GM scored a small victory in court today when a judge dismissed a large chunk of potential claims against the automaker related to its faulty ignitions.
A New York federal judge dismissed a portion of the claims lodged by a proposed class of car owners within the General Motors Co. – “New” GM – ignition switch multi-district litigation, saying they exaggerated their claim.
The group argues the automaker’s alleged cover-up of dozens of defects devalued their vehicles, suggesting the damages run as high as $10 billion, but in a ruling certain to be appealed, a federal district judge in Manhattan has ruled the drivers’ “unprecedented” damages theory was flawed.
The plaintiffs’ pursuit of damages based purely on perceived harm to GM’s brand following more than 70 recalls in 2014 was “unprecedented and unsound,” U.S. District Judge Jesse Furman wrote in his opinion, adding to the complex legal thicket surrounding the ignition switch controversy.
Recognizing the so-called “brand devaluation theory” would open the door to a flood of claims by consumers who bought any product from a manufacturer subsequently hit by a scandal or found to have produced an unrelated defective product, he said.
(Appeals court deals GM major setback in ignition case. For more, Click Here.)
The plaintiffs can pursue damages involving out-of-pocket costs connected to the recalls, and they can pursue damages for the difference between what they paid for the vehicles and what they would have been worth without the alleged defect.
Furman also shot down the group’s allegations under the Racketeer Influenced and Corrupt Organizations (RICO) Act, saying the claims of a cover up “fail to allege the existence of an ‘enterprise’ within the meaning” of the statute.
Buyers of GM vehicles who have been injured in accidents linked to the defective ignition switch have been able to pursue compensation in court or through a claims procedure GM established to be administered by Kenneth Feinberg, a specialist in the handling the distribution of settlements in high profile civil cases.
(GM‘s fourth bellwether case dismissed. Click Here for the story.)
“The court made it clear the plaintiffs overreached in many aspects of their complaint, and the ruling significantly curtails the scope of their potential recovery,” GM said in a statement.
GM has already paid $2 billion in criminal and civil penalties and settlements due to the faulty switch, which can slip out of place, cutting power to airbags, power steering and braking systems. The part has been linked to 124 deaths and 275 injuries. GM admitted that some employees knew about the issue for more than a decade before a recall was ordered.
Because the appeals court’s ruling affected claims brought over vehicles made by pre-bankruptcy “Old GM,” Furman said Friday’s ruling was limited to vehicles made by post-bankruptcy “New GM.”
(To see more about the feds probing fraud at Fiat Chrysler, Click Here.)
The U.S. Second Circuit Court of Appeals has revived claims of owners of vehicles built by old GM earlier this month. The Second Circuit has ruled that the “free and clear” provisions of a Chapter 11 sale will not shield a purchaser from liability if the seller fails to notify parties that could have potential claims against a debtor, opening the door for claims from plaintiffs with older models.