Motorists looking for settlements related to two of the biggest safety scandals in recent years were in for some unpleasant surprises this week.
General Motors derailed a deal that could have forced it to provide $1 billion in stock to thousands of plaintiffs suing over the company’s faulty ignition switches which were linked to more than 100 deaths and hundreds of injuries.
Separately, a Delaware bankruptcy court halted a collection of lawsuits filed against the Japanese auto partsmaker seeking damages related to faulty airbags now linked to as many as 18 deaths and about 180 injuries worldwide – though the suits may continue after a 90-day ordered by Judge Brendan Shannon.
Takata has acknowledged producing faulty airbag inflators that can inadvertently overinflate when triggered by a crash, spewing deadly plastic and metal shrapnel into the passenger compartment. In February, the Japanese company entered a guilty plea in Detroit federal court, fulfilling the requirements of a deal with the U.S. Justice Department. The settlement of a criminal probe also led to the indictment of three Takata executives for allegedly falsifying test reports in an effort to cover up the airbag problem.
(Another 2.7 mil vehicles added to Takata recall list. Click Here to see why the list is likely to keep growing.)
In all, more than 40 million vehicles, sold in the U.S. by dozens of different automotive brands, have been recalled, with still more expected to be added to the tally. Millions more vehicles have been called back overseas. Due to shortages of replacement parts, however, barely a third of the vehicles covered by those recalls have so far been repaired.
The settlement requires Takata pay $1 billion, much of that covering a portion of the costs its customers have incurred, along with a $25 million fine, while also setting up a $125 million compensation fund for victims and family members.
Takata has also been sued by a number of vehicle owners and survivors of those killed or injured due to the faulty airbags. And additional lawsuits by the states of Hawaii and New Mexico, as well as the U.S. Virgin Islands, were being heard in Judge Shannon court. The Judge has granted that 90-day stay which covers hundreds of lawsuits facing Takata while it moves ahead with a planned bankruptcy reorganization.
Takata had sought a six-month delay while it prepares to sell most of its assets to Detroit-based, but Chinese-owned, Key Safety Systems, for $1.6 billion. The bankruptcy filing and sale were announced in June.
(For more on Takata’s bankruptcy and sale, Click Here.)
“What the debtors seek and need is a breathing spell,” the judge ruled, noting Takata is “engaged… in the largest recall in history while simultaneously trying to implement a reorganization strategy around the globe.”
The court also noted that were the reorganization and sale to be disrupted it could further delay recall and repair efforts.
Bankruptcy also played into the collapse of a settlement linked to the GM ignition switch debacle. In 2014, the automaker acknowledged it had effectively covered up a defect with ignition switches that could cause some of its vehicles to unexpectedly shut off while being driven. In such circumstances, motorists might have lost control and crashed, but the car’s airbag safety systems were also disabled, leading to a greater risk of death and injury.
Then-new GM CEO Mary Barra ordered the creation of a victims’ compensation fund, but it covered only those whose crashes occurred after the Detroit automaker emerged from its 2010 bankruptcy. Those injured earlier had to seek settlements with what is known as “old GM,” the company set up to dispose of unwanted assets left behind after the carmaker’s run through Chapter 11.
In recent weeks, lawyers on both sides appeared to have worked out a settlement that would have included $15 million from the old GM, but the “new” company would have been forced to contribute $1 billion in stock.
Angered plaintiffs’ attorneys accuse GM of hatching a plot to scuttle the deal and even threaten those involved in working up the settlement.
Plaintiffs’ attorney Edward Weisfelner, in a letter sent this week to U.S. Bankruptcy Court in Manhattan complained that GM “undertook a secret, contrived scheme to undermine the settlement agreement through a campaign of threats, intimidation and payoffs.”
For its part, GM called the $1 billion stock plan a “contrived scheme.”
(GM settles 200 more ignition switch lawsuits. Click Here for more.)
The courts haven’t always been so kind to GM over the ignition switch issue. Beyond accepting a $900 million settlement with the U.S. Department, the U.S. Supreme Court in April said those victimized by the ignition switch defect before GM’s bankruptcy can go ahead and sue. So far, a number of lawsuits against the automaker have largely failed, though the company settled 200 cases in June.
Referring to future cases, GM spokesman Jim Cain said, “We will demonstrate that those claims lack merit.”