Issues related to the recall of millions of General Motors’ cars are now being addressed in Bankruptcy Court as all sides await guidance from veteran Judge Robert Gerber.

On May 2, Gerber urged the sides to work toward a settlement when it comes to “economic loss” on the value of the cars – due to defective ignition systems – to avoid a “monstrous battle,” according to The Wall Street Journal.

“Frankly, it would be great if whatever money is available for injured people could go to them, and not to litigation costs and attorneys’ fees,” Gerber told lawyers representing both GM and the plaintiffs in his New York City courtroom.

It appears attorneys want to continue litigation before negotiating. The issues in Bankruptcy Court are separate from accident claims in other cases. There were 13 deaths linked to the defective ignition system, and some 2.6 million cars were recalled.

Gerber wants to see deadlines for filing briefs, and for the case to move forward quickly.

Gerber, a former partner at Fried, Frank, Harris, Shriver & Jacobson, is no stranger to major bankruptcy cases. He presided over the GM Chapter 11 bankruptcy case in 2009, as well as the bankruptcy of Adelphia Communications Corporation, Ames Department Stores and LyondellBasell.

Among the lawyers representing GM at Bankruptcy Court are Richard Godfrey, a senior litigation partner at Kirkland & Ellis, and Arthur Steinberg, who is a partner at King & Spalding. The plaintiffs are being represented in Bankruptcy Court by Edward Weisfelner of Brown Rudnick; Sander Esserman of Stutzman, Bromberg, Esserman & Plifka; and Elihu Inselbuch of Caplin & Drysdale.

GM wants Gerber to affirm a “bankruptcy shield” and does not want to pay for economic loss to cars because of the recall. GM will “pay for accidents that occurred after the bankruptcy but which involved cars made before the bankruptcy,” according to Reuters. There could be both constitutional and fraud issues brought before the bankruptcy court, as the case continues. The plaintiffs may try to argue there was deliberate fraud and concealment of information by GM when it appeared in bankruptcy court in 2009. In addition, plaintiffs’ lawyers may argue their clients were not given “procedural due process” in connection with the ignition system defects.

On Friday, Weisfelner said that GM car owners “weren’t given due process. …In that case, should the sale order [which created the bankruptcy shield] apply to them?” The Journal reported.

Among the latest news on the GM ignition system recall, there was a report that GM may be coming up with a plan to compensate accident victims no matter when an accident took place – before or after the GM bankruptcy. That was told to The Journal by Robert Hilliard, who is an attorney working with the plaintiffs against GM. Hilliard met on Friday with Kenneth Feinberg, a well-known compensation specialist, now being used by GM.

The news, if true, is important because GM was divided into Old GM, which now has little in the way of assets, and New GM, which includes the current company. New GM may be protected from liabilities that took place before the bankruptcy.

In a statement released to InsideCounsel on Sunday, GM spokesman Greg Martin said, “The company has taken responsibility for its actions and will continue to do so amid civil and legal obligations as it relates to injuries involving recalled vehicles.”

“We will take as long as we need to get it right,” he added in the statement.

Martin declined to offer any comments on Feinberg’s plans. “It is inappropriate for us to comment until Mr. Feinberg’s work is complete,” Martin said.

Also, it appears that accident-related cases in California and Texas were delayed by federal judges for the time being as the bankruptcy proceeding takes place.

Meanwhile, there is a separate national multidistrict litigation panel hearing scheduled for May 29 that will address where to combine the approximate 59 lawsuits against GM, according to InsideCounsel. It appears that meeting will go forward – and not be delayed by Gerber.

Meanwhile, The New York Times reported that David A. Skeel, a professor at the University Of Pennsylvania School Of Law, speculates the motion before Gerber could become very important. “In a way, it’s we’re redoing the bankruptcy. It’s quite possible this trial could be a larger event than the real bankruptcy,” Skeel told The Times.

Looking ahead, Gerber’s ruling – once it is released – could end up being appealed to the U.S. Supreme Court by the losing side, The Times reported.


Further reading:

Bankruptcy court may play a key role in GM class-action lawsuits

GM, plaintiffs turn to courts to help in ignition system lawsuits

New motions filed in GM class action over ignition system