Bankruptcy, schmankruptcy: Switchgate plaintiffs can sue new General Motors for old GM's mistakes

July 14, 2016

With all the news about Volkswagen, Takata, and Tesla these days, you might have forgotten about General Motors' Switchgate fiasco. That scandal began in February 2014 and seemed to wrap up last summer, when Ken Feinberg determined that 124 deaths were caused by the company faulty ignition switches. GM agreed to a $2 billion settlement package, including a massive, $900 million criminal fine.

But apparently, that's not the end of the story. Other cases have been slowly working their way through the courts, and judges have now determined that today's GM is potentially liable for damages--even though, technically speaking, the GM that started the whole Switchgate mess was dissolved in 2009 when the company raced through bankruptcy.

From the beginning, there's been plenty of confusion as to whether "new GM" could be held liable for the sins of "old GM". The restructuring paperwork was written in such a way to protect the former from mistakes made by the latter (though it's always been clear that the new company could held accountable for accidents that occurred in pre-bankruptcy vehicles after the restructuring was done).

Last year, however, Judge Robert Gerber cast some doubt on whether "new GM" was fully shielded from Switchgate lawsuits. Yesterday, the 2nd U.S. Circuit Court of Appeals in Manhattan took things a step further. The court said that preventing plaintiffs from suing "new GM" for "old GM"'s mistakes would deprive them of their right to due process, because consumers didn't learn of the defect in their vehicles until after GM's restructuring. 

What, exactly, does all that mean?

Unfortunately, it means quite a lot for GM. 

If the ruling stands, it would mean that lawsuits can proceed from two major groups of plaintiffs: (1) those who were affected by ignition switch-related crashes prior to July 2009, and (2) those who say that Switchgate reduced the resale value of their GM vehicles. There aren't clear figures for the amount of the former group's claims, but resale-value plaintiffs are asking for up to $10 billion. (Fun fact: lost-value plaintiffs have retained Hagens Berman law firm -- the same firm that VW dealers hired for their suit against Volkswagen back in April.)

The good news for GM--if there is any--is that those who accepted cash through the company's compensation fund had to waive their right to sue GM for additional awards.

Stay tuned: things could get a good bit messier for GM and for consumers.

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