GM Ignition Switch Recall: GM Cannot Be Sued For Faulty Cars Sold Before 2009 Bankruptcy, Judge Rules

A U.S. bankruptcy judge said Wednesday that General Motors Co. will not have to face all the lawsuits that accuse the company of not revealing a defect with the ignition switch that caused the recall of 2.6 million vehicles last year. The defect has caused over 200 deaths and serious injuries, reports said.

The ruling -- which was a blow to plaintiffs in about 140 class-action lawsuits -- says that the company cannot be sued for losses on the recalled cars before its 2009 bankruptcy. Plaintiffs' lawyers had argued that their clients did not get an opportunity to counter the 2009 bankruptcy order because GM did not disclose enough about defective ignition switches. The faulty switches have been held accountable for 84 deaths, Forbes reported.

“Victims still can sue GM for its actions after the bankruptcy, including allegations that the company continued to cover up what it knew about the switches or didn’t recall cars it knew were defective,” Erik Gordon, a law professor at the University of Michigan’s business school told Bloomberg.

The Detroit company had asked U.S. Bankruptcy Judge Robert Gerber to throw out lawsuits claiming $10 billion in lost vehicle value for a total of 27 million recalled cars, invoking the bankruptcy shield he approved in 2009 to help the company survive, Bloomberg reported. The plaintiffs will now have to file their cases against the “Old GM,” which had the bad assets that the carmaker shed during bankruptcy.

“Judge Gerber properly concluded that claims based on Old GM’s conduct are barred,” GM said in a statement, according to the Washington Times.

The Old GM’s main assets were worth $9.25 billion against $32 billion in claims as of October, which would lead to a recovery of about 29 cents on the dollar for trust creditors, Reuters reported. Gerber clarified that the plaintiffs can file lawsuits against the New GM, but these would only apply to the company’s post-bankruptcy conduct.

"My task, obviously confined by the limits of law, is to do what’s fair and right," Gerber said Wednesday, according to Bloomberg. However, he added that by June 2009, "Old GM had enough knowledge of the ignition switch defect to be required” to release recall notices.

Bob Hilliard, one of the lawyers leading the suits, said, according to Bloomberg: “Hundreds of victims and their families will go to bed tonight forever deprived of justice.”

Steve Berman, the managing partner of Hagens Berman and co-lead counsel representing plaintiffs in nationwide litigation against GM, said in a statement: “We are pleased that Judge Gerber will allow claims to proceed against New GM if misconduct by New GM was involved in this series of massive recalls. We believe that New GM’s misconduct was in fact present in the sale of millions of defective vehicles – a truth that we believe New GM knew and chose to conceal."

“We will appeal Judge Gerber’s ruling that claims versus New GM for Old GM’s misconduct are barred. It cannot be the law that Old GM could hide the defects, and subsequently use the bankruptcy court as a shield. As Judge Gerber agreed, due process required that Old GM give notice to owners of cars with defects, and consumers did not get notice,” Berman added.