General Motors escapes some claims from 2014 recalls

[July 16, 2016]  By Jessica Dye

NEW YORK (Reuters) - A U.S. judge on Friday dismissed some claims brought against General Motors by customers seeking compensation for a drop in vehicle resale values after a rash of safety recalls in 2014, including one for a faulty ignition switch.

U.S. District Judge Jesse Furman in Manhattan federal court dismissed racketeering and some state-law claims, as well as claims from customers whose vehicles were not allegedly defective when sold.

Plaintiffs' pursuit of damages based purely on perceived harm to GM's brand following more than 70 recalls in 2014 was "unprecedented and unsound," Furman wrote.

Recognizing the so-called "brand devaluation theory" would open the door to a flood of claims by consumers who bought any product from a manufacturer subsequently hit by a scandal or found to have produced an unrelated defective product, he said.

Furman said he would allow plaintiffs to pursue damages involving out-of-pocket costs connected to the recalls, however. He also said some plaintiffs could pursue damages for the difference between what they paid for the vehicles and what they would have been worth without the alleged defect.

Plaintiffs’ lawyers said they were seeking as much as $10 billion in damages in the proposed class actions. Those cases were consolidated before Furman, who also oversees injury and death cases brought over crashes blamed on an ignition switch that prompted the recall of 2.6 million vehicles in 2014.

GM spokesman Jim Cain said that the company would continue to defend the remaining claims. "The court made it clear the plaintiffs overreached in many aspects of their complaint, and the ruling significantly curtails the scope of their potential recovery," he said.

A lead lawyer for plaintiffs, Steve Berman, said they planned to appeal Friday's ruling. The GM recalls were "unprecedented, and the law should be able to react to this," he said.

But even with the dismissals, claims on behalf of millions of other GM owners would continue, he said.

The GM logo is seen at the General Motors Lansing Grand River Assembly Plant in Lansing, Michigan October 26, 2015. Photo taken October 26. REUTERS/Rebecca Cook

The company has paid $2 billion in criminal and civil penalties and settlements over the switch, which can slip out of place and cut power to air bags, steering and brake systems. The part has been linked to 124 deaths and 275 injuries. GM has admitted that some employees knew about the issue for more than a decade before a recall was ordered.

Friday's decision followed a ruling from a federal appeals court on Wednesday that said the terms of GM's 2009 bankruptcy did not protect it from economic-loss lawsuits over the ignition switch.

Because the appeals court's ruling affected claims brought over vehicles made by pre-bankruptcy "Old GM," Furman said Friday's ruling was limited to vehicles made by post-bankruptcy "New GM."

"Thus, while it is a significant step" in the litigation, "much remains to be done," Furman added.

The parties are scheduled to discuss the next steps in a hearing scheduled for July 28.

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