Detroit auto maker General Motors is back in bankruptcy court. Its bankruptcy lawyers are disputing claims that arose prior to the company’s 2009 bankruptcy filing.
The complaint is by car owners who suffered loss of value in their cars due to General Motors cover up of many issues with those cars.
The issues for bankruptcy lawyers to sort out is blame to be assigned. Blame may lie with post-bankruptcy GM, as it continued the cover started with old pre-bankruptcy GM.
For most consumer bankruptcy cases, we do not run into similar issues. In some cases, clients will learn of debts arising prior to the filing of a consumer bankruptcy filing after the case was filed. Generally these claims are still treated as if they were known and disclosed to the court.
However, any debts that are acquired after the bankruptcy is filed, are not treated under the bankruptcy, so consumer debtors will be liable.
An issue for GM is assigning particular blame to old-GM and new-GM and determining the extent of fault for each.
That is where the attorneys and the court will have their biggest challenge.
General Motors Co. car owners will still seek $7.5 billion for the diminished value of recalled vehicles, despite a ruling that largely freed the automaker from liability for wrongdoing before its 2009 bankruptcy.
That number was supplied by a lawyer for car owners the day after U.S. Bankruptcy Judge Robert Gerber upheld GM’s shield against claims tied to actions taken before its bailout.
The attorney, Steve Berman, said 10 million is a conservative estimate of the number of drivers still eligible to sue for about $750 each after Wednesday’s decision. The litigation stems from last year’s recall of cars for faulty ignition switches, which grew to cover GM vehicles for a number of flaws.
The owners can pursue “claims for economic loss caused by New GM’s misconduct in covering up the ignition switch defects and scores of other known defects,” plus damages, Berman said in an e-mail.
GM escaped billions more in liability because Gerber also ruled that the company can’t be sued for economic losses tied to so-called Old GM’s actions or over accidents that happened before the bailout.
“As a result of Judge Gerber’s ruling, we expect that fewer plaintiffs will be able to assert viable claims” in the court where they’re suing for economic losses, James Cain, a spokesman for Detroit-based GM, the largest U.S. automaker, said in an e-mail Thursday.
Original Suit
The original lawsuit claimed $10 billion in lost value for 27 million recalled cars, but GM persuaded Gerber to keep in place the shield from pre-bankruptcy liabilities that he approved in 2009 to help the carmaker survive.
“The problem is proving whose fault it is,” said Chip Bowles, a bankruptcy lawyer at Bingham Greenebaum Doll LLP who isn’t involved in any GM cases. “If you bought from Old GM, it’s partly Old GM’s fault that your car lost value.”
