GM’s luck ran out as a federal bankruptcy judge ruled that plaintiffs in the faulty ignition suits could collect punitive damages if they could prove that “New GM” knew about “Old GM’s” defect and covered it up. Gone are the previous protections afforded the automaker by its 2009 bankruptcy.
Earlier this year, GM got lucky when a bankruptcy judge allowed “New GM” to keep its bankruptcy protections, thus limiting the amounts it would pay to those damaged by faulty ignitions. That luck ran out this week as a federal bankruptcy judge ruled that plaintiffs can seek punitive damages in GM ignition suits.
After GM’s 2009 bankruptcy, it “split” into “New GM” and Old GM” (pre- and post-bankruptcy versions). This split basically protected New GM from any of Old GM’s liabilities. On Monday, Judge Robert Gerber ruled that, since the employees of the two GMs were the same, any knowledge Old GM employees had transferred to New GM. This is a victory for plaintiffs, as that means if they can successfully show that New GM knew about the ignition defect, but covered it up, plaintiffs may seek punitive damages.
In the realm of damages, there are:
- Compensatory damages, designed to make the plaintiff “whole” again, and
- Punitive damages (also called exemplary damages), designed to be a deterrent to the defendant and others from doing something similar to the action that was the basis of the suit.
Compensatory damages are typically calculated to compensate plaintiffs for what they actually lost. Thus, if a plaintiff had medical bills of $50,000 and lost $25,000 in wages, that plaintiff’s compensatory damages would be $75,000.
Punitive damages, on the other hand, are awarded only when the defendant’s behavior is greater than mere negligence. In other words, the defendant must have acted with a clear disregard for safety and the usual standard of care. There are restrictions on punitive damages and they vary by jurisdiction. The most common restriction is that they be “relatively proportionate” to the compensatory damages awarded. The majority of jurisdictions hold this to mean that punitive damages can’t be more than four times the compensatory damages awarded. In our example above, the plaintiff with $75,000 in compensatory damages would likely have any punitive damages award limited to $300,000.
If the plaintiffs in the GM ignition case can prove that New GM acted in such a way as to cover up the defect created by Old GM, they may be able to get as much as four times their compensatory damages. This will put a significant dent in GM’s bottom line.