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GM Bankruptcy Shield Saves the company Billions, Screws Everybody Else

— April 17, 2015

General Motors won a massive legal victory to the dismay of many former customers when U.S. Bankruptcy Court Judge, Robert Gerber ruled Wednesday, April 15th that the company can retain its bankruptcy shield protection of $10 billion for claims against it involving the massive ignition-switch recall. The ruling helps General Motors avoid potentially billions of dollars in additional judgments and settlements for claims involving death or injury prior to the 2009 bankruptcy. The ruling, however, does not completely eliminate GM’s liability. “New GM,” which is what the court refers to the post-bankruptcy company, still remains liable for accidents that occurred after 2009, as well as other claims that prove misdeeds by “New GM” after the bankruptcy. Needless to say, the ruling has plaintiffs’ attorneys and victims incensed. One attorney suing GM, Robert Hilliard responded, “This ruling padlocks the courthouse doors. Hundreds of victims and their families will go to bed tonight forever deprived of justice. GM, bathing in billions may now turn its back on the dead and injured, worry free.”

Most of the vehicles involved in the 84 deaths and over 150 serious injuries to-date were built prior to 2009, especially the major recall of 2.6 million Chevy Cobalts. In addition to the personal injury claims, there are also cases against GM for owners of the recalled vehicles who are suing for loss of resale value due to the faulty ignition switch. These cases will likely be covered by the bankruptcy shield, denying claims of this matter and potentially saving the company from a major liability cost. Plaintiff’s attorneys argued that GM knew about the ignition-switch issue and tried to fraudulently hide the information from the court during the 2009 bankruptcy proceedings, but Judge Gerber ruled that there was no evidence of this and that GM executives were not fully aware of the extent of the problem until late 2013. The recall was instituted early in the following year. A major lawsuit is still ongoing over ignition-switch related incidents occurring after the bankruptcy, with over a dozen GM executives and managers set to give depositions in the coming months, including CEO Mary Barra’s scheduled October, 8th meeting with the court.

While the ruling is consistent with U.S. bankruptcy law, the larger context brings about a question about the general fairness of the process on many levels. Most notably, Honda, which has faced a similar ignition-switch recall, and Ford, which proudly rejected money during the 2009 automotive bailout, will not be afforded the same protections in cases involving recalls of their own. This means that Honda claimants may receive damages while GM plaintiffs will not despite having the exact same incident (given pre-2009).  And, despite Ford “pulling itself up by the bootstraps” during the automotive crisis, they will be fully on the hook for their own recall issues, save additional intervention. The U.S. Government reportedly spent $50 billion and lost as much as $11.2 billion off of the GM restructuring. Reading between the lines, that would mean that U.S. taxpayers are paying for other taxpayers to be stiffed for injuries and losses that occurred by a company that U.S. taxpayers forced to stay in business. Wrap your head around that. My Word 2007 grammar check can’t seem to. It swears that statement is a fragment even though the subject is “U.S. taxpayers,” and the verb is “are-paying.” I think what Word is trying to tell me is that the justice is fragmented, and maybe not the sentence.

(And yes grammar junkies, I know that isn’t entirely true, but you get the gist).


CNN/Money – Chris Isidore

USA Today – Chris Woodyard

Wall Street Journal – Jeff Bennett

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