Judge Denies Claimants’ Bid to Move GM Appeal to Higher Court

July 9, 2009

A U.S. bankruptcy judge refused Tuesday to allow a group of individuals claiming to have been harmed by General Motors Corp vehicles to appeal directly to a U.S. federal appeals court against the sale of the automaker’s assets.

Judge Robert Gerber of federal bankruptcy court in Manhattan also rejected a request by a group of asbestos claimants to stay the sale of GM to a group led by the U.S. Treasury.

Judge Gerber did not explain his ruling but said he would issue a written decision and his reasoning by the end of the day Tuesday.

Late Sunday, Judge Gerber approved GM’s plan to sell its most profitable assets to a “New GM” funded by the U.S. government.

Normally, appeals of bankruptcy court decisions are made in the district court, but due to the speed sought in the case, the accident victims had sought to skip that step.

A lawyer for the accident victims, Steven Jakubowski of Coleman Law Firm, told the court Tuesday evening by telephone that if the GM sale goes ahead, it would be practically pointless for the victims to seek redress.

“They would be litigating for 10 cents on the dollar,” he said.

But GM’s attorney, Harvey Miller of Weil Gotshal & Manges, also speaking by telephone, said that if the GM sale were blocked or delayed, there would be nothing left at all for claimants to try to recover.

The U.S. government had set a deadline of July 10 for the transaction to be approved, after which it would no longer fund GM.

“If it doesn’t close, there is no alterative, so a group of tort and asbestos claimants are prepared to see these assets go down in flames,” Miller said.

The consumer group, along with the asbestos claimants, had sought to overturn Judge Gerber’s decision, because the “New GM” is being created from assets sold “free and clear” of such claims and they would be unable to sue. If the sale goes ahead, the injured individuals will likely have to seek recourse from the “Old GM” left in bankruptcy court, where they will not be able to recover much.

The asbestos claimants had also filed court papers seeking a stay of the sale that would delay it from taking effect until after the results of the appeal.

In his opinion approving the sale, Judge Gerber had written that the liability objection was the only “truly debatable” issue he had heard in the GM case, but ultimately agreed with GM that it was necessary to allow the company to leave such claims behind.

“New GM” has already agreed to take on product liability claims brought in the future, but not current claims.

A similar direct appeal to the Second Circuit Court of Appeals in New York was allowed in Chrysler LLC’s bankruptcy case earlier this year. The the Second Circuit upheld the bankruptcy court’s ruling in that case.

Lawyers for GM and the U.S. government filed court papers Tuesday, saying the issue had already been decided by the Second Circuit in the Chrysler bankruptcy and that the appeal should not be allowed to obstruct the sale.

GM asked that, if the judge is inclined to grant a stay, delaying the sale pending the results of the appeal, the claimants should be required to post a bond in “an amount equal to the potential direct harm of $80 billion.”

(Reporting by Emily Chasan and Phil Wahba; editing by Andre Grenon and Richard Chang)

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