GM plans to use federal bankruptcy shield

WASHINGTON – 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 would 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 conducted 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 Officer 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 could 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 will 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 potentially could 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 would “make sure that compensation is generous and is appropriate and is adequate.”

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 a limited role of providing the parts in question.

Despite indications Delphi had supplied GM 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.”

As the hearing began, Feinberg described the program under which victims and their families can apply for compensation between Aug. 1 and Dec. 31. They can show evidence that the defect caused their injury or their loved one’s death.

Questioned by the panel’s top Republican, Sen. Dean Heller of Nevada, Feinberg said the program is limited only to injuries or death – not cases in which people’s cars may have been damaged but they or other passengers were unhurt. Feinberg said those people would have to seek redress in the courts.

“I’m not saying those folks don’t have a valid claim. I’m saying they don’t come to this program,” Feinberg said. He said he also wants to see claims in which a victim says the defect caused a crash in which air bags did deploy, though they would face a bigger burden of proof.