Groups representing plaintiffs in car accidents said Monday they would oppose General Motors' attempt to quickly exit bankruptcy protection, arguing that hundreds of victims could be hurt by the government-led plan.
U.S. Judge Robert Gerber approved a crucial step of the plan late Sunday, allowing the troubled automaker to sell its assets to a new company and saying the deal was in the best interest of both the automaker and its creditors, who would get nothing if the automaker was forced to liquidate.
The Detroit car maker's Chapter 11 filing on June 1 was the fourth-largest in U.S. history. (Under Chapter 11 reorganization, a company can stay in operation under court protection while it sheds debts and unprofitable assets).
General Motors and the Obama administration praised the judge's decision but opponents readied an appeal to the U.S. District Court in New York. A Chicago law firm representing people who have sued GM in several auto accident cases said they objected to parts of the plan that would free the "new GM" from liability for people injured by a defective GM product before June 1.
Steve Jakubowski, who filed the appeal notice for the accident litigants, said his appeal would assert that the bankruptcy judge overstepped his authority by preventing victims from pursuing litigation under their state product liability laws.
He estimated that about 1,000 lawsuits could be pending with potential damages in the range of hundreds of millions of dollars.
"It affects ... virtually every walk of life in this country," he said. The deadline to appeal the case to the District Court is noon Thursday, after which point Gerber's order takes effect and the sale is free to close.
Steve Rattner, the head of the Obama administration's auto task force, said the government was "confident that (Gerber's) decision will stand and the sale of GM's assets to new GM will proceed expeditiously."
The bankruptcy judge's ruling followed a three-day hearing that wrapped up Thursday. GM and government officials had urged a quick approval of the sale, saying it was needed to keep the automaker from selling itself off piece by piece. The Treasury Department, which is expected to provide about $50 billion in aid to the automaker, has vowed to cut off funding to GM if the sale doesn't go through by July 10.
"Now it's our responsibility to fix this business and place the company on a clear path to success without delay," GM CEO Fritz Henderson said in a statement Monday.
Litigants injured by a defective GM product before June 1 would have to seek compensation from the "old GM," the collection of assets leftover from the sale, where they would be less likely to receive compensation.
Robert Dinnigan, whose 10-year-old daughter Amanda was paralyzed from the neck down in an accident aboard a 2003 GMC Envoy two years ago, said the court decision may have doomed the chances of a lawsuit he filed against GM after the February 2007 crash.
"Our only recourse is the old GM. There isn't going to be anything left even if we get a chance to go to court," said Dinnigan, who faces medical bills of around $500,000 per year. It cost about $100,000 to retrofit Dinnigan's Smithtown, N.Y., home to accommodate Amanda's needs, he said.
Last month, objectors to Chrysler LLC's sale plan failed to convince an appellate court and the Supreme Court to block the automaker's sale to Italy's Fiat in appeals that lasted about a week after the bankruptcy judge cleared the deal. The objections came from a trio of Indiana pension and construction funds, along with consumer groups and others.
Jakubowski said the 2nd Circuit's ruling in the Chrysler case created "a big hurdle" that may require an appeal to the Supreme Court. "At the end of the day, I think we're going to need Supreme Court review of this issue," he said.
David Neier, a New York-based bankruptcy lawyer who has followed the auto industry cases, predicted the appeals court would be "inclined to prevent a meltdown" and not block the GM sale because there is no other competing bidder for the company's assets. But he said it was possible the court could determine the amount of consumer liability that the new GM should be responsible for.
"As long as the new entity is still around, I suppose the court could fashion some kind of relief that would mean that the new entity would incur those liabilities," Neier said. "The question of whether those claims should be asserted against new GM or old GM — that doesn't need to be decided immediately."
The new GM has agreed to take on responsibility for future product liability claims involving vehicles made by the old company.
But consumer advocates want legislative and regulatory changes that would require GM and Chrysler to take more responsibility for product liability cases. Advocacy groups urged the Federal Trade Commission to warn buyers of used Chryslers that they would not be able to sue in cases involving cars made before the company filed for Chapter 11 bankruptcy in late May.
Rep. Andre Carson, D-Ind., filed legislation that would require the newly restructured GM and Chrysler to buy liability insurance that would protect against past or future claims despite the bankruptcy cases.
GM will leave bankruptcy court with significantly reduced debt and labor costs, as well as fewer dealerships and brands. But the automaker still faces a challenging U.S. auto market, where auto companies are on pace to sell around 9.7 million vehicles this year compared with sales of more than 16 million vehicles in 2007.
The government will own about 61 percent of the "new GM." The Obama administration has said it does not plan to interfere with the day-to-day running of the company, though government has been involved in the selection of the new company's 13-member board of directors and change of control transactions.
The United Auto Workers union gets a 17.5 percent stake through its health care trust for retirees and has selected Stephen Girsky, a former GM adviser and Morgan Stanley analyst, to serve on the board. The Canadian government, which will control an 11.7 percent share, also will pick one member.
Rattner, in a conference call with reporters, said he expected new GM board members to be seated "over the next few weeks." Henderson, who succeeded former CEO Rick Wagoner in March when the Obama administration forced Wagoner to resign, has said he expects to remain at the helm of the automaker as it comes out of bankruptcy.
The old GM will remain an entity until all its facilities are sold off, a process that could take months or years to complete. The government has said it plans to provide about $1.18 billion to fund the wind-down process.
The "old GM," which will be known as Motors Liquidation Co., will include a smattering of properties, several of which are facilities already slated to be closed. They will be sold to the highest bidder under court supervision.
Other assets to be filed under the old GM include brands like Hummer, Saturn and Saab, for which GM has lined up buyers. They also include all current GM common stock, which — despite its active trading on over-the-counter markets — will soon be worthless.