Appeals Court Deals GM Major Setback in Ignition Case

"New" GM back on hook for financial harm done to owners.

by on Jul.14, 2016

After faring well in a series of bellwether cases, General Motors suffered a serious legal setback related to its faulty ignitions.

General Motors Co. just suffered a major setback in the long-running litigation over the defective ignition switch in GM vehicles linked to more than 120 deaths and hundreds more injuries.

A federal appeals court reversed part of a bankruptcy court ruling that protected the automaker from some lawsuits over the defect that prompted the recall of 2.6 million vehicles in 2014.

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The court found that “New” GM is not immune to lawsuits from owners claiming they have been financially harmed due to the loss in value of their recalled vehicles.

The decision is a serious blow to GM, which is now potentially liable for millions of dollars of additional claims from some owners of the vehicles built prior to GM’s 2009 bankruptcy.

“The Second Circuit’s ruling neither addresses nor decides the merits of any claims. Many of the claims we face have been brought on behalf of car owners who want to be compensated even though they have not suffered any loss,” GM said in statement.

GM can still has a couple of legal maneuvers at its disposal, but the ruling significantly narrows its options.

It can ask for a re-hearing in which the all the judges on the U.S. Second Circuit Court of Appeals are given a chance to vote on the merits of the claim or it can appeal directly to the U.S. Supreme Court, which is becoming increasingly selective about the cases it considers given it is one justice short right now.

If the Supreme Court elects not to take the case, the ruling of the Second Circuit stands and is virtually impossible for GM lawyers to change, which would force the automaker to consider some sort of expensive settlement.

(GM‘s fourth bellwether case dismissed. For more, Click Here.)

The lawyers for the plaintiffs in the ignition switch case described ruling is a major victory for a class of millions of owners of GM-branded vehicles, who claimed that the automaker’s misconduct has damaged the value of the vehicles targeted for recall because of the faulty ignition.

The court specifically ruled that so-called “independent claims” relating to “New” GM’s own post-bankruptcy wrongful conduct, including claims involving misrepresentations by New GM as to the safety of “Old” GM cars, are not barred by the bankruptcy order discharging other claims in the case, according to a press release from Hagens Berman Sobol Shapiro LLP, one of the firms representing the disgruntled consumers.

“The court also ruled that the bankruptcy order did not bar economic loss claims based on the ignition switch and other defects, finding that Old GM knew about moving stalls and airbag non-deployments resulting from the ignition switch defect and should have revealed those facts in bankruptcy and provided notice of those claims to affected vehicle owners,” the release said.

(GM makes a deal on third bellwether case. Click Here for the story.)

“The appeals court’s ruling today solidifies something that we have known from the very beginning of this suit—GM’s bankruptcy filing was a calculated move in its effort to conceal and cover-up its actions,” said Steve Berman, managing partner of Hagens Berman and co-lead counsel representing GM vehicle owners in the suit.

“We are pleased with the court’s decision and recognition that claims brought by millions of GM owners are not subject to GM’s bankruptcy protection and can move forward.”

One of the safety defects involves the car’s ignition, which according to consumers, can switch off while in operation, disabling airbags and other electrical and safety features such as power steering and power brakes.

(To see why Tesla is not disabling its AutoPilot feature, Click Here.)

According to published reports and government documents, GM had knowledge of the serious defect as early as 2001, but critics charge that the company ignored warnings of the defect’s severity and did not warn consumers.

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