By Jessica Dye
NEW YORK (Reuters) - General Motors' 2009 bankruptcy does not shield it from lawsuits over a deadly ignition-switch defect that led to criminal charges against the automaker and prompted the recall of 2.6 million vehicles in 2014, a federal appeals court ruled on Wednesday.
The 2nd U.S. Circuit Court of Appeals in Manhattan said barring plaintiffs from suing GM <GM.N> over crashes and lost vehicle value stemming from the faulty switch would violate their constitutional rights to due process, since they had not been notified of the defect prior to GM's bankruptcy.
The ruling effectively rebuffs GM's attempts to block hundreds of customer lawsuits over faulty ignition switches, and other vehicles components, on grounds that they were automatically barred by the company’s 2009 bankruptcy sale to a new corporate entity.
"Due process applies even in a company's moment of crisis," the opinion stated.
The 2nd Circuit's decision affects some injury and death cases stemming from pre-bankruptcy crashes, according to a lawyer for those plaintiffs, Robert Hilliard. It will also impact claims from customers who say their vehicles lost value as a result of the ignition switch and recalls involving other parts, which plaintiffs' lawyers have estimated to be worth between $7 billion and $10 billion.
A lead lawyer for those economic-loss plaintiffs, Steve Berman, said in a statement that millions of customers' claims would move forward as a result of the ruling. "The appeals court's ruling today solidifies something we have known from the very beginning of this suit - GM's bankruptcy filing was a calculated move in its effort to conceal and cover up its actions," Berman said in a statement.
GM spokesman James Cain said the decision does not address the merits of the underlying claims, which must be litigated. "Many of the claims we face have been brought on behalf of car owners who want to be compensated even though they have not suffered any loss," he said in a statement.
A federal judge overseeing consolidated litigation over the recalls is currently weighing GM's motion to dismiss those economic-loss cases.
The 2nd Circuit appeal stemmed from a 2015 decision from the judge who oversaw GM’s 2009 bankruptcy, which created “New GM” to contain valuable assets while leaving behind most of its burdensome liabilities with “Old GM.”
U.S. Bankruptcy Judge Robert Gerber, now retired, ruled in 2015 that New GM was shielded from liability over Old GM’s pre-bankruptcy actions, but he allowed some “independent” claims based solely on New GM’s conduct to proceed.