General Motors Co. unveiled its plan to compensate victims of its ignition-switch defect last week, as a federal bankruptcy judge put off arguments over whether the automaker committed a fraud on the court by concealing the problem during its 2009 reorganization.
U.S. District Bankruptcy Judge Robert Gerber in New York said on July 2 that it would be premature to consider any fraud claims, and that he hoped to hit “the sweet spot between fairness and getting to the right result.”
Two days earlier in Washington, claims attorney Kenneth Feinberg released the details of GM’s plans to compensate people injured or the families of those killed in accidents caused by the defects.. Lawyers representing those victims were quick to complain that the program fell short.
“I think Mr. Feinberg has made a very sincere effort here in trying to come up with what he considers to be an appropriate plan, but it’s limited by what GM is letting him do,” said Lance Cooper, founding partner of The Cooper Firm in Marietta, Ga. “It’s going to be reasonable for some cases and, in others, victims and clients will want to have their day in court.”
For one thing, the plan is limited to the 2.6 million cars recalled in three batches beginning in February over the ignition-switch defect, but the automaker has issued additional rounds of recalls involving some 12 million vehicles since then. The plan, while a “good start,” needs to parallel the scope of the recalls over ignition problems, said Elizabeth Cabraser, a partner at San Francisco’s Lieff Cabraser Heimann & Bernstein.
“I realize there have been serial recalls, and there may be some catching up to do,” she said. “But it is involving the same key-system defect, and so it just makes sense to us that the program would include those. And that may be a matter of discussion with GM.”
The plan excludes accidents in which airbags deployed. During a June 18 congressional hearing, several officeholders raised concerns that limiting the plan to crashes in which airbags failed would reduce GM’s liability; the defect, by shutting down engines, could disable other features, such as power steering.
Plaintiffs attorneys agreed. “For GM to eliminate all those crashes where an airbag may have deployed is likely leaving out families from the plan who should be part of the plan,” Cooper said.
Robert Hilliard, a partner at Hilliard Muñoz Gonzales in Corpus Christi who represents a number of victims who settled claims before learning of the defect, noted that the plan offsets the amount of their earlier recoveries. For a client who already got $1.5 million, for example, the plan might not be worth it.
Anyone who accepts a payout must waive all legal claims against GM. Plaintiffs lawyers, many of whom unsuccessfully pushed for punitive damages to be part of the plan, said clients in some states might pursue those claims in court.
But consumers involved in accidents that predated GM’s 2009 bankruptcy face an uphill battle, attorneys said. Although those victims could recover from Feinberg, GM has moved to bar any such claims in bankruptcy court.
Also in the bankruptcy, Gerber is weighing whether to hold GM liable for economic losses its customers suffered when their cars were recalled. He asked the parties to submit briefs regarding whether the customers were denied due process by the approval of GM’s bankruptcy, and regarding possible remedies. He set the next hearing for Aug. 5.
Arthur Steinberg, a partner at King & Spalding who represents GM, said that “everything flows from the procedural due-process issue” and that if GM prevailed on that score, any additional issues would become moot.