GM Bankruptcy Judge May Rescind Liability Shield

After securing an important court victory in January, General Motors is on the precipice of a potentially devastating loss as the federal bankruptcy judge that approved the maker’s plan is rethinking the company’s liability shield. U.S. Bankruptcy Judge Robert Gerber heard arguments about whether or not GM can keep the shield, which blocks victims of the company’s faulty ignition switches from suing the automaker, which exited bankruptcy in 2009.

Essentially, since the defective parts were on vehicles manufactured prior the bankruptcy, the "new" GM can claim it is not liable for those vehicles. However, the shield can be revoked in some cases, including if it can be proven that GM executives knew about the problem when it was putting together it’s plans in 2009.

The possible lifting of the shield would allow millions of vehicle owners to file suit against the automaker for injuries and deaths related to the faulty switches as well as to recoup financial losses due to the falling value of those vehicles.

GM’s attempted to head off many of the former by creating a $600 million compensation fund for the victims and their families. Currently, the fund’s administrator, Kenneth Feinberg, has approved death benefits for 56 people and injury benefits for 87 more. By agreeing to the benefit payout, those people sign away their right to sue GM.

In January, GM scored a major court victory as a New York federal judge ruled that plaintiffs suing the automaker for compensation due to faulty ignition switch couldn’t access critical documents from the law firm handling GM’s internal investigation. Prior to the ruling, GM denied plaintiffs lawyers access to the notes taken by Jenner & Block LLP during the automaker’s internal investigation into its ignition switch defect.

U.S. District Judge Jesse Furman’s decision concluded that plaintiffs could not view the interview materials involved in Jenner & Block LLP’s internal investigation of the automaker. Those notes were the basis of what is now called the Valukas Report. Anton Valukas, a former federal prosecutor, oversaw the investigation. The notes included interviews with hundreds of witnesses, including current and former GM employees and its outside counsel. Furman ruled the materials were protected by attorney-client privilege and not public records, as the plaintiffs claimed.

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