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Bankruptcy shields GM from some liability cases

Adam Allington Apr 16, 2015
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A federal bankruptcy judge has ruled that General Motors is shielded from potential liability related to defective ignition switches that occurred before the company’s 2009 bankruptcy.

The ruling, from Judge Robert Gerber, is a huge victory for GM as it walks a fine line between accepting responsibility for a safety crisis that has been linked to the deaths of 84 people, and trying to position the post-bankruptcy organization for success going forward.

John Pottow is a law professor at the University of Michigan. He says the ruling is great for GM.

“It’s a big deal because what they were trying to do is bulletproof their bankruptcy reorganization plan,” Pottow says.

The ruling establishes a clear legal separation between the “Old GM,” and the new post-bankruptcy GM. 

Still, the legal cases in this matter are far from resolved. Pottow says the fact that the “New GM” knew about the defective switches, but did not bring up the issue during bankruptcy, could end up helping the plaintiffs.

“The law takes notice incredibly seriously and if someone figures out they did something wrong they have to send out notice right away, particularly if they’ve discharged something in bankruptcy,” Pottow says.

“So, that could be another hook they’re trying to grab on to, to say, ‘we still have a second bite at the apple.'”

Steve Berman, a partner with Seattle-based Hagens-Berman, is co-counsel in the suit against General Motors.  He says they will appeal Judge Gerber’s ruling.

Even factoring out the cars that are shielded from liability, GM could still be on the hook for economic losses for people who bought cars after the bankruptcy.

“Let’s just say conservatively there’s still 10 million cars left and the average value of diminution was $700—that’s $7 billion,” Berman says.

In addition to ongoing lawsuits for economic loses, the company also faces legal action from people who were insured in crashes.

In a statement, GM praised the decision and stated that any future claims not barred by the ruling must still be proven in court.

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