General Motors wanted to hide behind its 2009 bankruptcy sale to block claims of billions of dollars following the automaker’s ignition switch scandal, but a federal appeals court said otherwise.
GM’s defect ignition switch has been linked to 124 deaths and hundreds of injuries and sparked a huge crisis for the automaker after it admitted it had ordered the recall at least a decade later. The company called back 2.6 million vehicles in 2014 and it has already paid about 2 billion dollars in settlements and penalties, including a 900-million-dollar fine to resolve a US criminal investigation, in connection with the scandal. However, it still faces hundreds of lawsuits, with total claims being estimated somewhere between 7 and 10 billion dollars.
GM hoped to escape such a financial burden on the back of its 2009 bankruptcy proceedings. Its bankruptcy created a new corporate entity – “New GM” – to contain the company’s valuable assets while leaving behind most of its burdensome liabilities with “Old GM.” Last year, a judge who oversaw that process said “New GM” was shielded from liability over “Old GM”’s pre-bankruptcy actions.
But the 2nd US Circuit Court of Appeals in Manhattan ruled this week that barring plaintiffs’ claims over crashes and lost vehicle value because of the defect would violate their constitutional rights to due process. “While the desire to move through bankruptcy as expeditiously as possible was laudable, Old GMʹs precarious situation and the need for speed did not obviate basic constitutional principles,” the court said. “Due process applies even in a company’s moment of crisis.”