| NEW YORK, March 13
NEW YORK, March 13 General Motors Co is
facing increasing pressure to compensate victims for an ignition
defect that prompted the recall of 1.6 million vehicles, even if
some would-be plaintiffs are barred from suing the auto maker
under the terms of its emergence from bankruptcy in 2009.
GM is a different legal entity than the one that filed the
2009 bankruptcy that shook the U.S. economy. The so-called "new"
GM is not responsible under the terms of its bankruptcy exit for
any legal claims relating to incidents that took place before
But with a massive recall on its hands and accusations the
company knew of the defect for a decade, GM is facing pressure
from consumer groups that say the arrangement would unfairly bar
victims from getting the compensation they deserve.
On Wednesday, two prominent consumer advocacy groups called
on GM Chief Executive Officer Mary Barra to create a $1 billion
trust fund to pay victims.
"Don't you think in your heart of hearts that it is cruel
and unfair to use those defenses to escape liability for a
defect GM concealed and failed to remedy for 10 years?" Clarence
Ditlow, executive director of the Center for Auto Safety, and
Joan Claybrook, president emeritus of Public Citizen, stated in
a letter they released to the public.
In a statement, GM did not rule out the possibility of
setting up such a fund to compensate victims.
"We appreciate the concern expressed in the letter," the
company said. "It is true that new GM did not assume liability
for claims arising from incidents or accidents occurring prior
to July 2009. Our principle throughout this process has been to
put the customer first, and that will continue to guide us."
GM says the ignition switch has been connected to at least
34 crashes and 12 deaths. A study released Thursday night
linking 303 deaths to the recalled cars was quickly criticized
Federal prosecutors, Congress, regulators and GM itself are
all investigating why it took GM so long to recall affected
cars, in light of documents that indicate the company may have
received reports of a potential defect at least a decade ago.
Plaintiffs' lawyers expressed confidence that solid lawsuits
will emerge stemming from incidents that occurred after GM's
bankruptcy. Lawsuits from older incidents, however, must be
brought against a shell entity that retained the liabilities of
pre-bankruptcy GM, and which has little in the way of money to
If GM were to set up a fund to compensate victims, the move
would have some recent precedent. Notably, BP Plc agreed
to set up a $20 billion trust fund under pressure to speed up
payments to victims of a massive 2010 oil spill in the Gulf of
Creating trusts to finance legal liability is not uncommon
in bankruptcy, though it can take various forms. Paint materials
maker Tronox Inc emerged from bankruptcy in 2011 by assigning a
spate of environmental claims to a new trust, which then sued
other parties to try to raise money to pay the claimants.
A more common type of trust relates to companies in
bankruptcy due to asbestos-related claims. Under a bankruptcy
statute applying only to such cases, companies can use
bankruptcy to shed legal claims by setting aside money in a
separate trust. Chemical manufacturer W.R. Grace & Co set up a
$4 billion trust when it went bankrupt in 2001. Since then it
has been wildly successful, and its stock has more than
tripling since 2010.
GM is already out of bankruptcy, and most experts say it has
no legal obligation to create such a trust, even if authorities
eventually conclude that there was wrongdoing.
Nevertheless, some experts said that as lawsuits start to
fly and the various investigations keep the issue in the
headlines, GM could see advantages in a relatively quick
resolution in the form of trust.
"The illogic of having this in the newspaper every day,
about how they lied and killed people, that's not what the
marketing people will think is servicing their interest,"
said Bill Brandt, head of corporate restructuring consultant
Development Specialists Inc.
The size of the $1 billion trust proposed by the Center for
Auto Safety and Public Citizen would generally be in line with
the $1 billion to $1.5 billion in legal judgments and
settlements that Guggenheim Securities analyst Matthew Stover
estimated GM would ultimately face from the recall.
One influential lawmaker, Senator Jay Rockefeller, on
Thursday voiced interest in the trust proposal.
"I can't answer that out of the blind, but generally
speaking, I'm all for establishing funds to take care of
people," said the West Virginia Democrat, who chairs the Senate
Rockefeller's committee is expected to hold hearings next
month on the GM recall.