(Bloomberg) -- A federal appeals court upended General Motors Co.’s plan to shed hundreds of customer lawsuits over ignition switch defects, ruling that such litigation was not automatically barred by the company’s 2009 bankruptcy sale to a new corporate entity.
The deal that turned “Old GM” into “New GM” to save the storied company from financial ruin doesn’t prevent pre-sale lawsuits over the deadly switch or claims by people who bought used GM cars, the appeals court in Manhattan said Wednesday. Those customers didn’t have a chance to challenge the transaction before it was approved by the U.S. Bankruptcy Court in New York seven years ago, the court said.
“New GM essentially asks that we reward debtors who conceal claims against potential creditors. We decline to do so,” the appeals court said in its ruling. “Due process applies even in a companys moment of crisis.”
The decision is a setback for GM after the company won two straight victories in test trials over the ignition switch defect in millions of vehicles. The Detroit-based company also settled two other test cases before they reached a jury, including a case that would have included emotional testimony about the death of a father of five.
|Egregious claims
“Even if some claims are ultimately allowed to proceed, the plaintiffs must still prove their cases,” Jim Cain, a spokesman for GM said in a statement.
The revived lawsuits include some of the most egregious claims against the carmaker, said Robert Hilliard, a lawyer representing hundreds of GM customers including at least 300 whose cases are affected by the ruling.
“Finally they’ll have a chance at justice,” Hilliard said in a phone interview.
In its ruling, the appeals court also assailed GM’s handling of the ignition switch defect from the moment it was first discovered, giving a detailed outline of the company’s failure to fix the problem and attempts to keep it from the public.
“At minimum, Old GM knew about moving stalls and airbag nondeployments in certain models, and should have revealed those facts in bankruptcy,” the court said.
While GM has said top executives didn’t know the switch was a persistent problem, the company admitted in a Justice Department settlement that it knew about the defect by 2005 and concealed it from regulators between 2012 and 2014.
The case is In re Motors Liquidation Co., 15-2844, U.S. Court of Appeals for the Second Circuit (Manhattan).
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