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GM heads back to bankruptcy court to stave off class action suits

New Hampshire residents may have seen General Motors in the news a lot recently due to the company’s courtroom battles. Those who may have been affected by General Motors alleged use of defective ignition switches in some of its cars may soon experience a new hurdle: the auto maker is evidently headed back to bankruptcy court.

The ignition switch defect, which triggered a recall of more than two million GM vehicles, has been linked to as many as 13 deaths. More than 50 related class action lawsuits have been filed against the company. 

The auto maker is fighting back against the class action claims by attempting to persuade the same bankruptcy court that granted it relief from its creditors in 2009 that the class action claims should be barred under its earlier bankruptcy. When the bankruptcy case ended, a provision was included protecting GM from lawsuits that originated from claims dating before the bankruptcy.

While such a move by GM may be a variation of a tactic that other companies have used in business bankruptcy before, in this case there may be a complication in the company’s attempt to shield itself from new legal claims. During the investigation into the deaths linked to the defect, accusations have arisen against GM that the company failed to disclose its alleged knowledge of the malfunctioning ignition switches when it petitioned for bankruptcy relief before.

If the class action plaintiffs can demonstrate that GM knew of the switch defects at the time of the bankruptcy, they can argue that it had a duty to disclose that knowledge when it entered bankruptcy proceedings. A failure to disclose such information may give rise to accusations that the company engaged in fraudulent behavior, which in turn could affect the willingness of the bankruptcy court to shield it from the class action claims.

The argument between GM and the class action claimants is still in an early stage, and the final outcome may take a long and arduous route that could take the matter all the way to the U.S. Supreme Court.

Source: New York Times, "Hoping to Fend Off Suits, G.M. Is to Return to Bankruptcy Court," Hillary Stout and Bill Vlasic, May 1, 2014

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