GM waive liability shield? It can't
|Krishnan Anantharaman is a news editor for Automotive News in Detroit.|
Is it conceivable that Sen. Richard Blumenthal, who is both a lawmaker and lawyer, has only a tenuous grasp of the law?
How else to explain the Connecticut Democrat’s persistence in arguing that General Motors should waive -- as if by magic wand -- the liability shield it gained upon exiting Chapter 11 in 2009?
That shield protects today’s General Motors from being sued over accidents that occurred before July 2009. The legal theory behind that protection is that those liabilities, along with many others, rest with GM’s predecessor company, which exists in name only. GM has continued to assert this protection from lawsuits, even as it admits broader responsibility for failing to act on the faulty ignition switch for more than a decade.
But there’s more than legal theory behind GM’s stand. There’s a legal agreement in force between GM, its former creditors and the U.S. government that has been certified by the U.S. Bankruptcy Court. To undo the shield would be to undermine the entire bankruptcy agreement, which is the very reason GM exists as a going concern today.
There are lawsuits seeking to do just that, and they raise very legitimate questions about whether GM was sufficiently forthright about its potential liabilities going into bankruptcy and its subsequent initial public offering. GM will be forced to defend itself before a judge in this forum.
But Blumenthal’s insistence that GM should, or even can, unilaterally forgo the liability shield doesn’t make sense.
Neither does GM’s failure so far to properly articulate a response to Blumenthal’s line of questioning. GM General Counsel Michael Millikin, stumped as he was by many of the senators’ questions at Thursday’s congressional hearing, had ample opportunity to clarify the point when Blumenthal asked him whether he would advise his superiors to waive the shield.
Instead, like a well-coached witness for the defense, he delivered a blanket “we will not,” declining to elaborate. CEO Mary Barra, too, ducked the question rather than try to explain.
Sen. Richard Blumenthal, D-Conn., -- one of GM's toughest critics -- at Thursday's hearing on the company's delayed recalls.
Photo credit: BLOOMBERG
Such abrupt responses make GM’s executives sound especially callous, and they only feed the rhetoric from Blumenthal and others who have accused GM of “hiding behind the bankruptcy shield” to avoid responsibility.
Perhaps Blumenthal made a promise to an aggrieved constituent to press the case, even though he knows it can’t succeed. It wouldn’t be the first time, or the last, that a politician made a promise he knew he couldn’t honor.
But by failing to provide clarity on the matter, both the lawmaker and the company do a disservice to potential claimants who are wrestling with the decision on whether to seek relief through Kenneth Feinberg’s compensation fund -- which covers accidents before and after bankruptcy -- or to take their chances with a lawsuit against GM.
GM may not have done everything it can do to accept its share of responsibility. But there is no sense asking it to do things it can’t do.
You can reach Krishnan M. Anantharaman at firstname.lastname@example.org.