GM Judge Inclined to Have Switch Probe on Expedited Basis

The judge who oversaw General Motors Co.’s 2009 bankruptcy said he’s inclined to let a customer probe of the automaker’s handling of ignition-switch problems proceed on an “expedited basis.”

U.S. Bankruptcy Judge Robert Gerber convened a hearing today in Manhattan to determine how to address GM’s request that he reaffirm rulings shielding the automaker from damages claims arising from defects in the switches, which spurred a recall of 2.59 million vehicles.

Car owners are seeking to recover economic losses for the recalled cars and want a chance to investigate how GM handled the switch problem before and during its 2009 reorganization and government bailout. The dispute, which doesn’t affect accident claims, may hinge on whether GM was candid about the switch defects at the time of its bankruptcy.

The judge said his “tentative” views of how the case should proceed were based on only a partial reading of 3,500 pages that have been filed in the past 10 days. He said he has questions about what kind of economic-loss claims are being raised and how those may overlap with any claims GM already assumed under state lemon laws and “glove box warranties.”

The customers’ investigation would come alongside a probe led by former federal prosecutor Anton Valukas and paid for by GM.

Estimated Claims

The car owners said they will focus on what GM, as it existed before and after reorganization, knew about the ignition switches and key systems of Chevrolet Cobalts and Saturn Ions and how they estimated potential claims from drivers injured because of the defects.

This process would be a step toward determining whether Detroit-based GM deceived the bankruptcy court about the defects during its reorganization, when Gerber freed the company from most pre-bankruptcy liabilities, leaving intact some warranty obligations and accident responsibility.

The car owners want to study what GM didn’t tell Gerber during the bankruptcy, to try to see whether the company defrauded the court and the U.S. government during the bailout. They argue that a fraud would negate Gerber’s rulings shielding the company from damages claims.

Gerber said today he may consider new arguments that he should revisit his 2009 order based on a lower threshold than fraud. In court papers filed yesterday, lawyers said they agreed that they’ll pursue an argument that car owners were denied “procedural due process” by being kept in the dark about the ignition flaws.

Whether GM committed fraud in hiding the ignition problems could be addressed after the due process question.

A group of customers has agreed to GM’s request that they temporarily stop suing until Gerber decides if their complaints are valid. The customers said that while they believe they have claims the judge would approve, they’ll refrain from asking him for confirmation until July 31.

A hearing is set for May 29 elsewhere on how to centralize the lawsuits. Gerber said he wouldn’t interfere with that process.

The bankruptcy is In re Motors Liquidation Co., 09-bk-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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