GM Recall—In-depth Analysis

This edition of the Deep Dive focuses on issues related to the recall of GM ignition switches. [The GM ignition switch problem was the subject of an earlier LBN report.] Moderator Sean Carter leads a discussion by Florida lawyers Bruce M. Stanley, Sr. and Luis E. Rivera of the Henderson Franklin law firm.

Bruce Stanley

Bruce Stanley

The problem is that drivers would inadvertently cut off the ignition by a touch of their knees or even by the weight of a keychain. Cutting off the ignition would disable the power steering and brakes as well as a number of electronically operated safety measures; hence the recall.

One issue seems to be that GM didn’t act quickly enough to remedy the problem. Some problems occurred as early as 2001. A solution GM pursued was to tell their dealers to tell drivers to have fewer keys on their key chains. Some accused GM of putting profit over public safety with this approach.

Stanley suggests that modern corporations don’t do a cost-benefit analysis where public safety is concerned. It might be a different matter where the issue is merely one of passenger convenience. The National Traffic and Motor Vehicle Safety Act requires that manufacturers repair and recall defective vehicles.

Stanley feels that the GM situation is not analogous to the Ford Pinto situation that could have been alleviated with the installation of a part costing $11. In that case, Ford did a cost-benefit analysis and decided that the cost of repair would exceed the cost of damages from product liability verdicts.

Another topic for discussion was how a company should proceed to be sure that a situation like this would not be a problem. Stanley suggests that he would proceed to bury himself in the facts and study things thoroughly to make a recommendation to the company to make a fix so that the problem would be alleviated. There is a large class action lawsuit against GM on this issue.

Luis Rivera

Luis Rivera

Another set of issues have to do with the situation that exists because of the GM bankruptcy. Rivera discusses the bankruptcy issues and explains how the bankruptcy came about in 2009. GM’s effort to obtain financing at the height of the stock market crash in 2009 were unsuccessful, and GM ran out of cash.

On June 9, 2009, GM filed for relief under Chapter 11 of the bankruptcy law. Old GM ended up with all the liabilities; new GM got all the profitable assets of the company. On July 10, the bankruptcy court in New York City approved the plan in exchange for a discharge of the pre-petition debt owed to the governments of the U.S. and Canada as well as some of the claims of bondholders and the United Automobile Workers Union.

Most of the claims against GM will be against the new GM because it agreed to assume any products liability claims that arose after the closing date. There may be a few cases against old GM, but it is mostly an empty shell at this point. The deadline for claim filing has passed, and most of the money that was left in old GM has been disbursed.

Some plaintiffs’ lawyers have suggested that they would attack the bankruptcy discharge as fraudulent. Rivera opines that there is no real precedent for what is suggested. Fraud could result in criminal charges, but that is a different matter from a civil lawsuit. Because new GM is a new company with new shareholders, these shareholders should not have any exposure to claims against the company.

Bruce Stanley and Luis Rivera are stockholders in Henderson, Franklin, Starnes & Holt, P.A, Fort Myers, Florida. Stanley is Board Certified in Civil Trial Law and is certified as a Civil Trial Lawyer by the National Board of Trial Advocacy. He handles appellate work and practices civil litigation of all types, with emphasis on medical malpractice, aviation, products liability defense, and eminent domain. For eight consecutive years (2006-2013), he has been named to Florida Super Lawyers ®, which recognizes the state’s top five percent of attorneys as selected by extensive peer review. Bruce has also been recognized by Best Lawyers in America ® and named "Fort Myers Area Best Lawyers Personal Injury Litigator of the Year" in 2009.

Rivera practices in the area of Commercial Litigation. Luis focuses his practice on bankruptcy with concentration in creditors’ rights and insolvency counseling in bankruptcy court. His bankruptcy experience includes representation of secured creditors in both consumer (Chapter 7 & 13) and Chapter 11 reorganization cases, as well as involuntary and discharge proceedings. For five consecutive years (2009-2013), he has been recognized by Florida Super Lawyers® magazine for his work in business litigation.

Sean Carter graduated from Harvard Law School in 1992. His ten years of legal practice focused on corporate securities and mergers and acquisitions. During this time, he represented such clients as GNC, Experian, The Boston Beer Company Homeside Lending, Safelite Auto Glass, J. Crew and many others. Most recently, he served as in-house counsel to a publicly-traded finance company.

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