GM must pay for pre-bankruptcy ignition deception: lawsuit

NEW YORK (Reuters) - General Motors Co was hit with a lawsuit on Wednesday demanding that the company be held liable for allegedly concealing ignition problems before its 2009 bankruptcy.

General Motors Co's new chief executive Mary Barra addresses the media during a roundtable meeting with journalists in Detroit, Michigan January 23, 2014. REUTERS/Carlos Osorio/Pool

The ignition switch problems led to the recall of 1.6 million vehicles last month.

GM is a different legal entity than the one that filed the 2009 bankruptcy that shook the U.S. economy. The so-called new GM is not responsible under the terms of its bankruptcy exit for legal claims relating to incidents that took place before July 2009. Those claims must be brought against what remains of the “old” or pre-bankruptcy GM.

But the proposed class action, filed in federal court in California, said plaintiffs should be allowed to sue over the pre-bankruptcy actions, “because of the active concealment by Old GM and GM.”

The lawsuit also said that GM was responsible for reporting to the federal government any safety-related problems for cars made before its bankruptcy.

A spokesman for the automaker declined to comment specifically on the lawsuit, saying the company has apologized for the recall and that taking care of customers was its top priority.

GM announced the recall in February, despite learning of problems with the ignition switch in 2001. GM has said that when the ignition switch was jostled, a key could turn off the car’s engine and disable airbags, sometimes while traveling at high speed.

Wednesday’s lawsuit is one of several filed by car owners who claim the recent recall caused their vehicles to lose value. It appears to be the first to raise the issue of “successor liability,” meaning that GM could be liable for actions of the company before it emerged from bankruptcy.

The named plaintiff is Katie McConnell, the owner of a 2007 Saturn Ion Coupe. The lawsuit is seeking at least $350 million in damages, according to the lawyer that filed the lawsuit, Steve Berman of Hagens Berman Sobol Shapiro.

The lawsuit said the “old” GM knew about the ignition problems as early as 2001, but continued to make and market defective vehicles until 2007. The new GM continued the deception, the lawsuit alleged.

As a result, the new GM should be liable “for the deceptive and unfair acts and omissions” of the old GM, the lawsuit said. It also said the court should waive the statute of limitations for older claims because of GM’s actions.

“While civil in nature, we believe it is a step toward holding G.M. accountable for its inaction,” Berman said in a statement.

The recall over the ignition problem, which has been linked to at least 12 deaths, has led to government criminal and civil investigations, an internal probe by GM, and preparations for hearings by Congress. All ask why GM took so long to address a problem it has said first came to its attention in 2001.

Reporting by Jessica Dye; editing by Andrew Hay, Noeleen Walder and Tom Brown