Judge Martin Glenn of the U.S. Bankruptcy Court in New York declared a settlement agreement that would require General Motors to pay $1 billion in stock to car owners not enforceable.
The judge claimed the agreement that car owners had reached with a trust which holds many GM liabilities from before its 2009 bankruptcy was not valid without signatures.
The lawsuit stems from GM’s 2014 recall of millions of vehicles with defective ignition switches. One of the claims includes defective ignition switches linked to 124 deaths.
With 43% of people financing their vehicle, there was a total of 2.6 million vehicles that experienced defective ignition switches.
Glenn questioned whether Wilmington Trust’s negotiations with plaintiffs were ever legitimate and suggested that the settlement was a “pretextual” ruse aimed to get financial concessions out of GM.
In his ruling, Glen said, “The GUC Trust’s dishonesty — or bad faith — is not lost on this court.”
One of the lawyers representing the car owners, Berman, said he was disappointed but saw a victory in the ruling.
“Judge Glenn clearly thought the trustee and (law firm) Gibson Dunn acted in bad faith, and we see therefore they both must be removed as trustee,” Berman said. He went on to add that plaintiffs would take up settlement talks with a new trustee.
Although 3% of bankruptcies declared in 2014 were businesses, GM began its bankruptcy restructuring in 2009.
Most of the vehicles with the defective ignition switches were produced before the bankruptcy restructuring. When GM emerged from bankruptcy as General Motors Co., the “bad” assets, including shuttered plants and previous legal claims, were placed into an entity called Motors Liquidation, or “old GM”. These assets have been since managed by a trust.
Wilmington Trust, the MandT Bank Corp. unit that is managing the GM trust, struck the deal to resolve hundreds of personal injury cases and millions of vehicle that lost value due to a series of recalls.
A deal was agreed to in August by the trust and the lawyers for the car owners. However, the agreement was never signed. Instead, the trust accepted GM’s offer to help pay the trust’s defense against the claims by the car owners.
Among the owners’ claims were over 400 personal injury and wrongful death claims.
GM’s attempt to avoid the suits over economic losses was put down in July 2016 when the federal appeals court in Manhattan ruled the bankruptcy sale did not prevent claims by some people who were injured or who had vehicles that lost value due to the recalls. It was determined that customers weren’t given a substantial chance to challenge the hurried sale before it got approved.
So far, GM has paid around $2.5 billion to settle claims linked to the defective ignition switches. This payment included a $900 million payment to settle a criminal investigation by the U.S. Department of Justice.