General Motors has petitioned the U.S. Supreme Court to overturn an appellate court’s ruling that the company’s 2009 bankruptcy does not shield it from lawsuits associated with the company’s ignition switch scandal. The ignition scandal allegedly led to 124 deaths and 275 injuries according to most recent reports.
In a July 2016 ruling by the 2nd U.S. Circuit Court of Appeals in New York, General Motors was found liable for ignition lawsuits surrounding incidents related to the defective ignition situation prior to the company’s July 2009 emergence from bankruptcy reorganization. GM’s lawyers argue in their petition that this ruling, if left standing, would undermine a key component to the company’s 2009 bankruptcy reorganization.
“In short, this case presents exceptionally important questions, and the Second Circuit’s answers were exceptionally wrong,” GM’s lawyers said in the petition. “The Court should grant review.”
When General Motors Corporation went into bankruptcy under chapter 11 of the U.S. Bankruptcy Code, the court allowed the company to divide its assets and liabilities into two organizations. The first organization was the corpse of “Old GM” which included the majority of the company’s vast debt load, many liabilities and excess assets. The second company was “New GM,” a new company formed from debtor in possession (DIP) financing provided by the U.S. Treasury, Canadian and Ontario governments.
As part of the ruling, New GM (the GM filing the petition now) was “free and clear” of most product tort cases on incidents that occurred prior to the forming of the new company. While New GM did opt to retain some liabilities associated with the old company–such as vehicle warranties and employee pensions–this type of “free and clear” clause is common in corporate bankruptcy filings.
This is also the element that the 2nd Circuit overruled, granting folks the ability to file suit against New GM for incidents that occurred prior to July 2009. The three judge 2nd Circuit panel ruled that barring potential plaintiffs from being able to file suits against New GM violated their constitutional rights as they were not notified of the defect prior to the company’s bankruptcy.
New GM has already paid nearly $2 billion in claims and fines associated with the defective ignition situation, in which it acknowledges employees were aware of the defect. GM ultimately recalled 2.6 million vehicles in 2014 to replace the ignition switches that could slip causing the engine to stall or shut off without warning.
The July ruling originates from a 2015 challenge regarding New GM’s liabilities associated with the old company. In that case the same judge who ruled in the company’s original bankruptcy, Judge Robert Gerber, ruled the company was protected from liabilities associated with the old.