Car Owners to Continue Fight With GM for Billions After Bankruptcy Ruling

General Motors Co. car owners will still seek $7.5 billion for the diminished value of recalled vehicles, despite a ruling that largely freed the automaker from liability for wrongdoing before its 2009 bankruptcy.

That number was supplied by a lawyer for car owners the day after U.S. Bankruptcy Judge Robert Gerber upheld GM’s shield against claims tied to actions taken before its bailout.

The attorney, Steve Berman, said 10 million is a conservative estimate of the number of drivers still eligible to sue for about $750 each after Wednesday’s decision. The litigation stems from last year’s recall of cars for faulty ignition switches, which grew to cover GM vehicles for a number of flaws.

The owners can pursue “claims for economic loss caused by New GM’s misconduct in covering up the ignition switch defects and scores of other known defects,” plus damages, Berman said in an e-mail.

GM escaped billions more in liability because Gerber also ruled that the company can’t be sued for economic losses tied to so-called Old GM’s actions or over accidents that happened before the bailout.

“As a result of Judge Gerber’s ruling, we expect that fewer plaintiffs will be able to assert viable claims” in the court where they’re suing for economic losses, James Cain, a spokesman for Detroit-based GM, the largest U.S. automaker, said in an e-mail Thursday.

The original lawsuit claimed $10 billion in lost value for 27 million recalled cars, but GM persuaded Gerber to keep in place the shield from pre-bankruptcy liabilities that he approved in 2009 to help the carmaker survive.

“The problem is proving whose fault it is,” said Chip Bowles, a bankruptcy lawyer at Bingham Greenebaum Doll LLP who isn’t involved in any GM cases. “If you bought from Old GM, it’s partly Old GM’s fault that your car lost value.”

GM told regulators in February and March of 2014 that it would recall cars with an ignition switch defect that has now been linked to at least 84 deaths. The switch could be jarred into the “accessory” position, disabling power steering and preventing air bags from deploying. The company eventually recalled 2.59 million cars over the problem.

After the recall of the Chevrolet Cobalt, GM stepped up its review of safety issues and called back millions more vehicles in the U.S., most for problems unrelated to switches.

The recalls triggered federal probes. The U.S. fined the company $35 million last year for its mishandling of switch recalls.

Chief Executive Officer Mary Barra promised in a congressional hearing to find out why it took so long for the cars to be called in and hired former prosecutor Anton Valukas to investigate.

Valukas found that GM engineers and lawyers knew about the switch defect for at least a decade before the recall. In his ruling this week, Gerber faulted the company for not acting sooner.

Barra appointed Ken Feinberg to run a compensation fund for victims of switch-related accidents. She has vowed to fight other lawsuits.

About 140 class actions, mostly over economic losses, have been filed. The drivers say that, by hiding the defect, GM caused them to overpay for their autos. Then, the recalls depressed car values. Many of the suits were consolidated before another federal judge in Manhattan, who has been waiting for Gerber to say whether they can proceed.

Gerber said he was allowing the remaining lawsuits to go ahead because he agreed that the 2009 shield ruling “was overly broad, and that it should have allowed them to assert claims involving Old GM vehicles and parts so long as they were basing their claims solely on New GM’s conduct.”

People hurt by GM’s bankrupt predecessor are out of luck, because they can’t claim money from the surviving automaker for price declines or accidents before New GM was born.

Nor can they take money from the little that remains in the trust set up to pay earlier creditors of Old GM, because that would be unfair, Gerber said.

“Accident victims who wanted to sue New GM have no recourse, other than settlements they’ve already made or proofs of claim they’ve filed,” according to Bowles, the bankruptcy lawyer.

Many victims of pre-2009 accidents settled with Old GM for as little as 30 cents on the dollar. The company has said it might spend as much as $600 million on Feinberg’s fund.

Separately, GM has settled some accident cases brought in state courts.

Meanwhile, 10 million drivers are gearing up for a new battle. Berman’s calculation of what GM might still owe them is based on October 2014 estimates of price declines ranging from $357 to $1,700 on cars covered by the class action.

“A very rough but conservative average loss would be in the range of $750 per vehicle, based on what we know now,” he said.

The 10 million customers all bought their cars after the bailout. Their vehicles were among the more than 30 million the automaker called in for repairs. The owners can claim New GM was to blame for their losses, unlike people who bought cars before the bailout.

Collecting damages for vehicles involved in all the recalls is unlikely, said Carl Tobias, who teaches product-liability law at the University of Richmond in Virginia. Such a class would be too wide, he said.

“It may be difficult to argue that your GM vehicle lost value if it did not have the switch problem,” he said.

Erik Gordon, a law professor at the University of Michigan, was more blunt.

“Class actions were never meant to be that broad,” he said, citing federal rules. “I don’t think they have a prayer.”

The bankruptcy is In re Motors Liquidation Co., 09- bk-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

(With assistance from David Welch and Tiffany Kary in New York.)