GM Again Faces $1 Billion Stock Fight Over Bankruptcy Accord
(Bloomberg) -- An independent trust handling General Motors Co.’s old bankruptcy claims reached a new settlement with customers who sued the automaker years ago over faulty ignition switches -- a deal that could force GM to give up more than $1 billion in new stock if a judge approves it.
The resolution of claims predating GM’s 2009 bankruptcy was reached Wednesday over hundreds of lawsuits alleging that loose ignition switches could cause air-bag failures and fatalities, according to a filing Wednesday in U.S. Bankruptcy Court in Manhattan by lawyers for Wilmington Trust.
Under the deal, the trust will contribute $15 million to the settlement and agree to accept more claims from owners of defective vehicles. If a judge values those claims at $10 billion or more, the figure would be added to previously accepted claims to push the total beyond a key $35 billion threshold. That would then trigger a provision of the 2009 sale to force GM to contribute so-called adjustment shares to help pay the claims.
"At this time, we have not seen the purported settlement agreement and thus have no details to provide," GM spokesman David Caldwell said in an email. "We will vigorously contest any attempt to obtain adjustment shares from GM."
The deal will cover potentially millions of car owners who purchased their vehicles before July 10, 2009, plaintiffs’ attorney Steve Berman said. It addresses hundreds of personal-injury cases, as well as a class-action lawsuit over millions of vehicles that allegedly lost value due to a series of recalls.
"We are confident we have an agreement that the court will approve," Berman, of Hagens Berman Sobol Shapiro LLP, said Thursday in an email.
The unusual court fight has pitted Detroit-based GM against the trust for general unsecured creditors of what is known as "Old GM." It was created during the bankruptcy sale in order to split off massive liabilities from the current company and save it from ruin.
U.S. Bankruptcy Judge Martin Glenn threw out the earlier accord saying it was unenforceable because it hadn’t been signed by all the necessary parties. Even so, Glenn slammed Wilmington Trust’s handling of the matter, questioning whether its negotiations with the plaintiffs were ever legitimate and suggesting the deal was a "pretextual" ruse to squeeze financial concessions out of GM.
The trust had backed out of that deal at the last minute, deciding instead to strike a settlement directly with GM for an infusion of cash. The January ruling called out individual lawyers from the trust’s law firm, Gibson, Dunn & Crutcher LLP, over their behavior. "The GUC Trust’s dishonesty -- or bad faith -- is not lost on this court," the judge said at the time.
In February, Gibson, Dunn & Crutcher withdrew as the trust’s law firm. Mitchell Karlan, one of the firm’s lawyers who withdrew, declined to comment on Thursday. The trust’s new lawyer, Kristin Going of Drinker Biddle & Reath LLP, didn’t immediately return a call for comment.
The case is In Re: General Motors Ignition Switch Litigation, 14-MD-2543, U.S. District Court, Southern District of New York (Manhattan).
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