THE GM RECALL
GM judge says concealing switch fault would have been fraud
NEW YORK (Bloomberg)-- General Motors Co. customers who sued the automaker over fallen car prices might have a stronger case if they could prove company executives defrauded the court about a faulty ignition switch when testifying during its 2009 bankruptcy, a judge said.
If then-CEO Fritz Henderson “knew about the switch problem and intended to keep it from me, that might constitute fraud on the court,” said U.S. Bankruptcy Judge Robert Gerber at a hearing today.
Such deception would be a worse offense than the one customers’ lawyers propose to fight on, which is that GM didn’t give the car owners a say in court during the company’s restructuring, the judge said.
The stakes are high for how the case proceeds.
Customers injured in cars tied to the initial 2.59 million vehicles recalled for switch repairs might be paid about $3 billion, a Barclays analyst estimated in March. By contrast, one lawyer with a car-price suit has demanded as much as $10 billion for car owners with almost unsaleable Cobalts and Ions.
In the same Manhattan court where the U.S. financed the automaker’s turnaround in 2009, Gerber today met with lawyers bringing about 90 lawsuits on behalf of GM customers. Gerber’s task is to decide whether to allow them to continue with cases that he’s stopped until at least September, or to bar the largest claims.
Gerber didn’t accuse anyone of deliberately deceiving him about defective switches that spurred an initial recall of 2.59 million cars. He said he was offering a “hypothesis” to illustrate how customers might win the right to demand damages from GM for economic losses on their recalled cars, even though he freed the company from such liability five years ago.
Lawyers for the car owners say Gerber’s 2009 ruling should be voided because GM knew about the defect and didn’t tell customers at the time of the bankruptcy. GM spokesman Greg Martin said an internal probe by outside lawyer Anton Valukas found that none of the most-senior executives knew about the faulty switch.
In the 2009 reorganization, Gerber freed GM from most liabilities tied to its bankrupt predecessor’s cars, leaving intact only some warranty obligations and responsibility for post-2009 accidents. Property damages on old GM cars, and any punitive damages related to them, were disavowed by new GM with Gerber’s approval.
GM has said that the U.S. Treasury’s price for saving the company was that it leave behind as many liabilities as possible.
Gerber said today he eventually wanted to hear arguments on whether ignition-switch claims should be paid by old GM or new GM. As recently as 2012, Gerber told some customers to take their warranty claims to the predecessor rather than the wealthier new company created in the U.S. bailout.
The old GM has little left after five years of paying creditors by selling assets that the reorganized GM didn’t want.
As of March 31, the old firm had $1.1 billion on hand to pay existing claims of $32 billion, it has reported.
Contact Automotive News