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From Products Liability Law Daily, September 17, 2015

GM agrees to pay $900 million as part of deferred settlement over defective ignition switches

By Susan Lasser, J.D.

General Motors Company (GM) has agreed to pay a $900 million penalty as part of a settlement agreement with the U.S. Attorney's Office for the Southern District of New York over charges that the automaker concealed its potentially deadly ignition switch defect from its regulator, the National Highway Traffic Safety Administration (NHTSA), and, in the process, misled consumers concerning the safety of its vehicles, according to press releases by the Department of Justice and GM. The financial penalty is part of a deferred prosecution agreement that also includes independent monitoring of the company for three years (General Motors Company—Deferred Prosecution Agreement, September 16, 2015; GM Reaches Agreement with U.S. Attorney’s Office, September 17, 2015; U.S. Attorney of the Southern District of New York Announces Criminal Charges Against General Motors and Deferred Prosecution Agreement with $900 Million Forfeiture, September 17, 2015).

Counts One and Two. U.S. government officials announced both the filing of criminal charges against GM and the deferred prosecution agreement between GM and the U.S. Attorney's Office. The information filed by U.S. Attorney Preet Bharara charges that GM schemed to conceal material facts from a government regulator in violation of 18 U.S.C. Sections 2 and 1001, and that the company committed wire fraud in violation of 18 U.S.C. Sections 2 and 1343. According to the information, between the spring of 2012 and February of 2014, GM, through its agents and employees, concealed a potentially deadly safety defect from NHTSA and the public. The defect related to an ignition switch that had been designed and manufactured with too-low torque (ignition switch defect or defective switch). GM knew by no later than 2005 of the defective switch and that it was prone to too-easy movement from the “Run” to the “Accessory” or “Off” position. Further, the information alleges that GM personnel knew no later than the spring of 2012 that when that movement occurred, a driver would lose not only the assistance of power steering and power brakes, but also the protection of the vehicle's frontal airbags in the event of a crash. Rather than remedying the defective switch when the consequences of the defect became apparent in 2005, GM continued to sell and manufacture new cars equipped with the defective switch.

In addition, the information asserts that in spite of the public being made aware of the defective switch, GM affirmatively assured consumers in 2005 that the switch presented no “safety” problem. Then, when it was determined that the defect could cause vehicle airbags not to deploy—which was clear by the spring of 2012—GM did not correct its prior assurances that the defective switch posed no “safety” concern, nor did it recall the affected vehicles. Rather, it concealed the defect from NHTSA and the public. GM did not recall the affected vehicles until February 2014.

Count Two of the information alleges that GM committed wire fraud between the spring of 2012 and spring of 2013; GM dealerships continued to sell GM-certified pre-owned Chevrolet, Pontiac, and Saturn brand vehicles equipped with the defective switch. Moreover, to promote the sale of these vehicles and give customers assurance about the safety of the cars in GM's certified, pre-owned program, the automaker made representations by means of interstate wires—i.e., over the Internet—falsely assuring customers of the safety of the used cars being purchased. In particular, GM certified that used vehicles sold under the program had been checked for safety of their ignition systems and keys, when, in fact and as GM knew, cars equipped with the defective switch posed a potentially deadly safety threat related to the cars' ignition switches and keys. Further, in addition to making the false misrepresentations, the information alleged that as part of GM's certified pre-owned program, the company generally failed to disclose that the cars with the defective switch presented a safety defect when it had a duty to disclose this fact.

Affected vehicles. The models equipped with the defective switch were the 2005, 2006 and 2007 Chevrolet Cobalt; the 2005, 2006 and 2007 Pontiac G5; the 2003, 2004, 2005, 2006 and 2007 Saturn Ion; the 2006 and 2007 Chevrolet HHR; the 2007 Saturn Sky; and the 2006 and 2007 Pontiac Solstice, according to the DOJ press release. To date, GM has acknowledged a total of 15 deaths, as well as a number of serious injuries, caused by the defective switch.

Deferred prosecution agreement. Under the deferred prosecution agreement reached between GM and government officials, GM admits that it failed to disclose a safety defect to NHTSA and that it misled U.S. consumers about that same defect. The admissions are contained in a detailed statement of facts attached to the agreement. The agreement also imposes on GM an independent monitor to review and assess policies, practices and procedures relating to GM’s safety-related public statements, sharing of engineering data and recall processes. Finally, the agreement further requires GM to transfer $900 million to the United States by no later than Sept. 24, 2015, and agree to the forfeiture of those funds pursuant to a parallel civil action.

The announcement of the agreement was made by a number of government agencies. In addition to U.S. Attorney Bharara, Attorney General Loretta E. Lynch, Secretary Anthony Foxx of the Department of Transportation, Administrator Mark R. Rosekind of NHTSA, Inspector General Calvin L. Scovel III of the U.S. Department of Transportation (DOT-OIG), Special Inspector General Christy Goldsmith Romero of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), and Assistant Director in charge Diego Rodriguez of the FBI’s New York Field Office took part.

Attorney General Lynch said, “Every consumer has the right to expect that car manufacturers are taking their safety seriously,” and that the DOJ “is committed to ensuring that the products Americans buy are safe; that consumers are protected from harm; and that auto companies follow the law.” Also, Secretary Foxx asserted that the announcement “sends a message to manufacturers: deception and delay are unacceptable, and the price for engaging in such behavior is high.” Inspector General Scovel III offered his deepest sympathies to “the families and friends of those who died and to those who were injured as a result of crashes related to GM’s defective ignition switches,” and Special Inspector General Goldsmith Romero said, “SIGTARP commends U.S. Attorney Bharara for bringing these charges and standing united in the fight against TARP-related crime.” U.S. Attorney Bharara praised the investigative work of SIGTARP, DOT-OIG, NHTSA and the FBI.

GM CEO Mary Barra said, “The mistakes that led to the ignition switch recall should never have happened. We have apologized and we do so again today.”

The case is No. 1:15-cv-07342

Attorneys: Preet Bharara, United States Attorney for the Southern District of New York for the U.S.A.

Companies: General Motors Co.

MainStory: TopStory MotorVehiclesNews DamagesNews DesignManufacturingNews MotorEquipmentNews

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