Court Rules Bankruptcy Doesn’t Shield GM From Defective Ignition Switch Lawsuits
People who have been injured or killed as a result of the defective ignition switches that were the subject of a massive vehicle recall by General Motors recently had a strong victory in court. A federal appeals court has overturned a previous ruling that decided GM’s bankruptcy restructuring protected the automaker from lawsuits filed against them over the faulty ignition switches.
When General Motors declared bankruptcy in 2009, the general public was unaware that millions of cars manufactured by the company since the late 1990s had defective ignition switches that could cause engines to unexpectedly shut off while in use and prevent airbags from deploying in an accident. It wasn’t until February of 2014 that GM announced the first round of recalls related to this problem. Over time, GM recalled more than two and a half million vehicles because of the defect and the ignition switches were officially linked to 124 deaths and 245 injuries.
During GM’s bankruptcy process, the company was restructured into a new corporate entity known as “New GM” with the former entity becoming known as “Old GM.” A previous court ruling had decided that New GM should not have to be liable for lawsuits against Old GM. As a result, about 1,000 lawsuits over deaths and injuries caused by the defective ignition switches were blocked from being filed against the automaker.
However, the most recent court ruling found that Old GM was aware of the problem with the ignition switches at the time they went into bankruptcy and failed to disclose the problem during the bankruptcy proceedings. Because of this fact, the court felt that people who had been injured or lost loved ones due to accidents caused by GM’s defective products were denied their right to sue the company or contest the company’s bankruptcy. The judges who handled this appeal case felt that GM was essentially asking the courts to reward them for hiding these problems and they didn’t believe that was fair to the victims.
“At minimum, Old GM knew about moving stalls and airbag non-deployments in certain models and should have revealed those facts during bankruptcy. If a debtor does not reveal claims it is aware of, then bankruptcy law cannot protect it,” the ruling said. “Due process applies even in a company’s moment of crisis.”
An attorney who represented the accident victims stated, “The only person who could effectively make an argument in 2009 is somebody who bought a time machine.” It’s estimated that GM is now facing between $7 and $10 billion in liability as a result of the lawsuits that had previously been put on hold. Attorneys representing the accident victims are now also investigating whether or not claims that had been settled by the automaker in exchange for victims waiving the right to sue could potentially be reopened as a result of the new ruling.
GM is still investigating their options, including whether or not they will appeal the ruling.