(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Alison Frankel
NEW YORK, June 5 There's a heartbreaking moment
deep in the internal investigation report GM released Thursday,
detailing the company's botched response to a sometimes fatal
defect in Cobalt ignition switches.
A young lawyer named Nabeel Peracha, who had joined GM in
April 2012, was at a meeting just a few months later with other
GM lawyers. Their topic was the settlement of a West Virginia
product liability case stemming from a crash in 2009 of a
Chevrolet Cobalt that skidded on black ice, ran off the road and
hit two trees. The front-seat passenger sustained head injuries
when the Cobalt's airbag failed to deploy.
The crash investigation showed that the car's ignition
switch was off at the time of the impact. That was potentially a
big problem for GM, according to its outside defense lawyers at
Eckert Seamans, because the victim's expert had turned up a 2007
Indiana University study identifying a link between Cobalt
ignition switch defects and air-bag deployment failures, as well
as a GM service bulletin from 2006 that noted the Cobalt's
unexplained stalling problem.
Moreover, the lawyers from Eckert Seamans warned, the
plaintiff's lawyer knew about other Cobalt crash cases in which
ignition switches were in the off position and the air bags
never deployed. If GM didn't settle, the lawyers said, it risked
seven-figure punitive damages.
The in-house lawyers at the weekly Roundtable meeting to
discuss important settlements agreed that GM's litigation
posture was only going to get worse, so it made sense to settle.
Peracha, the rookie lawyer, piped up: Considering the Eckert
Seamans evaluation of Cobalt problems, why hadn't GM issued a
recall on the cars? According to the GM report, "The response
from the other attorneys was that engineering did not know how
to fix the problem, that the incident rate was low, and that 'we
told engineering and they're looking into it.'"
Almost two years later -- after the Cobalt defect exploded
into a huge corporate scandal -- Peracha told GM investigator
Anton Valukas of Jenner & Block that the other GM lawyers at the
2012 meeting, who'd been at the company longer than he had and
had been hearing about these Cobalt ignition-switch cases since
2006, conveyed the impression that they had already done
everything they could.
Valukas concluded -- resoundingly -- that they had not. In
fact, one of the most powerful and disturbing themes of the
former prosecutor's 276-page report is how many times GM's
in-house lawyers seemed to disregard opportunities to mitigate
the crisis their company is now mired in. Valukas' firm, of
course, has worked closely with the GM legal department as one
of the company's regular outside counsel, so skeptics may
question the report's implication that GM's in-house attorneys
weren't badly intended when they failed over the course of more
than seven years to sound alarms about the Cobalt's safety
defect. No one, however, can doubt that Valukas and his Jenner
colleagues believe GM's lawyers didn't serve their client -- or
GM's customers -- well enough.
Corporate lawyers ought to play "a critical and unique role"
in identifying and resolving safety concerns, Valukas said in a
concluding section of the report. He suggested various
improvements in GM's communications, training and procedures for
lawyers to make sure the company doesn't repeat the Cobalt
fiasco. Those are helpful, I suppose, but for lawyers, the real
message of Valukas's report is that when your decisions can have
fatal consequences, it's not enough to say, "We tried," or "We
GM's lawyers, according to the Valukas report, were first
put on alert about problems with the Cobalt all the way back in
2004, when the model launched. Automotive journalists noticed
that the car had a tendency to stall when drivers accidentally
jostled their key rings.
When The Cleveland Plain Dealer contacted GM about the
problem, senior attorney William Kemp suggested providing the
newspaper with a videotape showing how remote the risk was.
Another lawyer said she was "not optimistic we can come up with
something compelling." Kemp responded in an email that they had
to do something: "We can't stand hearing, after the article is
published, that we didn't do enough to defend a brand new
launch." (Kemp, who continued to be apprised of reports of
Cobalt problems for the next 10 years as the main liaison
between the legal department and GM safety investigators, was
reportedly ousted from the company on Thursday.)
PROBLEMS REPORTED SINCE 2005
Accident reports involving Cobalts and another model with
air bag deployment problems, the Ion, began to reach the
in-house legal department beginning in late 2005 and early 2006,
according to the report. GM engineers assigned to "field
performance assessment" conducted investigations of individual
crashes that were the subject of insurance claims or litigation.
