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Will General Motors Be Held Accountable for Selling Defective Vehicles?

General Motors recently issued a sweeping recall for a more than 2.5 million vehicles sold between 2005 and 2011. The recall includes the Chevrolet Cobalt, Pontiac G5, Saturn Ion, Chevrolet HHR, Pontiac Solstice and Saturn Sky models. According to GM, the vehicles have a defective ignition switch that affects the operation of the airbag system.

This is not a minor safety issue. GM itself acknowledged their faulty ignition switches can be linked to at least 31 motor vehicle accidents and 13 deaths. The Detroit-based automaker now faces a number of lawsuits, including a class action complaint filed in Texas seeking upwards of $10 billion for GM customers who purchased the defective vehicles. Another lawsuit, filed in San Francisco, claims GM’s efforts to fix the recalled vehicles are “insufficient” and that there is a second ignition-switch defect the company has yet to address. Altogether, GM has been been named a defendant in at least 37 cases spanning 17 separate federal courts. In addition to litigation, multiple government agencies, including the United States Department of Justice and the National Highway Traffic Safety Administration, have opened investigations into GM’s mismanagement.

Will GM Escape Responsibility?

There is, however, a major question mark hanging over all of these lawsuits. GM has asked a federal bankruptcy court to bar all ignition-recall lawsuits related to vehicles manufactured before 2009. That was the year General Motors emerged from its highly publicized Chapter 11 bankruptcy case. The bankruptcy resulted in the dissolution of the former General Motors, the sale or elimination of several models, and finally the repurchase of remaining assets by a new GM holding company.

In effect, the “new GM” says it is not responsible for the liabilities of the “old GM.” Under a related agreement signed with various state and consumer safety groups, the post-bankruptcy GM is only liable for product liability claims arising after July 2009. But attorneys representing the various ignition-recall plaintiffs say that is not the case. They argue that old GM knew about the ignition switch defect as early as 2001 and failed to disclose any potential safety issues as part of its 2009 filings. As a general rule, a bankruptcy court will not discharge a liability that the debtor fails to disclose in good faith.

Even if the bankruptcy judge sides with GM and grants it immunity from most of the ignition-recall lawsuits, political pressure will continue to mount on the company. After all, GM received a massive government bailout leading up to its bankruptcy (in 2009, more than 70% of the company’s stock was held by the United States and Canadian governments). Several congressional committees have already held hearings on the recall, and GM officials may feel compelled to waive or limit its immunity in order to placate angry politicians and their constituents.