Joel R. Glucksman
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General Motors Co. is returning to the same Manhattan bankruptcy court that granted it protection under Chapter 11 of the bankruptcy law in 2009 to face owners of recalled cars, according to Bloomberg Businessweek. The company faces 59 lawsuits by car owners, who are demanding a combined total of as much as $10 billion in damages. The lawsuits center around recalled cars with faulty ignition switches, which shut off the engines while the car is being driven in some circumstances, and prevent airbags from deploying.
In the 2009 ruling, U.S. Bankruptcy Judge Robert Gerber granted GM protection from a large number of liabilities by allowing it to split into “Old GM” and “New GM,” the news source explained. While the automaker accepted some liabilities into the new company, like those for warranty obligations and responsibility for post-2009 accidents that occur in pre-2009 cars, the majority of its liabilities stayed with the old GM. This means that new GM is not currently legally responsible for the loss of value on pre-2009 cars resulting from old GM’s alleged conduct.
Many legal experts believe that Judge Gerber is unlikely to undo a key part of the bankruptcy sale that he approved in 2009, but car owners may have a recourse, according to Reuters. With evidence emerging that at least some GM employees were aware of the problems with the ignition switches, the company is asking Gerber to make a clear ruling that it did not intentionally hide any knowledge from the bankruptcy court. Plaintiffs are arguing that GM hid knowledge of the defect, making a case for fraud.
Gerber has not been afraid to admonish GM in the past, Reuters noted. In a 2012 trial regarding the same bankruptcy, Gerber called revelations that the company disclose a payment of $367 million to certain hedge fund creditors “shocking.” Gerber’s decision in this high-profile case may set a precedent for further such bankruptcy filings.
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