GM Report by Longtime Counsel a Mixed Bag for Auto Giant

GM Report by Longtime Counsel a Mixed Bag for Auto Giant Photo by Diego Radzischi

For General Motors, the mounting legal problems that began with a suit brought by a four-lawyer firm in Marietta, Ga., took a new turn Thursday, when two Am Law 100 firms with close ties to the company issued their verdict on what caused GM’s current recall crisis.

In a 315-page investigative report filed with the National Highway Traffic Safety Administration, GM’s lawyers from Jenner & Block and King & Spalding detail a “pattern of incompetence and neglect” at the automaker, but found no widespread conspiracy among top executives to cover up an ignition switch defect that has been linked to 13 deaths and sparked the recall of 2.6 million vehicles.

The report—the product of an internal inquiry led by Jenner chairman Anton “Tony” Valukas—specifically cleared CEO Mary Barra of any wrongdoing related to GM’s efforts to uncover and address the mechanical flaw, according to sibling publication The National Law Journal.

Barra, recently named one of Time’s 100 Most Influential People and set to earn $14.4 million in compensation this year after becoming the first woman to move into GM’s top leadership role in January, said publicly that the report’s findings implicated a “disproportionate number” of senior executives. She also announced that 15 employees have left the company as a result of what the Valukas-led team uncovered.

While Barra didn’t name the individuals in question, various news reports soon identified several of those affected. Among them is William Kemp Jr., a longtime GM in-house lawyer who had led the company’s safety and recall unit. Kemp’s name has surfaced in connection with internal GM emails pointing to ignition switch problems with the company’s Pontiac G5 and Chevrolet Cobalt models. (The Cobalt has been Google’s preferred vehicle for its Streetview cameras. The Internet search giant is now developing its own self-driving cars.)

Kemp, who works out of a GM’s engineering and technical center in the Detroit suburb of Warren, Mich., did not respond to a request for comment. In the early 1990s, he helped lead a robust GM response to a flawed Dateline NBC News report about the allegedly explosive nature of the automaker’s “sidesaddle” fuel tanks. The network later settled a suit filed by company over that report. (Bloomberg noted Kemp’s role in the Dateline drama in a story last month about GM’s efforts to overhaul its in-house legal department to avoid further recall delays.)

As noted in a series of stories over the past two months by sibling publication Corporate Counsel, GM’s general counsel Michael Millikin has been at the heart of the recent recall crisis, which has increased scrutiny on the company’s in-house legal operations.

Corporate Counsel reported Thursday that Millikin’s name is conspicuously absent as an author of the massive report filed with NHTSA. Only Valukas, who served as the top federal prosecutor in Chicago from 1985 to 1989, is listed on the document’s title page. While the absence of Millikin’s name is notable given that GM said previously he would lead the inquiry alongside Valukas, a GM spokesman told Corporate Counsel that the report was prepared independently by the Valukas-led team.

Millikin, a 65-year-old Michigan native and former federal narcotics prosecutor who spent more than 30 years at GM before becoming its in-house legal chief in 2009, has appeared with Barra as she endured congressional grillings over the past few months. He did not respond to a request for comment about how much GM is paying Jenner and King & Spalding for their work on the matter or why they were picked to handle the investigation.

Such internal investigations—for embattled companies, nonprofits, politicians or labor unions—have become a lucrative source of revenue for large firms in recent years. In 2010 Valukas, hired the year before as a court-appointed examiner in the massive Lehman Brothers bankruptcy case, released a 2,200-page report detailing what caused the financial services giant to implode. (Jenner reaped $58 million in fees and expenses for its work in the Lehman matter.)

In the GM report released Thursday, the company’s lawyers state that their investigation “covered a time period of more than [15] years, involved hundreds of witness interviews and the review of millions of documents. Throughout the entire investigation, GM provided unfettered access and cooperation.”

The report describes Jenner’s role as being focused on “the knowledge of specific senior executives, as well as GM’s board.” The firm, which notes that its investigation focused solely on the ignition switch and not other recalls, also did not seek to “reconstruct accidents or determine which injuries or fatalities were or were not caused by the safety defect in the Cobalt and other cars.”

Jenner identified more than 300 document custodians and then subjected their files to a “document production process and an investigative process” that resulted in two different levels of review to “identify documents potentially responsive to government requests.” (GM is currently coping with at least four different federal investigations.)

