The ruling by the 2nd U.S. Circuit Court of Appeals is likely to open the gates to more lawsuits arising out of its faulty ignition switch.
A federal appeals court has ruled in General Motor’s case that its filing of bankruptcy in 2009 does not shield it from lawsuits over its ignition switch defect which led to criminal charges against the company and prompted the recall of 2.6 million of its vehicles in 2014.
As per the 2nd U.S. Circuit Court of Appeals in Manhattan, barring plaintiffs from suing General Motors for crashes and lost vehicles stemming from the faulty defective switch could violate their constitutional right of due process.
This significant ruling essentially rebuffs GM’s attempts to block further lawsuits from customers over its faulty ignition switches and other vehicles components on the grounds that they were automatically barred by the fact of its filing bankruptcy in 2009 and the current company has a different corporate identity.
“Due process applies even in a company’s moment of crisis,” reads a portion of the court’s ruling.
According to lawyers for the plaintiffs, the 2nd Circuit’s ruling materially impacts those who have been injured or those who have died as a result of the faulty components, said Rovert Hilliard, one of the lawyers of the plaintiffs.
According to plaintiff’s lawyers, the ruling will impact claims from customers who say their vehicles have lost value as a result of the ignition switch.
According to Steve Berman, a lead lawyer for plaintiffs who are pursuing economic losses, millions of customers claims are likely to move forward as a result of the ruling.
“The appeals court’s ruling today solidifies something 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 Berman in a statement.
According to James Cain, a spokesman for General Motor, the decision of the court does not address the merits of the underlying claims, thus providing scope for further litigations.
“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,” said Cain in a statement.
A federal judge who is overseeing the consolidated litigation is currently weighing GM’s motion to dismiss these economic-loss related cases.
The appeal in the 2nd Circuit stemmed from a 2015 verdict from the judge who oversaw GM’s 2009 bankruptcy case, which saw the creation of a “New GM” which left behind most of its burdensome liabilities with the “Old GM” while carrying forward its valuable assets.
Despite shielding the New GM from the old GM’s liabilities, U.S. Bankruptcy Judge Robert Gerber, still allowed “independent” claims based solely on New GM’s conduct to proceed.
However many lawyers have argued that the New GM should not be protected since it purposefully concealed the knowledge of the defective switch for more than a decade before its 2014 recall.
“Old GM – if reasonably diligent – surely should have known about the defect,” wrote the judge of the 2nd Circuit.
The issue with the switch was that it would slip out of place and thus cause sudden engine shutdowns and disable safety features, including the opening of air bags.
The company has admitted that a few employees were in the know of the defective switch problem for more than a decade before the 2014 recall. GM has already paid $2 billion in criminal and civil penalties. In addition it has also shelled out $900 in settlements over this issue to resolve a U.S. criminal investigation into its handling of the defect.
According to a compensation fund set up for claims over the ignition switch issue, the defect has been linked to 124 deaths and 275 injuries.
Significantly, earlier this year in April, in a regulatory GM had noted that an adverse decision by the appeals court “could have a substantial impact on the potential liability of GM for acts or conduct of General Motors Corporation and what claims plaintiffs may pursue against GM in the multidistrict litigation and other courts.”
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