Here’s a story that sounds very 2017 for you: General Motors is set to fight General Motors in court. To the untrained eye, that may seem strange, but the scenario is a byproduct of the automaker’s bankruptcy nearly a decade ago, and GM’s deadly ignition switch scandal that later followed, leaving almost 125 people dead. Here’s why GM is looking in the mirror.
As part of the automaker’s bankruptcy, the “Old GM” General Unsecured Creditors Trust was created to handle claims filed against GM as part of its restructuring. The trust is what’s known as the so-called Old GM.
Attorneys representing ignition switch plaintiffs said late last week that New GM—that is, the spring chicken that came to life thanks to the U.S. government bailing it out—is on the hook for $1 billion to settle additional claims from deadly ignition switches.
In case you need a refresher, GM recalled about 2.6 million vehicles in 2014 over faulty ignition switches that could slip out of the run position, cut the engine and electrical power, and potentially prevent airbags from deploying. GM knew about the problem for more than a decade, reacted slow to address the issue, and, in the end, a total of 124 deaths have been linked to the switches.
To seek penance, GM paid more than $2 billion, including $900 million to settle criminal charges, to settle claims from federal prosecutors, shareholders, and consumers, according to the Wall Street Journal.
Now, attorneys for Old GM have signed off on a complicated plan that has New GM crying foul. A settlement for additional ignition switch claims announced on Friday would require the trust to pay $15 million from its own assets—but also calls for New GM to pay $1 billion in stock to settle the score.
The settlement is expected to be signed as early as tomorrow, but New GM could complicate matters, because it says the arrangement is a “contrived scheme” that “won’t work.”
“We will aggressively protect our rights and our shareholders, and will work to hold the GUC Trust and plaintiffs accountable for their bad faith and improper actions,” GM said in a statement to Bloomberg on Friday.
That sounds a bit callous, given we’re talking about claims for people who died because of GM’s own incompetence. But the automaker believes the trust has overstepped its boundaries, as it was designed to handle this exact kind of case.
‘What GM Bargained For’
That’s the thing: Attorneys for plaintiffs in the settlement say New GM actually isn’t insulated from the trust, as the automaker seems to argue. The reason? $35 billion.
Here’s how Bloomberg explains it:
Under the accord, which requires a judge’s approval, the trust will pay plaintiffs $15 million and accept $10 billion in previously disputed claims, thus pushing total approved claims in the case beyond a critical threshold of $35 billion, [attorney Steve] Berman said. That would then trigger a provision of the 2009 sale that would force GM to contribute $1 billion in stock to help pay the claims, he said.
Berman is an attorney involved in the settlement discussions, according to the WSJ, and he said the trust’s agreement here doesn’t violate the terms of GM’s bankruptcy.
“This is what GM bargained for” as part of the 2009 bankruptcy sale, when it “got away from all these liabilities,” Berman told Blooomberg. “It’s working exactly the way it’s supposed to work.”
Berman told Reuters that the proposed settlement would resolve about 11.9 million economic loss claims, as well as roughly 400-500 personal injury and wrongful death claims; another 2.4 million claims involving vehicles sold post-bankruptcy would remain active.
The Legal Shield
When the scandal emerged in 2014, GM attempted to claim that its bankruptcy shielded the automaker from liabilities like deadly ignition switches.
Initially, a federal court agreed that it could rely on the bankruptcy to dodge lawsuits over the defect, but a federal appeals court last year overturned the case, saying GM failed to provided consumers proper notice of the defect by failing to reveal it for so many years, according to the WSJ. The U.S. Supreme Court later declined to hear GM’s appeal of that decision.
Here’s more from WSJ:
GM waived the legal shield for ignition-switch victims seeking money from a compensation fund the auto maker established that eventually paid out about $600 million. But other claimants have continued to go after the auto maker, leading to the latest legal battle.
And that latest legal battle, essentially, pits GM against itself. How quaint.
Expectedly, the Old GM attorneys didn’t offer any comment to news outlets on Friday, and maybe that’s because they’re looking to see how the judge responds to the proposal this week.
Berman told WSJ he wants to put a signed settlement before a judge as early as tomorrow.