GM Gets Another Gift From Bankruptcy: Not Liable for Crashes It Caused After 2009

In the early 2000s, General Motors knew it had a problem.  For some reason, customers reported their vehicles stalled out when the electrical system suddenly went dead, turning off the engine, power steering, and even disengaging the airbags.  A few people had died.

Engineers within the company knew the issue; a faulty ignition switch could deactivate if the key had pressure on it, such as from a heavy key ring.  But GM didn’t tell anyone.

The company went through a psuedo-bankruptcy funded by the U.S. government, had it’s debts wiped clean and its gold-plated UAW pensions fully funded.  The new GM kept all the good assets, and left all the bad stuff with the “old GM.”

When the truth about the ignition switches, and GM’s knowledge, finally came out, a judge told the plaintiffs that that they couldn’t sue for any accidents that happened after the bankruptcy.  According to his logic, the old liabilities stayed with the old company.

The problem is that internal documents show GM was aware of the issue when it went through bankruptcy, even though the ignition switch issue isn’t listed among possible liabilities.

Those involved in later accidents have sued, but once again a federal appeals court has found in GM’s favor. 

The 2nd U.S. Circuit Court of Appeals in Manhattan said on Tuesday that the automaker did not agree to contractually assume liability for punitive damages as part of its federally-backed Chapter 11 reorganization.

Tuesday’s 3-0 decision may help GM reduce its ultimate exposure in nationwide litigation over defective ignition switches in several Chevrolet, Pontiac and Saturn models.

The ignition switch defect could cause engine stalls and keep airbags from deploying, and has been linked to 124 deaths.

Circuit Judge Dennis Jacobs said GM’s agreement to acquire assets “free and clear” of most liabilities excused it from punitive damages claims for Old GM’s conduct.

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