Court Says General Motors Bankruptcy Won’t Protect Company against Liability for Defective Gears

A recent ruling by a federal appellate court could have serious implications for anyone looking to sue negligent auto manufacturers in the future. The ruling was handed down by the 2nd U.S. Circuit Court of Appeals in Manhattan, with the three-judge panel declaring that General Motors will not be able to use a previous bankruptcy filing to avoid liability in a product liability lawsuit.

In 2009, General Motors filed for bankruptcy. It was initially believed that the bankruptcy might protect the automaker against additional financial obligations stemming from lawsuits over faulty ignition switches that caused car accidents. The defective gears were reportedly the cause of numerous car accidents, resulting in at least 275 accident-related injuries and 124 car crash fatalities.

On top of manufacturing vehicles that allegedly contained gear shifts that tended to unexpectedly stall, GM also reportedly included defective air bags that failed to deploy during crashes involving certain vehicle models.

A federal appellate court has now said that General Motors should not be allowed to skirt liability for defective auto parts simply because the company declared bankruptcy for other debts. Additionally, the court indicated that GM was aware of the faulty ignition switches in its vehicles and that the bankruptcy filing was likely an attempt to evade responsibility for its failures. In fact, said the appellate judges, GM specifically concealed information about the defective gear switches when it filed paperwork with the bankruptcy court. This made the bankruptcy process run smoothly for GM while also preventing plaintiffs in the car accident lawsuits from contesting the bankruptcy filing.

As a result of the ruling by the appeals court, GM could now be on the hook for billions of dollars in damages. (Erik Gordon, a professor at the University of Michigan who has been closely following the case, said that GM may be exposed to upwards of $10 billion in legal liabilities.) If the lower court ruling had been upheld by the appellate court, GM would have been indemnified against liability from any lawsuits predating the bankruptcy, which would have included the product liability suits over the defective ignition switches.

For further information, go to the following article: GM Can’t Use Bankruptcy Shield to Fight Billions in Death, Injury Claims