to the public, but in fact, it meant that the "old GM" was dead, leaving its creditors largely empty-handed. It also rendered "new GM" largely immune to lawsuits from folks damaged under old GM's watch.

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That's been crucial in GM's ongoing "Switchgate" fiasco, which involved millions of vehicles manufactured by old GM. As such, new GM has been shielded from plaintiffs, but a bankruptcy judge has just ruled that new GM may, in fact, be held accountable for the sins of its forebears

The case before Judge Robert Gerber didn't involve people injured in accidents stemming from the company's faulty ignition switches, nor the families of those killed. (Most of those cases have been referred to GM's compensation fund.) Instead, the plaintiffs were a group of GM vehicle owners who complain that the headline-grabbing ignition-switch recall has ruined the resale value of their automobiles. Such cases are ineligible to apply to the compensation fund, meaning that they have to sue shallow-pocketed old GM for restitution.

Speaking yesterday at a hearing in U.S. Bankruptcy Court in New York City, Judge Gerber said that he would consider reducing the legal protections that GM currently enjoys if plaintiffs prove that old GM hid ignition-switch problems during the 2009 bankruptcy proceedings. If they can do that, the omissions would represent a violation of plaintiffs' constitutional rights and perhaps allow them to receive some compensation from new GM.

Gerber could take months to issue a ruling on the matter, and he offered no hints as to the degree of liability new GM might be held if he rules in the plaintiffs' favor. All we know for sure is that GM was aware of ignition-switch defects long, long before 2009, meaning that new GM might not be as immune to lawsuits as it had hoped. Stay tuned.


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