Intentional Consumer Fraud in the GM Bankruptcy?

In 2006, two teenage passengers were killed and the driver severely injured in a crash involving a Chevrolet Cobalt, a car General Motors (GM) now admits had a deadly safety defect. The problem was that a faulty ignition switch would shut off leaving the car without power steering, brakes or air bags.

Over time, GM admits 12 deaths have been caused by this particular defect. The Center for Auto Safety estimates the number is closer to 300.

On June 1, 2009, GM filed for bankruptcy and received a federal bailout. The automaker now claims that under bankruptcy laws, it is not responsible for any injuries or deaths that took place before the 2009 filing date. Generally, that’s how this type of bankruptcy works. But in our opinion, this case is a different.

Recently, families of the victims have learned that GM knew all along about this particular defect but for business reasons, never fixed it. After reviewing new documents showing GM knew about the problem before the bankruptcy, several families harmed by the defect filed wrongful death and personal injury lawsuits against GM.

The families are alleging that GM’s failure to disclose this fact to the bankruptcy judge constituted fraud and should remove their claims from bankruptcy protection.

Most legal experts agree that there is little chance the bankruptcy judge will allow these claims to move forward. In our opinion, if fraud can be indeed be established, then GM should not be able to hide behind the bankruptcy. It is noted that injuries and deaths relating to this defect and happening after June 1, 2009, are allowed to move forward in the court system.

Now if the bankruptcy court does prevent these claims from moving forward, there is another path the families may want to take. If you recall, last week Toyota Motor Corp. settled a criminal case with the Department of Justice by paying a fine of $1.2 billion dollars. That case had to do with Toyota admitting the delay or recalls and misleading regulators and Congress about sudden acceleration problems.

As it did against Toyota, we think that the Department of Justice should file a criminal action against GM for the company’s intentional fraud. This will help deter other companies from hiding the truth and putting profits over people. It would also allow for money to be placed in a special fund to compensate victims of the pre-bankruptcy fraud.