The Treasury Department and General Motors have moved closer to an agreement that would preserve some legal claims against the company from accident victims and displaced dealers even after the automaker emerges from bankruptcy, people familiar with the discussions said yesterday.
Members of the Treasury’s auto task force have held a series of conference calls in recent days with GM executives and more than a dozen state attorneys general to work through the details and weigh the costs this could add to restructuring the distressed automaker.
Connecticut Attorney General Richard Blumenthal said the talks had arrived at a "general consensus" about the need to resolve issues with dealers and allow some product liability claims to proceed, adding that negotiations were likely to continue through the weekend. "We’re hopeful about reaching an agreement," he added.
At issue is whether people who have existing liability claims against GM — or those who are involved in future accidents in cars made by the pre-bankrupt version of the automaker — will be allowed to sue the company in state courts. Under the government’s plan, hundreds of customers with existing claims against GM face having their lawsuits essentially wiped out by the bankruptcy process.
Blumenthal and others, including Maryland’s attorney general, have filed an objection to the provision that would allow GM to leave behind such claims in bankruptcy court, saying it would deprive victims of "key legal rights."
"Most fundamentally, there’s a basic principle of fairness," Blumenthal said yesterday, "that huge amounts of taxpayer dollars are going into a deal that may deprive those same taxpayers of critical legal rights. How could the United States government participate in a deal that is fundamentally unfair and unjust?"
The Obama administration has committed more than $50 billion to the GM rescue in return for a 61 percent stake.
Some state officials raised a similar objection during Chrysler’s bankruptcy case. Chrysler, however, emerged from bankruptcy without such liabilities, as do many companies that undergo Chapter 11 proceedings.
In addition, an ad hoc committee, which says it represents 300 plaintiffs seeking estimated combined damages of about $1.25 billion, is fighting to stop the sale of the automaker to a "new" GM free of any liens, including product liability claims. Critics of the administration’s plan say the alleged victims should be allowed to go after the "new GM," arguing that it is essentially the same company.
"It was a Chevrolet and that is the part of the new GM," said James Lopresto, 61, whose personal injury suit against GM is pending in an Illinois county court. He was forced to take early retirement from his barber shop, Lopresto said, after his hand was sheared off in a 2007 accident in his Chevrolet Trailblazer. Lopresto said his hand was reattached after multiple surgeries, but has limited mobility.
"Basically, the government has said, ‘If your wheels come off, we’ll pay to have the wheels put back on, but if your wheels fall and you drive off a cliff… we’re not going to compensate the victims and the families,’ " said Michael Gallacher, an attorney representing the estate of Brian Taft. Taft was 36 at the time of a 2007 incident in which, as he was pulling his 1986 Chevy pickup truck out of a restaurant parking lot near his home in Pennsylvania, his car was broadsided. The car exploded, and Taft died of severe burns, leaving behind his wife and two children, according to court documents. The model, which had a sidesaddle gas tank, has been the subject of numerous lawsuits and settlements.
Consumer groups, whose objections were overshadowed by senior creditors in the Chrysler case, have ratcheted up their opposition in recent days, taking their case to the airwaves and to Congress. Many advocates hold the Obama administration responsible for deciding which liabilities would be carried over to the new GM and Chrysler — such as warranties on cars sold prior to the bankruptcy — and which would not.
"It’s hard for me to comprehend why, when taxpayers are funding so much of the transition, and we’re making specific choices about who gets money, that there’s no money for these accident victims," said Douglas Heller, executive director of Consumer Watchdog. He expressed outrage that GM is requesting court approval to pay more than $100 million to its financial advisers, Evercore Partners, a New York boutique investment bank headed by former deputy Treasury secretary Roger Altman, and AlixPartners, a turnaround consultancy.
"When Treasury makes decisions about what, in their mind, is okay for GM to spend money on, you see a boutique investment firm getting the thumbs up and injured people getting the thumbs down," he added.
In both the GM and Chrysler cases, attorneys for claimants have argued for solutions that could include appointing a "tort czar" or setting up a trust fund to pay out claims.
Recent discussions involving the Treasury also have touched on the increasingly fervent challenges from discontented GM dealers. More than 1,300 are on the chopping block under the restructuring plan. Many dealers say the plan violates long-standing state franchise laws and are seeking the right to sue the carmaker.
Treasury officials yesterday declined to comment, other than to say that GM ultimately would decide how to handle the claims.
"What we want is for GM to be a viable company," said Treasury spokeswoman Meg Reilly.
Officials involved in the talks said they hope to have an agreement in place before Tuesday, when GM plans to ask the bankruptcy court to approve the restructuring plan.
