It has been widely reported that the Second Circuit Court of Appeals struck down bankruptcy decisions that shielded General Motors from liability related to ignition switch defects. The Second Circuit in its decision said the 2009 sale of the automakers’ assets that was said to provide the company with legal cover violated potential victims’ rights to due process. The court reversed parts of a 2015 ruling by U.S. Bankruptcy Judge Robert Gerber who found that the sale order could be used to enjoin claims related to the ignition switch defect. The appellate decision examines the limits to which the new GM entity that was formed upon the completion of the bankruptcy sale is shielded by “free and clear” provisions in Chapter 11.
GM did not reveal the ignition switch issue during the bankruptcy – even though the company was well aware of it – and the company began recalling cars because of the defect in February 2014. The Second Circuit said the timing of the disclosure by GM effectively denied Plaintiffs the right to weigh in on the sale and therefore, the Plaintiffs cannot be bound by the provisions of the sale order that shield the company from litigation. The court’s opinion reads further:
Opportunities to negotiate are difficult if not impossible to recreate. We do not know what would have happened in 2009 if counsel representing plaintiffs with billions of dollars in claims had sat across the table from Old GM, New GM, and Treasury. Our lack of confidence, however, is not imputed on plaintiffs denied notice but instead bolsters a conclusion that enforcing the Sale Order would violate procedural due process. Indeed, for the following reasons, while we cannot say with any certainty that the outcome would have been different, we can say that the business circumstances at the time were such that plaintiffs could have had some negotiating leverage, and the opportunity to participate in the proceedings would have been meaningful.
The second circuit also ruled that the 2009 sale order does not cover so-called independent claims arising from misrepresentations by the new GM entity (referred to in the litigation as “New GM”) of vehicles made prior to the Chapter 11 sale. Similarly, the Second Circuit said the bankruptcy order does not halt claims based on the lost economic value of GM vehicles due to various defects.
This is a major victory for millions of GM vehicle owners who now have valid claims arising from the defects. As a result of the appellate decision, claims brought by millions of GM owners are not subject to GM’s bankruptcy protection and now can move forward. This decision didn’t come as a big surprise. The three-judge panel who heard the appeal on behalf of the Second Circuit in April expressed reservations about the 2009 bankruptcy sale and how it could be used to shield GM from liability.
Those seeking to hold New GM liable include people injured in accidents and representatives of people killed prior to the bankruptcy sale, as well as those seeking to hold New GM liable for economic losses tied to the defects.
This decision is great news for GM’s victims. Our firm – along with Lance Cooper’s firm – had been monitoring the situation. We were watching for the court to rule. Collectively, our firms represent a large number of persons who are affected by the decision. If you need more information on the effect of this development, contact Cole Portis, who is the lead lawyer on the GM Litigation for our firm, at 800-898-2034 or by email Cole.Portis@beasleyallen.com.
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