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 Judge Robert Gerber, of the U.S. Bankruptcy Court in Manhattan, said
he would welcome the prospect of a resolution that avoided a
"monstrous battle."
"Frankly, it would be great if whatever money is available for
injured people could go to them, and not to litigation costs and
attorneys' fees," Gerber said at a court conference with GM and the
plaintiffs.
Gerber ended up deferring the idea after both sides said they would
rather let the dispute play out a bit before they arrive at the
bargaining table.
Gerber is the same judge who in 2009 oversaw GM's whirlwind Chapter
11 bankruptcy case. Now facing dozens of lawsuits over a faulty
ignition switch that has led to the recall of some 2.6 million
vehicles, GM is asking Gerber to enforce the so-called bankruptcy
shield, in a pre-emptive move aimed at staving off dozens of
lawsuits from customers who say they took a financial hit from the
recall.
Under the plan approved by Gerber, GM channeled its burdensome
liabilities into a shell known as "Old GM," while selling its
profitable assets to "New GM," a separate corporate entity that took
GM out of bankruptcy and now operates as General Motors Co.
Accident victims are not involved in the dispute before Gerber,
which concerns only claims for loss of car value.
The new entity agreed to take on certain of Old GM's legal
liabilities, including those for accidents that occurred after the
bankruptcy but which involved cars made before the bankruptcy.
But New GM says it did not agree to take on liability for so-called
economic loss claims like the ones it now faces, in which plaintiffs
allege that their cars lost value due to the recall. The company
wants Gerber to endorse that position and declare that such lawsuits
can only be brought against the Old GM shell.
Gerber said he wanted the case to move quickly, and called on the
parties to agree on deadlines for filing briefs. "You can take the
weekend off," he told lawyers, but added that he expected a
timetable early next week.
GM has come under heavy criticism for not catching sooner the
defective ignition switch, which had been studied by engineers in
the company as early as 2001 but was not recalled until the initial
action in February this year. The defective switch has been linked
to 13 deaths.
[to top of second column] |
A CONSTITUTIONAL ISSUE?
Plaintiffs allege that they could not have known about the defect
because GM purposely concealed it from the bankruptcy court. That
allegation could lead down several legal paths. Intentional
concealment could constitute fraud on the bankruptcy court, and GM
wants Gerber to rule no fraud was committed.
The plaintiffs would rather frame the issue as a constitutional one:
they believe any concealment constitutes a violation of due process
rights, because the liability shield, they argue, would bind people
who could not have known they had claims against GM at the time the
shield was imposed. They say they should therefore be able to
circumvent the shield and sue New GM.
Gerber said he would prefer to hear constitutional and other issues
first because they require less discovery, but agreed to hear the
fraud issue provided parties can present it without a long and
burdensome discovery process. If not, he said, the issue may be
deferred until later in the case.
Arthur Steinberg, a lawyer for GM, said he agreed that settlement
talks could be productive eventually, but wanted to wait for
recommendations from attorney Kenneth Feinberg, hired by GM to
explore legal options for compensating victims of accidents stemming
from the switch defect.
"We'd like to see what Mr. Feinberg will or won't do," Steinberg
said. "Let's see where the legal issues lie."
Feinberg, the architect of high-profile compensation funds like the
September 11 Victim Compensation Fund, is considering among other
things whether GM should fund a trust for accident victims, but he
could also address - and reach conclusions - on other legal matters.
Ed Weisfelner, representing some of the plaintiffs, was also
hesitant to embrace settlement talks right away, citing disruption
to Feinberg's study as well as the ongoing investigations into the
switch defect by regulators and federal officials.
(Editing by Howard Goller and Matthew Lewis)
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