GM Avoids $1 Billion Stock Payment Over Secret Settlement

(Bloomberg) -- The trust set up to handle General Motors Co.’s bankruptcy claims acted in bad faith in negotiating a $15 million class-action settlement that would have forced the automaker to contribute as much as $1 billion in new stock, a U.S. judge ruled in throwing out the accord.

Wilmington Trust, the M&T Bank Corp. unit that manages the GM trust, struck the deal to resolve hundreds of personal-injury cases stemming from GM’s faulty ignition switches, as well as a class-action suit over millions of vehicles that allegedly lost value due to a series of recalls. But the trust backed out of the settlement at the last minute, deciding instead to strike a deal with GM for an infusion of cash to keep fighting the plaintiffs in court.

That didn’t sit well with attorney Steve Berman, who represents the plaintiffs. The Seattle-based lawyer had negotiated with Wilmington Trust for months in secret talks that GM later slammed as improper. He opposed GM and the trust at a trial over the dispute in December.

But on Thursday, U.S. Bankruptcy Judge Martin Glenn in New York ruled the settlement 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 plaintiffs were ever legitimate and suggesting the settlement was a "pretextual" ruse to squeeze financial concessions out of GM.

It was more than a case of "cold feet before marriage," Glenn said in his ruling. "The GUC Trust’s dishonesty -- or bad faith -- is not lost on this court."

Glenn added in a footnote of his decision that a lawyer for Wilmington Trust used an expletive to describe the settlement in an email sent just three days after a trust representative had signed off on the deal, adding it “was never going to get anywhere."

‘Very Troubling’

The case, which Glenn called a "very troubling dispute," pitted the automaker against the General Unsecured Creditors Trust, known as "Old GM," for the first time since the 2009 bankruptcy sale created the split to save the company from ruin.

Under the accord, the trust intended to pay plaintiffs $15 million and accept $10 billion in previously disputed claims, adding to previous accepted claims to push the total beyond a $35 billion threshold. That would have triggered a provision of the 2009 sale that would have forced GM to contribute $1 billion in stock to help pay the claims.

GM, based in Detroit, alleged the trust only agreed to accept the $10 billion in claims in order to trigger the provision. GM spokesman David Caldwell declined to comment.

Ruling Views

Berman said in a statement that he was disappointed in the ruling.

"All parties will have to assess next steps, including whether Wilmington Trust should be removed as trustee given the court’s unequivocal findings that Wilmington Trust acted in bad faith," Berman said.

Daniel Golden, the trust’s attorney, didn’t immediately return a call for comment. Kent Wissinger, a spokesman for Wilmington Trust, also didn’t return a call.

GM’s attempt to avoid the suits over economic losses was dashed in July 2016 when the federal appeals court in Manhattan ruled the bankruptcy sale didn’t prevent claims by some people who were injured or whose vehicles lost value as a result of the recalls. The court determined that customers weren’t given a proper chance to challenge the hurried sale before its approval.

The case is In Re: General Motors Ignition Switch Litigation, 14-MD-2543, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Joe Schneider

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