RPR&C In The Media

Law360, New York (May 16, 2014, 9:57 PM ET) — General Motors Co. admitted in its $35 million agreement with federal regulators on Friday that it flouted federal laws on promptly reporting safety defects, a confession that plaintiffs in the ignition switch defect litigation will likely use to paint the automaker’s previous denials that it withheld crucial information as dishonest.

GM’s Friday settlement with the U.S. Department of Transportation included not only a record $35 million fine — the maximum civil penalty for a defect-related recall — but also an admission that the automaker did not comply with federal laws that require companies to notify the National Highway Traffic Safety Administration within five business days of determining that a safety-related defect exists.

Ever since GM announced its first ignition switch-related recall in February, lawmakers and plaintiffs’ attorneys have accused the automaker of hiding the defect for at least a decade. The automaker has not agreed with such claims, denying in court filings in ongoing consumer fraud and personal injury cases that it withheld for years some crucial information linking its ignition switch defect to airbag failures.

Federal transportation officials said Friday that GM knew at least as early as 2009 that its ignition switch slipping from the “run” to the accessory position was capable of disabling airbags, a claim that several plaintiffs have made and that GM, even as recently as Friday, has denied. A Texas state court case brought on behalf of Didra De Los Santos for example, claims that the airbags in certain GM vehicles did not deploy because of problems that GM knew about. GM filed a reply Friday denying “each and every material allegation” in that complaint.

“Look at their consent decree and their admission, look at the De Los Santos allegations against GM, look at their answer denying each allegation,” said Bob Hilliard of Hilliard Munoz Gonzales LLP, an attorney for De Los Santos. “Either they are lying to the federal government, or they are lying” to the judge.

A panel of the House Energy and Commerce Committee has been investigating the ever-growing recall since March and issued its findings at the end of that month that the automaker was aware of ignition switch issues as early as 2001.

A pre-production report that year found that the model-year 2003 Saturn Ion experienced some issues with the ignition switch. The congressional report also said that GM’s ignition switch supplier Delphi Automotive PLC informed GM in 2002 that the ignition switches the automaker had approved did not meet its own torque specifications.

Transportation officials on Friday did not explicitly address those reports, saying only that GM knew about the problem at least as early as 2009 because of a memo it received that year from its airbag supplier Continental Automotive Systems U.S. Inc. The memo detailed how the ignition switch slipping from the “run” position could disable its airbags, the officials said.

“They make these admissions for the purposes of the consent order, but then with respect to the civil cases with injured parties, they say, ‘Oh, we didn’t do anything wrong, and at any rate, we’re protected by the bankruptcy,’” said Allan Kam, a former senior enforcement attorney at the National Highway Traffic Safety Administration. “They’re sort of speaking with a forked tongue when you compare their litigation position to the consent order.”

GM is facing more than 55 consumer fraud suits alleging economic losses because of the ignition switch defect, which the automaker has sought to deflect by invoking the bankruptcy shield. The company argues that it is not liable for the conduct of its pre-bankruptcy iteration and that the “New GM,” which emerged in 2009, has not assumed those liabilities. The automaker has indicated that it is applying this defense only to economic loss suits and not to the less numerous personal injury suits.

In the most high-profile consumer fraud suit, plaintiffs in Texas federal court have accused the “New GM” of withholding, since 2009, information that defective ignition switches were shutting off key functions of the car including power steering and airbags.

GM has admitted in court filings in that case only that a defect may exist in some of the recalled vehicles, but it denies that it knowingly withheld such information since 2009, according to documents filed in that suit.

“It will have a dramatic impact if plaintiffs can read these findings in the consent order to a jury,” said Jerry Reisman of Reisman Peirez Reisman & Capobianco.

–Editing by Jeremy Barker and Philip Shea.