U.S. appeals court weighs extent of GM's bankruptcy protection

Tue Mar 15, 2016 4:24pm EDT
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By Jessica Dye

NEW YORK (Reuters) - Attorneys for customers suing General Motors Co over faulty ignition switches urged a U.S. appeals court on Tuesday to throw out bankruptcy court rulings that they say shield the company from lawsuits potentially worth billions of dollars.

A panel of three judges on the 2nd U.S. Circuit Court of Appeals did not clearly indicate during oral arguments how they might rule. A decision is expected within several months.

The judges pressed lawyers for both the plaintiffs and GM over what the No. 1 U.S. automaker knew about the switch problems during the automaker's 2009 bankruptcy proceedings.

Judge Denny Chin said what GM knew was a "pretty important question" for determining whether the company had an obligation during the bankruptcy to notify vehicle owners about their potential claims. The plaintiffs say that since they were not properly notified, they were denied their right to participate in the proceedings.

Steve Berman, a lawyer for some of the plaintiffs, said GM did know enough about the switch defect because the issue had been raised as early as 2004.

GM's lawyer, Arthur Steinberg, countered that while some switch-related incidents had been investigated over the years, employees "didn't make a connection" between those events and a broader safety issue until after the bankruptcy.

The company's bankruptcy created "New GM" to contain the company's valuable assets while leaving behind most of its burdensome liabilities with "Old GM."

Last year, the judge who oversaw that process said New GM was shielded from liability over Old GM's pre-bankruptcy actions but did allow "independent" claims based solely on New GM’s conduct to proceed.   Continued...

The GM logo is seen at the General Motors Warren Transmission Operations Plant in Warren, Michigan October 26, 2015. Photo taken October 26.   REUTERS/Rebecca Cook