The report states that than 230 witnesses were interviewed over a period of 70 days by at least two Jenner attorneys. The only exceptions were former GM in-house legal chiefs Robert Osborne, who is currently of counsel with Jenner in Washington, D.C., and his predecessor Thomas Gottschalk, now of counsel with Kirkland & Ellis in the same city. The two former GCs were interviewed by an unidentified outside firm.

It is unclear whether that firm was King & Spalding, which, according to the GM report, was retained to “assist in responding to requests from government agencies.” King & Spalding lawyers also assisted in searches for documents and conducted “first-level” document review, as well as participated in a “limited number” of witness interviews in the “initial phase of the investigation.”

A King & Spalding spokesman and Jenner spokeswoman both referred requests for comment to GM, whose spokesman Greg Martin told The Am Law Daily in an email that the company had “nothing additional to provide” beyond the report itself.

Besides its ties to Osborne, a former cochair of the corporate department at Jenner, the Chicago-based Am Law 100 firm has enjoyed a longtime relationship with GM. The firm received roughly $23 million for its role advising the company five years ago during its 40-day stint in Chapter 11 and subsequent initial public offering that raised $23.1 billion in late 2010. (Joseph Gromacki, who joined Jenner from Kirkland in 2003 and now chairs the firm’s corporate practice, was named an American Lawyer Dealmaker of the Year in 2011 for his GM work.)

Asked about the firm’s current work for GM, newly elected Jenner managing partner Terry Truax told The Am Law Daily earlier this year that “we’re very proud to represent GM, and the GM in-house community is looking to Valukas to give an unvarnished report.”

The NLJ reported Thursday that several plaintiffs lawyers suing GM—some of whom have banded together to take on the automaker—have assailed the Valukas report as a whitewash by conflicted counsel. “Let’s not lose sight of the fact that GM commissioned and paid for the report, and its primary author is an attorney who represents GM,” said a statement by Steve Berman, a founding partner of Seattle-based plaintiffs firm Hagens Berman Sobol Shapiro. “I see this as nothing more than a cynical attempt at masking the truth, at the expense of GM owners.”

King & Spalding also did some bankruptcy work for GM and has long handled product liability litigation for the company, including incidents over faulty fuel tanks and ignition switches.

GM hired former Kaye Scholer partner Kenneth Feinberg in April to advise on a compensation fund for recall victims. Feinberg, now a founder and name partner of Washington, D.C.’s Feinberg Rozen, will be now tasked with administering a compensation fund to dole out payments to potential victims of GM’s ignition switch failure. The company has said it is preparing for more recalls, and as such the automaker has added to its recall-related payroll.

Earlier this week, The NLJ reported the the company hired Holland & Knight to lobby on “oversight and legislation pertaining to [the] automobile recall.”

Holland & Knight partners Richard Gold, the head of the firm’s public policy and regulation practice, and Paul Bock, who heads its government section group, are leading a team working on the matter for the auto giant, according to records on file with the U.S. Senate. GM has paid outside and in-house lobbyists nearly $3 million through the first quarter of this year.

Besides seeking to make inroads on Capitol Hill, GM, which has had its defenders as it seeks to weather the recall storm, now must also rebuild its relationships with customers and some business partners.

A lawyer with a large firm in Michigan with close ties to the auto industry, who sought anonymity in order to speak freely, says the company sought last year to issue new terms and conditions for auto parts suppliers that would increase the suppliers’ potential exposure to future recall costs.

After a supplier “revolt,” GM withdrew its proposed modifications to contracts with companies that provide the company with the necessary parts to make its myriad vehicles in February, says the lawyer, who notes that suppliers still share some liability for future recalls, though not under the stiffer terms GM sought to push through last year.

Perhaps not surprisingly, Reuters reported in May on a survey of “tier 1” auto parts suppliers finding that GM was the worst OEM—or original equipment manufacturer, an acronym used to identify Detroit’s big automakers—to have as a customer. GM earned earned the dubious distinction by beating out Chrysler, which Reuters reports had held the title since 2008.

Chrysler—which like GM emerged from government-backed bankruptcy proceedings five years ago—is currently the subject of its own NHTSA investigation related to a 2012 recall prompted by faulty air bags in its Jeep sport utility vehicles.

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