Lawyer Confirms GM Will Use Bankruptcy Shield Against Recalled-Vehicle Claims

WASHINGTON (Detroit Free Press/MCT) -

General Motors’ top lawyer — under harsh questioning by U.S. senators — acknowledged Thursday that the company will not waive its bankruptcy protection in dealing with court litigation linked to claims involving its millions of vehicles recalled for a safety defect.

Michael Millikin’s statement — a simple, “We will not” to Sen. Richard Blumenthal (D-Conn.), who asked whether GM will waive its immunity — came as senators roundly criticized the company’s legal team for its handling of the crisis. U.S. Sen. Claire McCaskill (D-Mo.), who chairs the Senate Commerce Committee’s consumer-protection subcommittee that held Thursday’s hearing, even called for the general counsel’s firing.

“It is very clear that the culture of lawyering up and Whac-A-Mole to minimize liability in individual lawsuits killed innocent customers of General Motors,” McCaskill said. Even so, GM chief executive Mary Barra — testifying for the fourth time before Congress on the recall — praised Millikin’s “high integrity” and said people in his own department withheld information about the defect from him.

Millikin’s admission that GM intends to use its bankruptcy shield was its first such acknowledgment, though it was widely expected. Months ago, the company indicated it planned to use immunity from product-liability claims for incidents before July 2009 to shield it from economic-loss claims. Millikin’s statement suggested that could also apply to wrongful-death claims.

GM has created an unlimited compensation fund to reach settlements with victims of crashes related to the defect. The company will not use the bankruptcy shield with those who seek compensation through that fund. It will even allow people who had earlier reached settlements with the company to reopen them. But in order to accept a settlement, the victim or the family of a person killed would have to agree not to sue GM in court.

But those claims won’t include those involving economic loss, said compensation expert Ken Feinberg, who has been retained by GM to administer the fund. Under questioning by McCaskill, he acknowledged that if a family is interested in punitive damages they are better off going to court.

In court, however, those claims could potentially run up against the bankruptcy shield. Feinberg assured members of the Senate panel that he will work with claimants to make sure their claims are as strong as possible and that he will “make sure that compensation is generous and is appropriate and is adequate.”

The hearing came as Senate Democrats are in the early stages of talking up legislation in response to the recall, which is linked to defective ignition switches that can be inadvertently jostled out of position. Some lawmakers are agitating for increasing the maximum fine from $35 million to $300 million; providing for criminal penalties for executives who keep information about potentially deadly safety flaws from the public; and increasing reporting requirements for automakers.

GM’s internal investigation, conducted by former U.S. Attorney Anton Valukas, found widespread indications that various departments in the company did not share information and that warning signs over the course of a decade were not appropriately acted upon.

“As I stated earlier, we will do all we can to make certain that this does not happen again,” Barra told the subcommittee.

For the first time, Rodney O’Neal, the president and chief executive of Delphi, which supplied the ignition switches, said his company is cooperating with investigators but had only the limited role of providing the parts in question.

Despite indications that Delphi had supplied GM with a switch with torque resistance below specifications, he said GM had called for “a switch that turned smoothly.” He also said it was ultimately GM’s responsibility to ensure the part was safe and interacted appropriately with other equipment.

GM, he said, “knowingly approved a final design that included less torque than the original target.”

GM first announced a recall of the affected vehicles in February, saying the cars can stall and air bags could be disabled if the switches were knocked out of position. Delphi said it has already shipped more than a million new switches to dealers to fix the defect.

Millikin came under fire for indications in the Valukas report showing multiple instances in which lawyers in his department were aware of claims involving the defective part, but never brought it to the attention of engineers or other executives. Just this week, The New York Times reported that the company responded to death inquiries by federal regulators over the years by sometimes claiming attorney-client privilege or otherwise refusing to respond to questions.

“We had lawyers at General Motors who didn’t do their jobs,” Millikin said.

“This is either gross negligence or gross incompetence on the part of a lawyer,” McCaskill said. Later, she added: “How do you have a system in place that doesn’t account for that?”