Bankruptcy Judge Rules Against Settlement Triggering GM Payout -- Update
January 18 2018 - 2:58PM
Dow Jones News
By Mike Spector
General Motors Co. avoided a potential $1 billion-plus stock
payout to address claims stemming from the auto giant's
ignition-switch crisis after a judge found a settlement between
plaintiffs and a trust for the company's bankruptcy estate
unenforceable.
U.S. Bankruptcy Judge Martin Glenn on Thursday ruled that an
August deal reached between ignition-switch plaintiffs and a trust
tasked with compensating creditors of so-called Old GM couldn't go
forward because the settlement lacked necessary signatures. Old GM
is the term often used to describe the assets GM left behind in
2009 as part of its $50 billion government rescue and bankruptcy
restructuring.
The ruling effectively allowed GM to avoid the consequences of
the deal, which had contemplated forcing the auto maker to pay the
Old GM trust roughly $1 billion in stock to address claims from
car-accident victims and customers seeking recompense for declining
vehicle values arising from faulty ignition switches.
GM in 2014 recalled roughly 2.6 million older cars with the
switches, which can slip from the run position and lead to stalled
engines and disabled air bags in crashes. GM suffered criminal
charges for mishandling the defect, now linked to 124 deaths. The
Detroit auto maker has paid legal settlements totaling more than $2
billion after conceding it failed for more than a decade to recall
vehicles with the part despite internal evidence of a safety
problem.
In the current legal skirmish, the Old GM trust backed out of a
settlement with plaintiffs and reached a separate deal with what's
often called New GM, the auto maker currently operating after
emerging from bankruptcy proceedings in 2009. Under terms of the
latter deal, GM would avoid paying the $1 billion in stock and
instead pay the trust's legal expenses for addressing
ignition-switch claims.
The plaintiffs argued that the trust had finalized a settlement
with them, preventing it from negotiating the separate agreement
with GM. The trust's lawyers said they hadn't signed the first
deal, freeing them to negotiate another with GM.
Judge Glenn sided with the trust, finding the settlement
couldn't be enforced through oral agreements and lacked necessary
signatures. But he chided the trust's lawyers for "last-minute
infidelity" and "pulling the rug out from" plaintiffs' lawyers even
after negotiating 21 drafts of the settlement and all parties
having essentially agreed to terms.
The trust's "dishonesty -- or bad faith -- is not lost on this
court," the judge wrote. "Regrettably, the court is unaware of any
contract principle that would nevertheless enable the court to
enforce an unsigned written agreement absent a finding that the
parties intended to be bound orally."
A lawyer for the trust didn't immediately respond to a request
for comment. GM declined to comment.
"We are of course disappointed in the result but are thankful
that the court reviewed the issue so carefully and is committed to
quickly resolving late claims motions," said Steve Berman, a
partner at Hagens Berman Sobol Shapiro LPP representing
plaintiffs.
Under terms of the now-scuttled settlement, the trust would have
accepted claims from plaintiffs exceeding an estimated $10 billion,
triggering a requirement for GM to pay the trust in shares valued
at roughly $1 billion.
The trigger stems from a complex feature in a bankruptcy sale
that sent assets to a government-owned company to create the
current, revitalized New GM. Its less-desirable parts were
discarded in bankruptcy court.
The additional ignition-switch claims arose from other legal
battles spanning multiple federal courts. When the ignition-switch
crisis emerged in early 2014, GM asserted a legal shield that
blocked consumers from pursuing claims that predated the company's
July 2009 court-approved bankruptcy sale.
A federal appeals court later undid that legal shield, opening
the door for additional claims. GM had waived the 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 remain who didn't seek money from that
fund.
Judge Glenn hinted that his ruling might spark yet further
litigation, noting that whether plaintiffs "have any other
remedies" against the trust or GM wasn't currently before him to
determine.
Write to Mike Spector at mike.spector@wsj.com
(END) Dow Jones Newswires
January 18, 2018 15:43 ET (20:43 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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