* Judge says would prefer settlement to litigation; parties
* GM is seeking ruling it cannot be sued over alleged loss
of car value stemming from recall
* Plaintiffs say GM concealed ignition switch defect that
led to recall
By Nick Brown
NEW YORK, May 2 A U.S. bankruptcy judge on
Friday urged settlement talks in a dispute between General
Motors Co and plaintiffs seeking compensation for the
lost value of their cars stemming from a massive recall over a
faulty ignition switch.
Judge Robert Gerber, of the U.S. Bankruptcy Court in
Manhattan, said he would welcome the prospect of a resolution
that avoided a "monstrous battle."
"Frankly, it would be great if whatever money is available
for injured people could go to them, and not to litigation costs
and attorneys' fees," Gerber said at a court conference with GM
and the plaintiffs.
Gerber is the same judge who in 2009 oversaw GM's whirlwind
Chapter 11 bankruptcy case. Now facing dozens of lawsuits over a
faulty ignition switch that has led to the recall of some 2.6
million vehicles, GM is asking Gerber to enforce
the so-called bankruptcy shield, in a pre-emptive move aimed at
staving off dozens of lawsuits from customers who say they took
a financial hit from the recall.
Under the plan approved by Gerber, GM channeled its
burdensome liabilities into a shell known as "Old GM," while
selling its profitable assets to "New GM," a separate corporate
entity that took GM out of bankruptcy and now operates as
General Motors Co.
Accident victims are not involved in the dispute before
Gerber, which involves only claims for loss of car value.
The new entity agreed to take on certain of Old GM's legal
liabilities, including those for accidents that occurred after
the bankruptcy but which involved cars made before the
But New GM says it did not agree to take on liability for
so-called economic loss claims like the ones it now faces, in
which plaintiffs allege that their cars lost value due to the
recall. The company wants Gerber to endorse that position and
declare that such lawsuits can only be brought against the Old
Plaintiffs allege that they could not have known about the
defect because GM purposely concealed it from the bankruptcy
court. That allegation could lead down several legal paths.
Intentional concealment could constitute fraud on the bankruptcy
court, and GM wants Gerber to rule no fraud was committed.
A CONSTITUTIONAL ISSUE?
The plaintiffs would rather frame the issue as a
constitutional one: they believe any concealment constitutes a
violation of due process rights, because the liability shield,
they argue, would bind people who could not have known they had
claims against GM at the time the shield was imposed. They say
they should therefore be able to circumvent the shield and sue
Arthur Steinberg, a lawyer for GM, said he agreed that
settlement talks could be productive eventually, but wanted to
wait for recommendations from attorney Kenneth Feinberg, hired
by GM to explore legal options for compensating victims of
accidents stemming from the switch defect.
"We'd like to see what Mr. Feinberg will or won't do,"
Steinberg said. "Let's see where the legal issues lie."
Feinberg, the architect of high-profile compensation funds
like the Sept. 11 Victim Compensation Fund, is considering among
other things whether GM should fund a trust for accident
victims, but he could also address - and reach conclusions - on
other legal matters.
GM has come under heavy criticism for not catching sooner
the defective ignition switch, which had been studied by
engineers in the company as early as 2001 but was not recalled
until the initial action in February this year. The defective
switch has been linked to 13 deaths.
Assuming the case does not settle quickly, Gerber indicated
on Friday that he may be inclined to address questions of due
process violations before those relating to potential fraud on
the bankruptcy court, which would require plaintiffs to probe
"I want to accomplish as much as we can before we get bogged
down in discovery," Gerber said.
Ed Weisfelner, representing some of the plaintiffs, was
hesitant to embrace settlement talks right away, citing
disruption to Feinberg's study as well as the ongoing
investigations into the switch defect by regulators and federal
officials. "While we would rather mediate than litigate, I'm not
sure the environment is such today that we're being presented
with that choice," Weisfelner said.
(Editing by Howard Goller and Matthew Lewis)