One more problem looming for GM: what did they know back in 2009 during bankruptcy proceeding and other settled cases

A few days ago I commented on GM's proposed compensation fund and, among other things, noted that the fund would not take into account the fact that GM is protected from liability in certain lawsuits as a result f its bankruptcy in 2009.   A new story in Bloomberg from a few days ago suggests there is another reason for this.  According to the story, U.S. Bankruptcy Judge Robert Gerber recently stated in a hearing that plaintiffs in certain cases would have a stronger case if they could prove GM executives knew about the faulty ignition switch problems when testifying during its 2009 bankruptcy.  The judge is quoted as saying that "If they knew about it and intended to keep it from me, that might constitute fraud on the court.”  You can read the story here.  As I suggested in my previous post, GM is not acting out of the goodness of its heart.  It is trying to do damage control.

Meanwhile in a related story reported in the Chicago Daily Law Bulletin on July 3, the family of a woman who died in an accident related to the ignition switch defect is seeking to reopen a case it settled with GM back in October arguing the company committed fraud on the court in that litigation too. GM engineer who designed the switch lied under oath and the company covered it up.  They also argue that the company did not produce relevant documentation during discovery even when ordered by the judge.  It was not until after the case settled that relevant documents were revealed as part of Congressional hearings that the information was discovered.

About a month after that hearing, the plaintiffs filed a motion to reopen the case contending that they would not have settled had they known that the GM witness lied and that the company covered it up.

For obvious reasons, the plaintiffs have said they won’t settle with the recently announced fund administered by Ken Feinberg.  Punitive damages alone could far exceed the previously obtained million settlement.  Plus, the trial could finally bring out the details of GM's knowledge and conduct.

Courts are usually reluctant to reopen lawsuits once they are settled. But the documents now available could help the plaintiff's argument.  Needless to say, if the plaintiffs are successful in reopening the case, other cases could be reopened, and more plaintiffs are likely to take the company to court or expect bigger payments from the compensation fund.  GM should be very worried.

UPDATE (7/27/14):  GM had the case removed to federal court but the court later decided the case should have remained in state court.  For more information go here.