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Court Finds Bankruptcy Protects GM for Class Claims Regarding Faulty Ignitions

Declaring bankruptcy can have a number of advantages for some companies. It doesn’t necessarily mean the end of the company, but it can be the beginning of a transition into another company, even if it continues in the same business.

For example, General Motors (G.M.) declared bankruptcy in 2009. It’s still doing business, but the company that made cars prior to the bankruptcy agreement is known as “Old G.M.”, while the company currently making cars is known as “New G.M.” It may not seem like much of a difference, and to many people it’s not, but at least in terms of liability, it can make all the difference in the world.

G.M. has been accused of including a faulty ignition switch in some of its vehicles. According to a recent class action consumer lawsuit, G.M. continued to make and sell vehicles with the faulty switch, despite knowing it was dangerous to consumers. G.M. allegedly later replaced the faulty switch, but failed to tell anyone about the switch or warn consumers that the faulty switch could cause problems. The faulty ignition switch has allegedly been linked to at least 84 deaths.

Attorneys for the plaintiffs argued before the court that the bankruptcy agreement should not protect G.M. from liability because G.M. did not allow the plaintiffs due process in the bankruptcy proceedings. Due process arguably would have included the automaker informing customers of either the bankruptcy proceedings or whether they might have potential claims against G.M., which the company allegedly failed to do.

Nevertheless, federal Judge Robert E. Gerber of the United States Bankruptcy Court in Manhattan recently ruled that the 2009 agreement that lifted G.M. from bankruptcy included a liability shield that Judge Gerber has determined will remain in place. This means G.M. is not responsible for any defects or malfunctions in vehicles sold prior to the bankruptcy agreement on July 10, 2009. The Class will likely appeal this ruling so it isn’t the final word yet.

This blocks most of the switch-related lawsuits against the car manufacturer, although all lawsuits involving vehicles after the bankruptcy agreement are being allowed to continue in the courts.

Many plaintiffs who have lost friends and family members as a result of the faulty switch are devastated by the news, but this is far from the last word. The plaintiffs attorneys have said they are going to appeal the decision, and even if they lose the appeal, there are other options.

Kenneth R. Feinberg, an attorney and victim compensation expert, has set up a fund through which plaintiffs can seek monetary compensation from G.M. outside the courts. Using Feinberg’s formula, family members have been receiving more than $1 million for each death. So far, 84 family members of victims who have died have chosen to use this fund.

The biggest difference between the fund and a court-ordered award is the fund allows G.M. to choose how much it pays family members. A court-ordered award might have included punitive damages, but as Judge Gerber’s ruling demonstrates, there is no certainty in the courts. Although some family members may want the satisfaction of seeing G.M. punished by the courts, others are willing to take the money they know they can get and put the matter to rest. Dragging out the matter in the courts can be a long and painful process that makes it difficult for those left grieving to move on with their lives.Our Chicago autofraud and Lemon law attorneys near Naperville and Wheeling bring individual and class actions suits for defective cars with common design defects and auto dealer fraud and other car dealer scams such as selling rebuilt wrecks as certified used cars or misrepresenting a car as being in good condition when it is rebuilt wreck or had the odometer rolled back. Super Lawyers has selected our DuPage, Kane and Cook County auto-fraud, car dealer fraud and lemon law lawyers as among the top 5% in Illinois. We only collect our fee if we win or settle your case. For a free consultation call our Chicago class action lawyers at our toll free number (877) 990-4990 or contact us on the web by clicking here.