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From Products Liability Law Daily, May 1, 2015

Ignition switch defect claimants plan to use MDL to challenge New GM’s bankruptcy shield

By Pamela C. Maloney, J.D.

Vehicle owners seeking recovery of an estimated $7 to $10 billion in damages against General Motors LLC allegedly caused by ignition switch defects intend to challenge in the multidistrict litigation court a New York bankruptcy court’s ruling barring claims against New GM based on its status as the successor to Old GM, according to a joint letter delivered to the court (In re: General Motors LLC Ignition Switch Litigation, Joint letter, April 29, 2015).

Background. In his April 15, 2015 order, Judge Robert Gerber of the U.S. Bankruptcy Court for the Southern District of New York barred claims brought by the vehicle owners in the multidistrict litigation involving ignition switch defects in GM vehicles seeking damages for purely economic losses, such as the diminution of value of their vehicles (Economic Loss Plaintiffs), as well as those brought by plaintiffs who bought their vehicles and who had been in accidents before the creation of post-bankruptcy New GM (Pre-Closing Accident Plaintiffs). However, the court allowed the Economic Loss Plaintiffs to pursue claims against New GM based solely on New GM’s independent post-bankruptcy sale acts and not on any acts by Old GM and to file late claims; but refused to modify Old GM’s reorganization plan or to allow the plaintiffs to tap the assets of a Trust set up to compensate Old GM creditors (see Products Liability Law Daily’s April 16, 2015 analysis).

Effect of bankruptcy ruling on MDL. The MDL directed that parties meet and confer over the question of how the MDL court should proceed in light of Judge Gerber’s decision barring successor liability claims against the New GM. The parties prepared the joint letter setting forth their positions in response to that order.

Vehicle owners’ position. The vehicle owners posited that the bankruptcy judge’s decision violated due process in failing to provide sufficient notice and opportunity to be heard and further argued that appeal to the U.S. Court of Appeals for the Second Circuit might not be appropriate or consistent with federal law. In addition to the due process challenge, the vehicle owners stated that they plan to challenge the bankruptcy court’s finding that their arguments were no different from those raised in 2009 pre-sale bankruptcy. According to the vehicle owners, the sale from Old GM to New GM represented a bad-faith, inequitable, and potentially collusive effort by a seller and buyer to prevent disclosure of known safety defects and to avoid their correction. As a result of this effort and the lack of notice and opportunity to be heard, the vehicle owners were prevented from raising specific objections to the “free and clear” provisions of the 2009 bankruptcy order and to carve-out exceptions for victims of the ignition switch defect. In addition, the sale from Old GM to New GM could have been conditioned upon a timely recall campaign directed at correcting the defect and preventing further injuries.

Despite what the vehicle owners called an inappropriate factual record because the underlying facts surrounding the ignition switch defect were not discussed or subjected to discovery, Judge Gerber’s order made it clear that no set of previously unknown facts would have changed the result of the 2009 free and clear sale order. As a result, the vehicle owners argued that appeal of Judge Gerber’s order to the Second Circuit would be inefficient because the MDL, which was charged with discovery, had superior knowledge of the facts and the claims as they were developing before the MDL, rendering it uniquely qualified to rule on which claims could proceed notwithstanding the sale order.

The vehicle owners also informed the MDL that it was planning a number of amendments to the existing consolidated complaints, including direct liability claims based solely on New GM conduct as to Old GM vehicles and parts. The vehicle owners made it clear that unless and until Judge Gerber’s decision was overruled, they had no intention of attempting to litigate successor liability issues against New GM, but would only pursue claims arising solely from New GM’s own independent violations of law. The vehicle owners argued that, contrary to NEW GM’s position, Judge Gerber’s opinion was clear that claims against New GM based on its own post-sale misconduct were actionable.

New GM’s position. It was New GM’s position that any claims against it based on successor liability or Old GM’s conduct were barred under the sale order and bankruptcy court injunction and that Judge Gerber’s order should direct immediate dismissal of those claims with prejudice. New GM further stated that the claims which were supposedly based on New GM’s own conduct were, in fact, claims relying on Old GM’s conduct, and, as such, should be dismissed as well. New GM also suggested that the vehicle owners’ arguments were presented at the wrong time and in the wrong place. The request that their successor liability claims be stayed, not dismissed, should be made to the bankruptcy court in the first instance and then appealed to the Second Circuit. The only question before the MDL was the effect of the Judge Gerber’s decision on the consolidated complaint and that effect, New GM argued, was that the bankruptcy court should direct the plaintiffs to dismiss the complaint as its very existence violated the sale order and injunction.

The case is No. 14-MD-2543 (JMF)

Attorneys: Cassandra P. Miller (Edelman, Combs, Latturner & Goodwin LLC), Elaine T Byszewski (Hagens Berman Sobol Shapiro LLP), and Major A. Langer (Perona, Langer, Beck & Lallande) for plaintiffs. Steve W. Berman (Hagens Berman Sobol Shapiro LLP), Elizabeth J. Cabraser (Lieff Cabraser Heimann & Bernstein, LLP), and Robert C. Hilliard (Hilliard Muñoz Gonzales LLP) for General Motors LLC.

Companies: General Motors LLC.

MainStory: TopStory MotorVehiclesNews NewYorkNews

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