DETROIT (Reuters) - General Motors hired two law firms with ties to the automaker to look into its recall of cars blamed for 13 deaths, and a Congressional committee said it would also investigate the company’s response to a defect that first came to light a decade ago.
The internal probe will be led by Jenner & Block Chairman Anton “Tony” Valukas, who investigated Lehman Brothers after the financial services firm collapsed in 2008, and alleged then that Lehman used accounting gimmicks and had been insolvent for weeks before it filed for bankruptcy.
GM has worked with Jenner & Block since 2002, and at least two of the automaker’s former top attorneys, Robert Osborne and Elmer Johnson, were partners at the Chicago law firm.
GM said lawyers from King & Spalding, which represented GM during some of its bankruptcy proceedings and other litigation work since, will also work on the recall review ordered up by GM CEO Mary Barra. Co-leading the recall investigation with Valukas is GM’s current general counsel, Michael Millikin.
“CONFLICT OF INTEREST”
Some legal experts said there could be a conflict of interest for law firms with working ties to GM to be involved in the investigation.
“To me, there’s a conflict of interest,” said Monroe Freedman, a legal ethics expert and law professor at Hofstra University School of Law. “A reasonable person might question whether the firm wants to curry favor with GM, so it can maintain a good relationship or obtain future work.”
GM spokesman Selim Bingol said there is no conflict of interest, and Valukas “has been charged to go where the facts take him and give the company an unvarnished report on what happened. He is the ideal person to do that, given his understanding of our business and his reputation for adhering to the highest standards.”
Jenner and King may indeed speed things along, said Stephen Gillers, a professor at New York University School of Law. “It makes sense as a matter of efficiency since the firms know the client,” he told Reuters.
In a letter to employees last week, Barra promised an “unvarnished” look at the recall that is occurring 10 years after the issue first came to light. She has not granted any interviews on the matter.
GM is recalling cars to correct a condition that could allow the engine and other components, including front airbags, to turn off while the vehicle is traveling at high speed. More than 1.6 million older vehicles are affected.
The failure is believed to be caused when weight on the ignition key, road conditions or some other jarring event causes the ignition switch to move out of the “run” position, turning off the engine and most of the car’s electrical components mid-drive, with sometimes catastrophic results. GM has recommended that owners use only the ignition key with nothing else on the key ring.
The House Energy and Commerce Committee said it is investigating GM and the National Highway Traffic and Safety Administration's (NHTSA) response to consumer complaints related to the problems with ignition switches. (r.reuters.com/bah57v)
The committee, led by Michigan Republican Fred Upton, will hold hearings in the coming weeks. Upton led the 2000 investigation into Firestone tire failures on Ford Motor Co vehicles - resulting in the TREAD Act that requires automakers to report complaints of defects to the NHTSA.
“Did the company or regulators miss something that could have flagged these problems sooner? If the answer is yes, we must learn how and why this happened, and then determine whether this system of reporting and analyzing complaints that Congress created to save lives is being implemented and working as the law intended,” Upton said in a statement from the committee late Monday.
In an email, GM spokesman Greg Martin said the company was “fully cooperating with NHTSA and will do so with the Committee, too.”
GM may be focused on controlling the flow of information from the review.
“If they want to send a message to shareholders that they have uncovered everything, they might hire an independent firm,” Richard Painter, a professor at University of Minnesota Law School, told Reuters. “But they may want to disclose just enough to keep shareholders informed, and keep other things private to keep legal defenses available to them.”
Sources previously said GM’s team of investigators had begun interviewing employees involved in the problems surrounding the ignition switch, which first came to the company’s attention in 2004.
GM went through a U.S. government-led bankruptcy in 2009, which is the dividing line between what became known as “old GM” and “new GM.”
Valukas served as lead counsel for the U.S. Securities and Exchange Commission’s four-year investigation of “old” GM’s pension accounting, which concluded with no allegations of fraud or intentional misconduct.
Jenner & Block was the lead outside counsel for GM’s initial public offering in 2010 when it returned to the market as a public company following its bankruptcy restructuring, and it has said in filings that it has worked for GM since 2002. In addition, some partners at the firm have relationships with GM that go back even farther.
A Jenner & Block spokesperson on Monday declined to comment on how much the firm bills GM annually, and on whether there was any concern within the firm of a real or perceived conflict of interest in Valukas leading GM’s internal investigation of the ignition-switch recall.
King & Spalding referred questions to GM. Valukas declined to comment on his appointment by GM, which said late Monday that Jenner & Block is “doing other work for us.”
The No. 1 U.S. automaker has said the recall will begin next month when it has the replacement parts. Most of the affected vehicles are in North America.
While recalls are not unusual, the number of fatalities involved and the way GM handled this one stretching over the past decade has the potential to cost the company hundreds of millions of dollars in fines and possible legal damages, in addition to tarnishing its reputation.
U.S. safety regulators have also opened an investigation into whether GM reacted swiftly enough. The NHTSA sent the automaker a list of 107 questions about the recall to answer by April 3.
In addition to ordering up an apology and crafting the letter to employees with Bingol’s help, Barra has designated assignments for top executives related to the recall, according to a person familiar with the situation.
Barra placed global product development chief Mark Reuss in charge of working with supplier Delphi Automotive to obtain the replacement parts as quickly as possible and assigned North American head Alan Batey to work with GM dealers on serving the customers, said the person, who asked not to be identified discussing the recall.
She also involved GM quality and customer service chief Alicia Boler-Davis as well as Bingol, who is in charge of GM’s governmental affairs in Washington, the person said.
Additional reporting by Jessica Dye in New York and Chris Peters in Bangalore; editing by Matthew Lewis and Peter Henderson