General Motors Fraud Calls Bankruptcy Laws into Question

General Motors has played a dangerous game with the government and taxpayers by willfully hiding that fact that its cars had a recall for a deadly ignition switch defect -- one that could stall engines or defer airbag deployment -- keeping the judges and public ignorant until after they went bankrupt under Chapter 11. Be keeping mum on the problem, it did not figure into bankruptcy stipulations. The plan, we can imagine, was to emerge from bankruptcy, without the liability of what their company did prior. This, at least, is what the lawyers who are tackling this problem are claiming.

"This is an extremely complicated area," said Jeffrey Davis, bankruptcy specialist at Levin College of Law at the University of Florida, as reported by the Daily Business Review.


How this changes bankruptcy laws for big business in the future remains to be determined. The National Highway Traffic Safety Administration has pressured Gm to establish a victims fund, but critics say this could undermine the 2,500 lawsuits brought against GM for other reasons before the bankruptcy.

Attorney Lewis S. "Mike" Eidson, a partner at Colson Hicks Eidson in Coral Gables, is on board in taking on GM. He was national co-lead counsel in taking on Firestone Tire co. over their 40 million defective tires.  He said "There will be a howl that you will hear forever from coast to coast if they pay these people but not the others.

Attorney Scott Baena explained that even the bankruptcy plans can be reopened once the fraud is exposed. But it must be within 180 days of the bankruptcy plan's confirmation.

"To be honest, I've always had a problem of that 180-day limitation," said Beana.

And why not? After all, GM kept their recall dilemma secretly until they were forced to divulge it in January. Now that their CEO Mary Barra claims that GM wants "to do the right thing" for the victims of the faulty ignition switch defect -- over a dozen deaths have resulted -- one has to ask how much of the "right thing" is a self-interested ploy at damage control.

"The law will not will not permit GM to hide the ball by concealing the dangerous defect that gave rise to the claims, and then argue that the claims based on that defect were extinguished by the bankruptcy," said Prieto. "The law is not going to reward a party who hides the truth. You don't escape by creating a new company. The new company carries the debts of the old company unless it gets discharged."

Creating a victims fund will not stifle those others who are seeking retribution for other defects. Though creditors whose claims were discharged have not yet complained about the victims fund, that is in the air as well, and could influence on how the situation is redressed. The 180 days of confirmation may be called into question, as well as other aspects of Chapter 11, and what a company can and cannot do to hide behind it.

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