General Motors avoided giving up $1 billion in stock by paying its bankruptcy trust to fight lawsuits related to its faulty ignition switches.
General Motors escaped handing over $1 billion in stock by reaching an agreement with the automaker’s bankruptcy trust to litigate hundreds of personal injury cases and a class-action lawsuit related to its faulty ignition switches.
Last week, it appeared that the trust and plaintiffs had reached a $15 million settlement that would have had the trust accepting $10 billion in previously disputed claims, which would have pushed total approved claims in the case past $35 billion.
The company cried foul in a letter to U.S. Bankruptcy Court in Manhattan, claiming the two sides had engaged in secret talks.
GM opposed the proposed agreement because the $35 billion in claims triggered a clause in its 2009 bankruptcy sale calling for it to offer up $1 billion in stock to pay any claims. The automaker said the $10 billion was an unreliable number and that the claims came too long after the bankruptcy.
(GM recalls 800,000 full-size pickups due to steering issue. For the story, Click Here.)
It moved quickly and offered the trust an undisclosed sum of money to continue fighting the lawsuits on an individual basis. The trust accepted the deal, saving GM $1 billion in stock and prompting an angry letter from the plaintiffs’ attorney filed with the court.
GM “undertook a secret, contrived scheme to undermine the settlement agreement through a campaign of threats, intimidation and payoffs,” plaintiffs attorney Edward Weisfelner said in the letter. “At a minimum, it is the pot calling the kettle black.”
According to the Detroit News, GM spokesman Jim Cain said “we are pleased” that the company can continue fighting what it calls bogus personal injury claims in court instead of settling.
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“Now the focus can return to where it belongs, which is the merits of the plaintiffs’ remaining claims,” he said in an email. “We will demonstrate that those claims lack merit.
The company elected to continue pursuing the individual lawsuits based on recent results. Recent court rulings limited the types of suits that could be litigated, plus GM won a series of test trials regarding the switches that the company believed were not legitimate suits.
GM agreed to set up a $600 million victims restitution fund in the wake of scandal of the faulty switches. It was discovered that the switches could move out of the “on” position while the vehicle was driving. When this happened, it cut the power to the vehicle, including the steering, brakes and airbags.
(To see more about GM and the ignition lawsuits, Click Here.)
Employees at the company covered up the problem for more than a decade. The switches were responsible for more than 120 deaths and 275 injuries, and forced the recalled of 2.4 million compact cars, at the time, the largest recall in history. The Takata airbag recall has since become the largest automotive recall ever.