But under the company's structure, neither those engineers
nor the lawyers supervising them coordinated with safety
investigators elsewhere in the company who were looking at
Cobalt ignition problems. The legal department received two
crash studies in 2007, one by a Wisconsin state trooper and the
other by researchers at Indiana University, that suggested a
link between the ignition switches moving into the off position
and airbags failing to deploy. According to the Valukas report,
GM lawyers didn't even know they had the documents -- which
correctly diagnosed the Cobalt's fatal flaw six years before GM
did -- until 2014.
By 2010, GM's outside counsel at King & Spalding were
concerned that GM's investigation of the "sensing anomaly" that
kept airbags from deploying in head-on collisions was going to
subject the company to punitive damages. The K&S case settled at
the end of 2010, but at a meeting in January 2011, according to
Valukas, several GM lawyers talked about organizing a meeting to
ask safety engineers to find out more about the Cobalt ignition
That meeting didn't take place until July 2011, when senior
lawyer Kemp finally ordered an investigation. Valukas criticized
the time lag: "Witnesses could not explain why six months passed
before the meeting took place but the delay again highlights the
lack of urgency in addressing the issue."
While GM engineers tried to diagnose the ignition switch
problem, GM's lawyers continued to review and settle cases
involving the defect. There weren't a whole lot of them, but
Valukas faulted the legal department for its passivity. "The
lawyers felt they had done their job by emphasizing the
importance of the issue to the engineers," he wrote. "But, faced
with a pattern of crashes that had resulted in fatalities and an
unexplained 'anomaly' that affected the deployment of airbags,
they did not at the same time elevate the issue to the general
counsel and do not appear to have insisted on a quick and
concrete timetable for the safety investigation."
Even after the plaintiff's expert in the 2012 case defended
by Eckert Seamans found the Indiana report and GM safety
bulletins on Cobalt stalls -- and even after Peracha inquired
about a recall at that July Roundtable meeting -- GM lawyers
didn't escalate concerns about the Cobalt. Valukas found it
notable that an outside expert, with only limited access to
information from within GM's files, was able to figure out the
connection between the ignition switch and airbag failures
before anyone at GM.
In 2013, GM settled a Cobalt case for $5 million, after an
expert hired by plaintiffs lawyer Lance Cooper uncovered what
GM's own outside counsel called "bombshell" evidence that the
company changed the ignition switch between 2005 and 2008 --
"evidence that had eluded GM engineers for years," Valukas
King & Spalding spelled out exactly how devastating the
evidence was in a case evaluation it prepared for GM's legal
department: The plaintiff's lawyer "can compellingly argue that
GM has known about this safety defect from the time the first
2005 Cobalts rolled off the assembly line and essentially has
done nothing to correct the problem for the last nine years."
And still, Valukas said, no one in the legal department told
GM's general counsel since 2009, Michael Milliken, about the
Cobalt flaw. "Senior attorneys did not elevate the issue within
the legal chain of command," he wrote, "even after receiving the
... evaluation in the summer of 2013 that warned of the risk of
punitive damages." Milliken only learned of the defect and the
litigation over fatal crashes it caused in February 2014, when
GM had decided to recall the faulty cars.
As I said, Valukas didn't accuse GM's lawyers of trying to
hush up the Cobalt defect or of any legal improprieties. By his
account, the department's sin was one of omission: GM lawyers
didn't detect a looming problem as quickly as they could have
and didn't push hard enough to solve it once they realized the
company needed answers.
GM's culture was fearful and evasive, Valukas said;
employees received training on avoiding liability-laden phrases
when they were writing about safety issues, and many GM
employees told him they didn't take notes at meetings about
safety because the legal department frowned on that practice.
Those attitudes have to change, according to Valukas, especially
among GM lawyers.
I imagine that any lawyer who defends consumer products --
whether inside a corporation or outside -- will read Valukas's
report and wonder whether they would have behaved as GM's
lawyers did. Perhaps the next time any of them start to tell
themselves that they've done enough to address safety, they'll
(Reporting by Alison Frankel; Editing by Andrea Evans)