Lawyers Seek Another $1 Billion From General Motors Over Ignition-Switch Defect -- Update

By Mike Colias and Mike Spector Features Dow Jones Newswires

Lawyers are alleging that General Motors Co. is on the hook for an additional $1 billion to address claims stemming from faulty ignition switches, the latest legal wrangling over a safety defect that continues to dog the Detroit auto maker years after a recall that triggered widespread investigations and settlements.

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Lawyers representing car-accident victims and customers seeking recompense for declining vehicle values have reached a tentative settlement with a trust for creditors of so-called Old GM, the remnants of the auto giant left behind as part of its $50 billion government rescue and bankruptcy restructuring.

The trust is now seeking $1 billion in GM stock from the auto maker to cover the claims. A plaintiffs' lawyer outlined the tentative settlement terms during a court hearing in New York on Friday morning.

GM, in a statement, said the other parties "secretly plotted" without its input, calling the trust's request "ridiculous" and part of "an unfair, unjust and improper scheme" to force the auto maker to pay for claims lacking merit.

"We will aggressively protect our rights and our shareholders," the company said, adding it would work to hold the trust and plaintiffs "accountable for their bad faith and improper actions."

Steve Berman, a plaintiffs' lawyer at Hagens Berman Sobol Shapiro LLP involved in the settlement discussions, said the trust took proper actions allowed under terms of GM's 2009 bankruptcy-sale order. That sale sent assets to a new company owned by the U.S. Treasury while leaving undesired liabilities behind with Old GM.

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"The notion that we've done anything but follow the terms of the sale agreement or done anything wrong are unfounded," Mr. Berman said in an interview, adding that he hoped to present a judge with a signed settlement as soon as Tuesday.

A lawyer for Old GM's general unsecured creditors' trust declined to comment.

The total claims from accident victims and customers alleging GM is to blame for lower vehicle resale values total more than $10 billion, according to figures cited in court papers. The Old GM trust is seeking $1 billion in shares from the revitalized "New GM" under a complex formula in the auto maker's bankruptcy-sale order that triggers payments when claims exceed a certain amount.

The skirmish traces back to a series of legal battles straddling courts overseeing the remnants GM discarded after seeking bankruptcy protection and subsequent litigation years later over the defective ignition switches. GM in 2014 recalled roughly 2.6 million older vehicles with switches that risked slipping from the run position, causing cars to stall and disabling safety features including air bags.

The safety problem was ultimately linked to 124 deaths and GM reached settlements totaling more than $2 billion with federal prosecutors, shareholders and thousands of consumers. That included paying $900 million to settle criminal charges of wire fraud and concealing the defect from regulators.

When the defect and recall emerged in 2014, GM asserted a legal shield that prevented consumers from pursuing claims that predated the company's July 2009 court-approved bankruptcy sale. The sale, done "free and clear" of certain liabilities, shielded GM from the older claims.

But a federal appeals court later undid the legal shield, ruling GM had evidence of the defective ignition switches during its 2009 bankruptcy proceedings and violated consumers' due process rights by failing to reveal it. GM has admitted to failing to recall vehicles with the switches for more than a decade despite internal evidence of the problem. The U.S. Supreme Court declined to hear GM's appeal of the federal appeals court's decision.

GM waived the legal shield for ignition-switch victims seeking money from a compensation fund the auto maker established that eventually paid out about $600 million. But other claimants have continued to go after the auto maker, leading to the latest legal battle.

Write to Mike Colias at Mike.Colias@wsj.com and Mike Spector at mike.spector@wsj.com

(END) Dow Jones Newswires

August 11, 2017 14:58 ET (18:58 GMT)