GM Ignition Switch Claims Resurrected By 2nd Circ. - Law360

BREAKING: GM Ignition Switch Claims Resurrected By 2nd Circ. - Law360

By Jonathan Randles

Law360, New York (July 13, 2016, 12:55 PM ET) -- The Second Circuit on Wednesday struck down bankruptcy decisions that shielded General Motors from liability related to ignition switch defects, saying a 2009 sale of the automakers’ assets that provided the company with legal cover violated potential victims’ rights to due process. The appeal is In Re: Motors Liquidation Company, case numbers 15-2844, 15-2847and 15-2848, in the U.S. Court of Appeals for the Second Circuit.

The federal appeals court reversed parts of a 2015 ruling by U.S. Bankruptcy Judge Robert Gerber in finding that the sale order could be used to enjoin claims related to the ignition switch defect. The decision examines the limits to which the new GM entity that was formed upon the completion of the bankruptcy sale is shielded by “free and clear” provisions in Chapter 11.

GM did not reveal the ignition switch issue during the bankruptcy; the company began recalling cars because of the defect in February 2014. The timing of the disclosure by GM effectively denied plaintiffs the right to weigh in on the sale and therefore they cannot be bound by the provisions of the sale order that shield the company from litigation, the Second Circuit said.

“Opportunities to negotiate are difficult if not impossible to recreate. We do not know what would have happened in 2009 if counsel representing plaintiffs with billions of dollars in claims had sat across the table from Old GM, New GM, and Treasury,” the Second Circuit said. “Our lack of confidence, however, is not imputed on plaintiffs denied notice but instead bolsters a conclusion that enforcing the Sale Order would violate procedural due process.”

“Indeed, for the following reasons, while we cannot say with any certainty that the outcome would have been different, we can say that the business circumstances at the time were such that plaintiffs could have had some negotiating leverage, and the opportunity to participate in the proceedings would have been meaningful,” the appeals court continued.