GM Customers Demand Payment for ‘Callous Cover-Up’ of Defect

Owners of General Motors cars with faulty ignition switches turned to the only judge who can help them, saying it’s wrong to shield the automaker behind bankruptcy law.

In their first formal demand to U.S. Bankruptcy Judge Robert Gerber, customers said GM left defective cars on the market long after it knew they were dangerous. The automaker must be made to pay for its “callous cover-up” and the collapse of prices after belated recalls this year, they said today in court papers in Manhattan.

They asked the judge to lift a ban on a $10 billion suit now pending in another court. By law, Gerber’s orders from the carmaker’s five-year-old bankruptcy don’t apply to anyone who wasn’t told to put in a claim at the time, they said.

As part of a $49.5 billion government bailout, Gerber ruled in 2009 that the reorganized GM wasn’t on the hook for cars made by its bankrupt predecessor, known as “old GM.” The automaker, facing more than 100 lawsuits, used the old orders to protect itself from litigation by most of its customers, halting arguments in a class action this month.

“Think how extreme it is,” Steve Berman, a lead lawyer in the class action, said in an e-mail before the filing. “New GM sells a car in, let’s say 2011, with a known bad part. Even if made by old GM, it’s new GM lying to consumers at this point, and we don’t believe they can take refuge behind the bankruptcy.”

GM will respond to the plaintiffs in Gerber’s court, company spokesman James Cain said today.

Manhattan Case

The class action is being handled in Manhattan by U.S. District Judge Jesse Furman, who told customers to wait for Gerber to decide whether they can sue GM over older cars.

Gerber has his earlier rulings might be modified or “self-destruct.” Customers today asked for a ruling that GM forfeited court protection by denying them their rights in 2009.

The judge’s orders were never intended as a “get out of jail free card that shields it from its own acts and failures,” the customers said. Shielding GM would be “a dangerous invitation to abuse the bankruptcy process whenever a company knows of serious liabilities but chooses not to disclose them.”

Blaming the automaker for advertising and selling defective cars while delaying recalls, customers said its conduct “generated a firestorm of negative publicity surrounding the safety and reliability of the GM brand, thus causing a dramatic drop in the value of GM cars still on the road.”

Hearing Date

Gerber has said he will set a court hearing in late January and probably take more than a month to decide the issue. He has indicated that customers must be told about potential claims, said bankruptcy lawyer Ed Weisfelner, who represents car owners in Gerber’s court.

“In prior cases, he has said that had GM known about a defect and failed to tell you, he would very concerned,” Weisfelner said. “That applies to us.”

GM, which is compensating some victims of accidents caused by the faulty switches, has denied that its cars have lost value or that it is responsible for older cars sold after 2009.

“The majority of named plaintiffs are asserting economic loss claims for old GM vehicles that were resold by dealers or third parties (but not new GM),” the Detroit-based company told Gerber in a Nov. 5 filing.

GM recalled about 30 million cars in North America this year, at a cost of $2.7 billion. A report by lawyer Anton Valukas found that company engineers and lawyers knew about a switch defect for at least a decade before those cars were recalled. That led customers to sue GM for exposing them to accidents and economic losses.

The lawyer compensating switch victims has approved 42 death claims so far.

130 Lawsuits

About 130 car-price suits against GM have been combined in two class actions in Manhattan federal court. The smaller is over cars bought before the bankruptcy. The larger one, in which owners seek $10 billion, is for vehicles purchased afterward. Combined, the suits seek compensation for almost 30 million recalled cars, of which 14.7 million were made before the bankruptcy.

The $10 billion demand is for penalties as well as money to cover price declines in recalled cars.

The bankruptcy case is In re Motors Liquidation Co., 09-bk-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The car-price suits are In re General Motors LLC Ignition Switch Litigation, 14-md-02543, U.S. District Court, Southern District of New York (Manhattan).

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