GM General Motors Company

By Tom Corrigan 

General Motors Co. wants a second shot at a favorable court ruling that would protect it from hundreds of potential lawsuits and billions of dollars in liabilities tied to faulty ignition switches.

In court papers filed Wednesday, lawyers for GM said a federal appeals court made two "fundamental errors" when it recently ruled against the company's efforts to use its 2009 bankruptcy to shield itself from the litigation over the ignition switches.

GM says the ruling "makes no sense and is flatly contrary to the bankruptcy code and decisions from other courts." In addition to exposing the company to potentially enormous liabilities, GM said the court's decision, if not corrected, would permanently damage the bankruptcy process that saved it from collapse during the Great Recession.

Last month, the Second U.S. Circuit Court of Appeals in Manhattan denied GM's attempt to use its bankruptcy to block lawsuits asserting more than $10 billion in potential claims on account of the defective ignition switches, which are now linked to 124 deaths. The ruling overturned a bankruptcy judge's earlier decision to bar those claims.

Steve Berman, who leads a group of ignition-switch plaintiffs, said Thursday that the Second Circuit rarely grants requests for a rehearing and that a rehearing was even more unlikely because the court's first decision was unanimous.

"I'm not too worried," he said.

The appeals court said that during its bankruptcy, the auto maker had evidence that the ignition switches were faulty and, in some cases, disabled safety features including air bags. GM didn't disclose the defect until early 2014 despite employees knowing of problems with the switch more than a decade earlier. The company later faced criminal charges for covering up the defect, which it settled.

By not disclosing what it knew about the ignition switches, the appeals court ruled that GM had violated some consumers' constitutional due process rights. Had customers been properly informed, the court determined they would likely have had a greater voice in GM's restructuring.

"Due process applies even in a company's moment of crisis," the appeals court wrote in its July 13 ruling.

GM did allow ignition-switch victims to sue for compensation, setting up an approximately $600 million fund run by an outside attorney. And the company also reached settlements with the U.S. Justice Department, shareholders and thousands of consumers totaling more than $2 billion.

But now GM says it wants the matter tried again before a panel of appeals court judges, claiming the court's most recent decision was "invented out of whole cloth and conflicts with decades of precedent."

The company said in court papers that bankruptcy law didn't require it to notify consumers of the ignition-switch defect during its bankruptcy seven years ago and that the bankruptcy sale of its core operations left the company with a clean slate free from the specter of litigation tied to its past actions -- including the flawed ignition switches.

General Motors Corp., known as Old GM, is the corporate shell left behind by the company's bankruptcy. New GM, General Motors LLC, bought the company's assets out of bankruptcy and is now fighting to keep them "free and clear" of any litigation tied to Old GM.

Should the appeals court's decision stand, GM says it would "destroy" protections for purchasers of troubled assets in bankruptcy sales, threatening the future viability of a key lifeline for troubled companies.

GM also said allowing new lawsuits to go forward now would be unfair to litigants who were forced to navigate the company's complex chapter 11 process and whose claims were paid only after other creditors received their share.

"The opinion allows certain plaintiffs alone to sidestep that process, jump to the front of the line, and seek payment in full from the good-faith purchaser," GM's lawyers wrote.

Trade group the National Association of Manufacturers supports GM's request for a rehearing, warning that the current ruling "eviscerates the finality" of bankruptcy sales and would "widespread negative repercussions."

Write to Tom Corrigan at tom.corrigan@wsj.com

(END) Dow Jones Newswires

August 11, 2016 17:59 ET (21:59 GMT)

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