The same process that allowed a bankrupt General Motors to work its way back (with the help of several billion dollars from taxpayers) to being a viable business is, six years later, helping to shield the company from potentially billions of dollars in damages from class action fraud lawsuits involving the long-ignored ignition defect that claimed the lives of at least 84 people.

As we’ve mentioned before, as part of GM’s 2009 bankruptcy restructuring, the “New GM” that resulted was absolved of most of the liabilities of “Old GM.”

The particular question before the court was whether GM would have to answer ignition-related allegations of fraud, like the $10 billion class action for brand damage.

Central to this issue is the recall timeline. GM didn’t issue a recall for the affected vehicles until 2014, but the defective ignition switches — which could be turned off by the driver bumping a knee into the switch or from the weight of a heavy keychain — had been quietly redesigned before the bankruptcy restructuring. No cars made after the bankruptcy included the defective switches.

The plaintiffs in the lawsuits against GM contend that because some executives at the carmaker knew about the problem for years without issuing a recall, that an alleged cover-up continued into the New GM era.

GM disagreed, arguing that there was no cover-up and that the cars and defective parts were both sold by Old GM. The company maintains that as soon as senior management learned of the problem, the company began the recall process.

And today a federal bankruptcy court judge sided with the carmaker.

In a statement, GM said that the judge “properly concluded that claims based on Old GM’s conduct are barred.”

The court did allow that ignition-related lawsuits could be brought against New GM, but they would have be based solely on post-bankruptcy actions of the carmaker.

“This ruling padlocks the courthouse doors,” one of the attorneys suing GM said in a statement. “Hundreds of victims and their families will go to bed tonight forever deprived of justice. GM, bathing in billions may now turn its back on the dead and injured, worry free.”

Through its own victim compensation fund, GM is paying out an estimated $400 million to victims and their loved ones. As of the latest report from GM, the car company has acknowledged and made payment offers for 84 death and 157 serious injury claims. If a claimant accepts the payment offer from GM, they give up their right to pursue the company in court for the same incident.

[via CNN Money]
[via WSJ]

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