U.S. Appeals Court Considers GM Bankruptcy Protection Rulings

By Jessica Dye | March 17, 2016

Attorneys for customers suing General Motors Co over faulty ignition switches urged a U.S. appeals court on Tuesday to throw out bankruptcy court rulings that they say shield the company from lawsuits potentially worth billions of dollars.

A panel of three judges on the 2nd U.S. Circuit Court of Appeals did not clearly indicate during oral arguments how they might rule. A decision is expected within several months.

The judges pressed lawyers for both the plaintiffs and GM over what the No. 1 U.S. automaker knew about the switch problems during the automaker’s 2009 bankruptcy proceedings.

Judge Denny Chin said what GM knew was a “pretty important question” for determining whether the company had an obligation during the bankruptcy to notify vehicle owners about their potential claims. The plaintiffs say that since they were not properly notified, they were denied their right to participate in the proceedings.

Steve Berman, a lawyer for some of the plaintiffs, said GM did know enough about the switch defect because the issue had been raised as early as 2004.

GM’s lawyer, Arthur Steinberg, countered that while some switch-related incidents had been investigated over the years, employees “didn’t make a connection” between those events and a broader safety issue until after the bankruptcy.

The company’s bankruptcy created “New GM” to contain the company’s valuable assets while leaving behind most of its burdensome liabilities with “Old GM.”

Last year, the judge who oversaw that process said New GM was shielded from liability over Old GM’s pre-bankruptcy actions but did allow “independent” claims based solely on New GM’s conduct to proceed.

Some GM customers say New GM should not be shielded because of its years-long concealment of the switch defect.

GM has also appealed, saying that allowing for independent claims retroactively alters the sale agreement that created New GM.

GM has been hit with hundreds of lawsuits since it announced in 2014 that it was recalling 2.6 million vehicles with the part, which can slip out of place, causing engine stalls and cutting power to steering, air bags and brakes.

The bankruptcy decisions primarily affect cases involving accidents that occurred before New GM was created, and proposed class actions brought on behalf of millions of customers who claim their vehicles lost value because of the recalls involving the ignition switch and other related safety issues. Plaintiffs have estimated the value of those claims to range from $7 billion to $10 billion.

(Reporting by Jessica Dye; Editing by Alexia Garamfalvi, David Ingram and David Gregorio)

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