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From Products Liability Law Daily, November 30, 2015

Crime-fraud exception did not apply to GM in ignition switch MDL

By John W. Scanlan, J.D.

General Motors could not be compelled under the crime-fraud exception to the attorney-client privilege and the work product privilege to disclose in multidistrict litigation over the ignition switch defect controversy certain documents relating to its counsel’s evaluation of and advice to settle three cases involving vehicle crashes and the ignition switch, the U.S. District Court for the Southern District of New York ruled. Although there was probable cause to believe GM had committed a crime or fraud, the documents at issue had not been shown to have been made with the intent to further a crime or fraud (In re: General Motors LLC Ignition Switch Litigation, November 25, 2015, Furman, J.).

Background. In 2010 and in 2011, King & Spaulding LLP, a law firm that has represented General Motors LLC (New GM), prepared case evaluations for two separate cases involving potential lawsuits arising from two crashes in which the airbags did not deploy. These evaluations described the crash and applicable law and proffered a recommendation for settlement. These cases were settled without litigation with confidential settlements. It prepared a similar evaluation in 2012 for a third crash that appeared to involve an ignition switch in the accessory position. This third case proceeded to litigation in Georgia state court. The plaintiffs in that case sought discovery relating to any crashes or complaints connected to a public Information Service Bulletin (ISB) issued by Old GM in 2005, which addressed ignition switch problems. New GM produced certain documents related to the ignition switch but stated that it found no responsive documents related to incidents with an identified connection to the ISB or regarding any lawsuits or matters not involving lawsuits alleging death, injury, or property damage resulting from the alleged defect. After the plaintiffs in that suit moved to compel production of documents and a hearing was held, GM ran additional searches and produced additional responsive documents.

The parties in the third suit moved for discovery sanction but settled in September 2013 before the court held a hearing or ruled upon this motion. In early 2014, GM notified NHTSA about the ignition switch defect and airbag non-deployment. GM admitted that it failed to notify the agency under federal law of the defect within five business days and agreed to pay a $35 million civil penalty. In 2015, New GM consented as part of a deferred prosecution agreement (DPA) with the U.S. Attorney’s Office in the Southern District of New York to the filing of an information charging it with scheming to conceal material facts from a government regulator and with wire fraud; GM agreed to be bound by a detailed statement of facts regarding its handling of the ignition switch defect.

Plaintiffs in multidistrict litigation against GM involving this defect moved to compel GM and King & Spaulding to produce, or at least to allow in camera review of, several categories of presumptively privileged documents, arguing that GM should be required to disclose them under the crime-fraud exception. They asserted that New GM was engaged in a systematic effort by the settlement of litigation to continue to conceal the ignition switch defect from vehicle owners and from regulators, and that the settlement of these three matters involved the use of attorney communications and work product to prevent the disclosure of the defect. They further asserted that New GM and King & Spaulding committed litigation fraud in the third proceeding and that King & Spaulding attorneys violated rules of professional conduct when they failed to withdraw their representation when they learned that GM was concealing a safety defect.

Concealment of defect. Although the court found probable cause to believe that New GM had engaged in a scheme to conceal a deadly defect from NHTSA and committed wire fraud while doing so, there was no factual basis for the plaintiffs’ argument that the communications and work product they sought were made with the intent to further a crime or fraud. The documents upon which they rely appeared to be only good-faith attorney evaluations of whether to settle individual cases. While the confidential settlements may have contributed to the delay in notifying the public and NHTSA about the ignition switch defect, there was no evidence that New GM’s intent to settle the three cases was to conceal the defect rather than the result of weighing the costs and benefits of litigating the cases and possible outcomes.

Litigation misconduct. Furthermore, there was no indication that GM’s initial responses to the requests for documents in the third case—which were “less than forthcoming,” the court found—were the result of intentional misconduct rather than a good faith but mistaken belief that GM and King & Spaulding had complied with their discovery obligations. The court observed that GM supplemented its responses with thousands of pages of additional documents, and the present plaintiffs did not allege that production was fraudulent or incomplete. There also was no evidence that GM had concealed documents from GM’s supplier of the ignition switch that confirmed evidence of a change in the switch that was implemented in the 2009 Chevrolet Cobalt. The record may support a conclusion that GM construed “relevance” too narrowly and, thus, withheld documents and materials that should have been turned over to the plaintiffs in the third case, but this was possibly overly aggressive litigation tactics, not a crime or fraud, and should be addressed by possible sanctions in the relevant case.

Professional ethics. Finally, the court determined that the plaintiffs’ argument that the King & Spaulding attorneys had violated their professional responsibilities was a reframed version of their other two arguments. Even if their conduct had constituted an ethical violation, the attorneys rather than the client should be punished, and disclosure of the documents and materials was not the sole remedy for such a violation.

The case Nos. are 14-MD-2543 (JMF) and 14-MC-2543 (JMF).

Attorneys: Elizabeth J. Cabraser (Lieff, Cabraser, Heimann & Bernstein LLP), Robert Hilliard (Hilliard Munoz Gonzales LLP), and Steve W. Berman (Hagens Berman Sobol Shapiro LLP) for GM Ignition Switch MDL Plaintiffs. Andrew Baker Bloomer (Kirkland & Ellis LLP) for GM Ignition Switch MDL Defendants.

Companies: General Motors LLC

MainStory: TopStory EvidentiaryNews MotorVehiclesNews NewYorkNews

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