Bloomberg News

General Motors Sued in Texas Over Ignition-Switch Recall Losses

March 15, 2014

General Motors Co. (GM:US) was sued on behalf of vehicle owners over an ignition flaw in some small-model cars as it faces regulators’ questions about this year’s recall of 1.6 million vehicles.

Bob Hilliard, one of the lawyers who filed the complaint yesterday in federal court in Corpus Christi, Texas, said he seeks to recover $6 billion to $10 billion for the lost value of cars affected by the recall (GM:US). The suit is based on claims GM concealed the defects and the “diminution in value” of the owners’ vehicles, and not deaths resulting from crashes when the engines stopped because keys came loose.

“These vehicles, all they have to do is get on the road for this defect to manifest,” Hilliard said in a phone interview. “This is a true safety defect.”

GM has said it identified 12 deaths in connection with the recall of models made in the mid-2000s, including some Chevrolet Cobalts and HHRs and other Opel, Pontiac and Saturn models. Detroit-based GM, the largest U.S. automaker (GM:US), has said it’s continuing to review data and information related to the recall.

The GM recall and the multiple U.S. investigations that it has spurred come as the company has sought to shed the “Government Motors” stigma tied to its bankruptcy and $49.5 billion U.S. bailout (GM:US). Those investigating the company include the House Energy and Commerce Committee, the Justice Department and the Transportation Department.

GM has fallen 4.1 percent since Feb. 12, the day before the first of the ignition-switch recalls were announced. It was unchanged (GM:US) yesterday at $34.09 in trading in New York.

‘Peace of Mind’

“GM is focused now on ensuring the safety and peace of mind of our customers involved in the recall,” Greg Martin, a company spokesman, said in an e-mail responding to a request for comment on Hilliard’s lawsuit. “Our principle throughout this process has been to the put the customer first, and that will continue to guide us.”

The complaint filed by Hilliard seeks class-action status to represent all vehicle owners affected by the recall. The named plaintiffs in the case are Daryl and Maria Brandt of Nueces County, Texas, who own a 2007 Chevy Cobalt, one of the recalled vehicles.

Hilliard also represents the families of two teenagers who died in a 2006 crash of a Cobalt in Wisconsin. He said in an interview earlier this week about that claim that GM’s bankruptcy reorganization shouldn’t shield it from liability for the pre-2009 crash. While bankruptcy typically protects companies from new claims that predate the reorganization, GM didn’t present the full extent of its ignition-switch liabilities, Hilliard said.

Liability Shield

“If you are aware of potential exposure to litigation and you don’t reveal it, that’s fraud,” he said. “I’m going to go back to that bankruptcy judge and say, ‘You have to undo this, the liability of old GM, because it was the new GM’s continued coverup after the bankruptcy that allowed people to be hurt or killed.’”

To persuade U.S. Bankruptcy Judge Robert Gerber in Manhattan to reconsider the terms of GM’s reorganization, Hilliard or other lawyers would need to gather evidence and prove that the old GM had knowingly deceived the judge, said Chip Bowles, a bankruptcy lawyer with Bingham Greenebaum Doll LLP who wasn’t involved in the GM liquidation.

“A few bankruptcy cases have been set aside for fraud on the court, but you have to establish deliberate fraud and concealment,” said Bowles, who writes articles on bankruptcy issues.

Gerber earlier this week declined to comment on past or pending cases.

Toyota Case

In 2010, Hilliard filed one of at least 10 wrongful death lawsuits against Toyota Motor Corp. (7203) over claims its cars suffered from a defect that caused sudden, unintended acceleration.

Since the U.S. sold its last GM shares in December, the company has named Mary Barra as chief executive officer, making her the first woman to lead a major automaker. A lineup of new vehicles helped improve GM’s reputation among consumers and boosted quality to record levels, according to reviewers including J.D. Power & Associates and Consumer Reports magazine.

The cars recalled were the 2003-07 Saturn Ion, 2005-07 Chevrolet Cobalt, 2006-07 Chevy HHR, 2006-07 Pontiac Solstice, 2007 Saturn Sky, 2007 Pontiac G5, 2005-06 Pontiac Pursuit in Canada and 2007 Open GT in Europe.

As early as 2004, two GM engineers involved in the Cobalt said there had been discussions about how the model’s engines could cut out when the keys were bumped, according to documents and depositions gathered in a lawsuit over a 2010 crash that killed a Georgia pediatric nurse.

The case is Brandt v. General Motors LLC, 14-cv-00079, U.S. District Court, Southern District of Texas (Corpus Christie).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Peter Blumberg


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