Now it's GM's Turn in the Cross Hairs

Now it's GM's Turn in the Cross Hairs Photo: Diego M. Radzinschi / NLJ U.S. Attorney General Eric Holder, Jr.

In announcing a $1.2 billion settlement with Toyota Motor Corp. last week, Attorney General Eric Holder Jr. took the opportunity to warn other automakers against the consequences of failing to report defects that lead to recalls.

“Other car companies should not repeat Toyota’s mistake,” Holder said. “A recall may damage a company’s reputation, but deceiving your customers makes that damage far more ­lasting.”

His target audience couldn’t be clearer. The Justice Depart­ment has launched a criminal investigation of General Motors Co. involving a series of recalls over ignition-switch defects. The legal case against GM differs in important ways from Toyota — most notably involving an exemption from civil liability for incidents predating GM’s 2009 bankruptcy.”There will be tons of cases filed,” said plaintiffs attorney Steve Berman, who filed a class action against GM on March 19. He spearheaded a $1.6 billion class action settlement with Toyota over lost vehicle values in 2012. “But I think it’ll be less, because people have to think through the bankruptcy problems.”

In its deferred-prosecution agreement, announced on March 19, Toyota admitted to misleading the National Highway Traffic Safety Administration (NHTSA) and Congress regarding its knowledge of defects associated with floor mats and sticky gas pedals — the subjects of two recalls in 2009 and 2010. It was the largest criminal penalty imposed on a car company in U.S. history.

“Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us,” Christopher Reynolds, chief legal officer of Toyota Motor North America Inc., said in a prepared statement.

Since February, GM has recalled more than 1.6 million vehicles worldwide for defective ignition switches that might cause engines to stall and prevent air bags from deploying in crashes. The defects have been linked to at least a dozen deaths. On March 17, it announced three fresh recalls affecting another 1.5 million vehicles. In addition to the Justice Department probe, two congressional committees are examining the recalls.

“Something went wrong with our process in this instance and terrible things happened,” GM chief executive officer Mary Barra acknowledged in a March 17 video address. But lawsuits filed against the company claim GM knew about the problems a decade ago.

“General Motors has some big-time problems here, without a doubt,” said Jere Beasley, founding shareholder at Beasley, Allen, Crow, Methvin, Portis & Miles, whose firm plans wrongful death suits against GM. Last year, the Montgomery, Ala., firm obtained a landmark $3 million verdict in a lawsuit against Toyota involving a fatal crash. “It’s going to be very similar to Toyota. It’s a different defect, obviously, but the same mindset as far as how they deal with the government — cover up and don’t report, and try to get away with what you can.”

Since March 14, at least five class actions have targeted GM on behalf of consumers who claim they wouldn’t have purchased or leased their vehicles had they known of the defects. They claim lost vehicle value, warranty breaches and other damages under various state consumer fraud statutes. Berman said the “parallels are striking” with Toyota. “They’re both cases of long periods,” he said, referring to each company’s knowledge of the defects. “There are deaths and injuries associated with both of these problems.”


But there also are stark ­differences. So far, suits against GM have been limited to class actions filed on behalf of consumers, as opposed to those by people injured or killed in car crashes. Suits against Toyota alleged that defects in its electronic throttle systems — not floor mats or accelerator pedals, as the company claimed — caused sudden acceleration. Even in its deal with the Justice Department, Toyota made no admissions as to electronics defects. Of GM, Berman said, lawyers might be thinking: ” ‘They did a recall, there’s nothing to do. There’s no issue.’ That’s one reason you’ve not seen a bunch of lawsuits.”

There’s a bigger obstacle: GM is immune from liability for legal claims predating its bankruptcy.

“So if an incident occurred before the date when they were discharged from bankruptcy, they’re protected, they’re immunized,” said Larry Coben, a shareholder at Philadelphia’s Anapol Schwartz who headed an ad hoc committee of plaintiffs with injury claims against GM during its bankruptcy. “Those were discharged, if you will, according to bankruptcy law.”

In addition to the injury suits,there are “big questions” about whether consumer class claims are exempt from immunity, he said, but plaintiffs lawyers are attempting to argue around the point. Berman, for instance, said his case, which also cites GM’s failure to report defects under the Transportation Recall Enhancement, Accountability and Documentation Act, falls outside the ban. “What we’re alleging is that both old and new GM had a duty to comply with all reporting obligations to NHTSA,” he said.

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