GM avoids some ignition switch liability

DETROIT -- General Motors avoided a potentially disastrous dismantling of its pre-bankruptcy liability shield last week, but it hasn't fully escaped the possibility of having to pay out billions of dollars.

GM could still be liable if plaintiffs' lawyers can show that new GM picked up right where old GM left off in mishandling faulty ignition switches.

Bankruptcy judge Robert Gerber, while admitting his 2009 order letting new GM avoid liability for old GM's actions was "overly broad," concluded that he couldn't tear up the deal now. That means lawsuits over crashes that happened before GM emerged from Chapter 11 reorganization in July 2009 can't proceed unless they can overturn the new ruling on appeal.

At the same time, Gerber all but invited the plaintiffs who say their cars have lost value to forge ahead, saying they could base cases on misdeeds by new GM as long as their arguments "do not in any way rely on any acts or conduct by old GM."

"He left that open and said it pretty explicitly in the opinion," said Carl Tobias, a law professor at the University of Richmond who has followed the GM case closely. Those economic-loss cases "don't amount to much for a particular individual," Tobias said, "but there are millions of individuals who can claim, so that could be a fair amount of exposure."

The ruling essentially blocks cases brought by crash victims and families who already had an opportunity to sue before GM's bankruptcy, while leaving a path -- however challenging -- for the millions of consumers who didn't know their vehicle had a problem until last year's recall. Gerber said the economic-loss plaintiffs were denied due process by the bankruptcy but that a do-over "would simply replace hardship to the Plaintiffs with hardship to others," referring to the known creditors who already received just pennies on the dollar.

In effect, the ruling was a large victory for GM and a setback to the plaintiffs, though it's unclear how severe. The plaintiffs' lawyers had previously estimated GM's potential liabilities at $7 billion to $10 billion if Gerber had granted their request.

"As a result of the ruling, we expect that there will be fewer plaintiffs with eligible claims," said a GM spokesman, Jim Cain.

Safety advocate Ralph Nader, on his blog, called the decision "a great disservice to justice." Steve Berman, one of the lead lawyers in class-action litigation against GM, said he would appeal but also plans to pursue the path Gerber laid out against new GM.

"We believe that new GM's misconduct was in fact present in the sale of millions of defective vehicles -- a truth that we believe new GM knew and chose to conceal," Berman said in a statement.

Crash victims and their families had the opportunity to apply for compensation from GM regardless of whether their accident happened before bankruptcy. GM's victim compensation fund, administered by lawyer Kenneth Feinberg, had approved 84 death claims and 157 injury claims as of last week, with 1,136 claims still under review.