The U.S. Supreme Court cleared the way for potentially billions of dollars in legal claims against General Motors Co. (IW 500/6) over a deadly ignition-switch defect, turning away the company’s appeal in a clash connected to its 2009 bankruptcy sale.
The justices, without comment, left intact a federal appeals court ruling that said the accord, which turned “Old GM” into “New GM,” didn’t block lawsuits over accidents that happened before the sale or claims that the flaw caused vehicles to lose value.
The ignition flaw has been linked to at least 124 deaths and led to 2.59 million vehicle recalls. Plaintiffs’ lawyers have estimated that claims against the company may total as much as $10 billion.
The company pointed to a federal bankruptcy law provision that lets a purchaser acquire a debtor’s assets “free and clear” of any liability.
The appeals court said the provision doesn’t shield GM, because the company knew about the flaw before the bankruptcy and should have directly notified each affected customer. Barring the suits would violate the Constitution’s due process clause, the court said.
“New GM essentially asks that we reward debtors who conceal claims against potential creditors,” the appeals court said.
The July 2016 ruling also revived suits by post-sale car buyers who say they wouldn’t have made the purchase had they known about the switch flaw.
In its appeal, GM argued the ruling “will undermine a crucial aspect of one of the biggest and most important bankruptcies in history.”
The plaintiffs say GM moved too slowly to recall vehicles in which jostled keys could trigger a shut-off and disable steering, brakes and airbags. While GM has said top executives didn’t know the ignition switch was a persistent problem, the company admitted in a Justice Department settlement that it knew about the defect by 2005 and concealed it from regulators from 2012 to 2014.
By Greg Stohr