Earlier this year, GM issued a massive recall of nearly 1.4 million vehicles due to problems with the ignition switch. GM apparently knew about those problems — which have caused several fatalities — for up to thirteen years before issuing the recall, and reportedly also ignored piles of consumer complaints in that timeframe. Consumers’ entirely predictable lawsuits against GM have already begun, but those lawsuits are facing a big potential snag.

The issue with the lawsuits has its roots in the steep financial troubles GM faced five years ago. You may recall that GM declared bankruptcy and restructured in 2009. The federal government was heavily involved in that restructuring. And as part of that bankruptcy proceeding, the “new” GM is shielded from liability for the “old” GM.

The upshot of all the layers of legalese is this: if your 2007 GM car has a severe manufacturing defect that injures you in 2011 before finally being recalled in 2014, good luck with that lawsuit. GM is effectively protected from having to fork over damages to you, no matter how justified.

Today in a letter to Attorney General Eric Holder (full text at the bottom of this post), Connecticut Senator Richard Blumenthal urged the Justice Department to intervene.

In the letter, the Senator calls for the DoJ to take three key steps for consumers. First, to require GM to create a compensation fund for consumers affected by the defects. Second, to intervene in lawsuits to “oppose any action by GM to deny responsibility.” And third, to educate consumers that driving any of the defective cars without getting repairs is super dangerous.

Speaking with Consumerist, Blumenthal said, “There is a very powerful legal and moral responsibility on the part of the federal government to intervene here.” He added, “They enabled GM to emerge from reorganization with very extensive protections from legal responsibility for the death, injuries, and damage their defective vehicles caused.”

Calling GM’s actions “fraudulent and reprehensible concealment,” Blumenthal added that the government, during the restructuring, “encouraged and supported” GM’s actions. “So I think that there is a particularly compelling obligation for the federal government now to intervene and to require a fund” to compensate affected consumers, he said.

When asked about a potential timetable, Blumenthal stressed that he hopes the Justice Department will act “as soon as possible” to require GM to create the fund, and that their criminal investigation into the matter “should not preclude” moving immediately. “The exact amount depends on comprehensive calculation of what’s needed” to compensate consumers appropriately, he added.

Before being elected to the Senate, Blumenthal was one of eight states’ attorneys general who tried to prevent the GM bankruptcy proceedings from including the liability protections behind which GM is now hiding.

The letter reads, in full:

The Honorable Eric J. Holder, Jr.
United States Attorney General
Department of Justice
950 Pennsylvania Avenue NW
Washington, DC 20530-0001

Dear Attorney General Holder,

I write to request your immediate intervention and assistance on behalf of victims of severe damage – financial harm, physical injury, and death – resulting from serious ignition switch defects in General Motors (“GM”) cars. Without your active involvement, they may have no meaningful remedy. Given the crucial role the United States government played in creation of the current General Motors Corporation, I believe the federal government has a moral, if not legal, obligation to take all necessary steps to protect innocent consumers.

Like many Americans I was appalled and astonished by GM’s recent admission that it knew of these disabling defects and their disastrous effects well before the 2009 reorganization. Their deliberate concealment caused continuing death and damage, and it constituted a fraud on the bankruptcy court that approved its reorganization. It also criminally deceived the United States government and the public.

As a consequence of this fraudulent and reprehensible concealment, the United States Bankruptcy Court unknowingly authorized a purchase of GM’s assets by the “new GM,” which seemingly shielded this new GM from legal responsibility for these product defects or other illegality occurring prior to 2009. This shield from legal responsibility was granted – with the federal government’s support – despite vehement opposition from consumer advocates, and despite objections I raised as Attorney General of Connecticut. Indeed, I led a group of eight state attorneys general who warned that this blanket shield from all liability would prove unfair and unwise.

Tragically, these warnings have proved true – and consumer victims may now be barred from any just remedy. They have filed various state court actions, which GM has removed to federal court and asked to be transferred to the United States Bankruptcy Court, knowing that the GM reorganization there cannot be reopened under technical procedural rules and recourse will likely be blocked.

In seeking your assistance, I am greatly encouraged by your decision to initiate a federal criminal investigation into the flagrant illegality of GM’s concealment. The recent Toyota settlement further reflects your resolve in protecting consumers.

A number of steps by you and the United States Department of Justice clearly would advance the public interest, the rule of law, and rights of victims of GM’s wrongdoing.

First, I urge that DOJ require that GM establish a fund to fully compensate consumers who suffered injury, death, or damage as a result of these lethally defective vehicles. This civil remedy could be done as an interim step, even before completing your criminal investigation and prosecution.

Second, I recommend that you intervene in pending civil actions to oppose any action by GM to deny responsibility for consumer damages on grounds that those damages may have resulted from deceptive and fraudulent concealment and other misconduct by GM.

Third, either through DOJ or an appropriate federal consumer protection agency, ensure that consumers are adequately aware of the potential dangers of operating these vehicles prior to repair of the defective ignitions.

I know you share my strong feeling that innocent victims of these defective cars – whose life-changing injuries and deaths resulted from GM’s pernicious and purposeful misconduct – should be fairly compensated, and that justice should be done through appropriate criminal enforcement. As always, I appreciate your thoughtful consideration.

Sincerely,

Richard Blumenthal
United States Senator

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.