State attorney generals were prepared to fight.
In a letter sent today to Members of Congress, Chrysler Group LLC announced that the company would accept product liability claims on vehicles manufactured by Chrysler LLC (now OldCarco LLC under the bankruptcy) before June 10, 2009, and involved in accidents on or after that date.
On June 10, 2009, Chrysler Group purchased substantially all of the productive assets of Old Carco and Fiat took effective control.
It appears a partial victory for product liability lawyers, who are substantial contributors to the Democratic party. Lawyers working behind the scenes had previously helped to force General Motors to accept all future product liability claims for its vehicles as it emerged from bankruptcy.
Under U.S. bankruptcy law it is usual for reorganized corporations to leave such claims behind in the ashes of the old structure under section 363(f) of the code, which allows companies to sell assets “free and clear of any interest in such property.”
However, state attorney generals were prepared to fight this interpretation, and the Auto Task Force established the compromise even though there was a strong “Federal Preemption of state law” argument that GM could have pursued.
“We know a lot more about the viability of our business today than when we purchased Old Carco’s assets in its bankruptcy proceedings several months ago,” said John Bozzella, Senior Vice President, External Affairs & Public Policy, Chrysler Group LLC. “While Chrysler Group still faces challenges, we are confident that the future viability of the company will not be threatened if we accept these claims.”
It was not immediately clear why the new Chrysler Group would agree to increase its exposure to what can be costly multi-million dollar lawsuits. Outstanding lawsuits filed prior to June 10th are still in effect void since there are no funds to pay settlements. Typically, lawyers who sue car companies take 30% to 50% of any settlement on a contingency fee basis.
OldCarco filed for bankruptcy protection on April 30, 2009. Following a serious hearings that were notable for their swift pace in a normally glacial system, the bankruptcy court in New York approved the sale of most of all of OldCarco’s productive assets to a newly formed company, Chrysler Group. As part of the bankruptcy court-approved purchase, Chrysler Group had agreed to assume liability only for cars sold by the new Chrysler Group. As a result of today’s announcement, Chrysler Group’s approach is now consistent with that imposed on General Motors as part of its bankruptcy process.