Brent Snavely

Detroit Free Press

General Motors can no longer avoid hundreds of lawsuits from potential victims of ignition-switch defects that came before its bankruptcy because the U.S. Supreme Court has rejected the automaker's appeal of a lower-court ruling.

The court on Monday declined to consider an appeal from General Motors to keep a legal shield intact from its 2009 bankruptcy. GM had argued in lower-court rulings that its Chapter 11 bankruptcy resulted in the creation of a new company and that legal claims predating its bankruptcy could not be filed.

The decision may expose the new GM to new liabilities for a defect that killed at least 124 people and injured 275 in small cars made by the old GM, such as the Chevrolet Cobalt and Saturn Ion.

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The automaker recalled more than 2.7 million older-model cars in 2014 after it was discovered that the ignitions switches were defective and the cars could stall while being driven.

The Supreme Court's action gives new life to hundreds of lawsuits from potential victims, including some who refused to accept settlements and instead took their chances in court. It also gives life to lawsuits from those GM refused to offer deals to and to class-actions by consumers who claim their vehicle values fell because of the scandal.

“Hundreds of death and injury cases have been frozen in place for years as GM wrongly tried to hide behind a fake bankruptcy," said Robert Hilliard, lead counsel for the victims killed and injured by GM’s defective ignition switches.

GM downplayed potential legal exposure.

"The Supreme Court’s decision was not a decision on the merits, and it’s likely that the issues we raised will have to be addressed in the future in other venues because the Second Circuit’s decision departed substantially from well-settled bankruptcy law," GM said in a statement. "As a practical matter, this doesn’t change the landscape much in terms of the GM litigation."

The Supreme Court's decision to reject GM's appeal means that a decision last July by the U.S. 2nd Circuit Court of Appeals will stand. That decision overturned a bankruptcy judge's ruling that had protected GM from lawsuits involving the ignition-switch defects because of the company's 2009 bankruptcy restructuring.

The appeals court decision sets a significant legal precedent, said Carl Tobias, a law professor at the University of Richmond in Virginia.

"It's an important one, I think, for consumers and people hurt by defects and products," Tobias said, even though it doesn't eliminate the litigation protection most companies will still gain from Chapter 11 bankruptcy reorganizations. "You can use these bankruptcy proceedings to shield yourself, as long as you don’t do what GM did."

In GM's bankruptcy, backed by about $49.5 billion in taxpayer aid, the good assets of the automaker were sold to a new company called General Motors Co., while the bad assets were left in an entity called Motors Liquidation, also referred to as "Old GM."

A condition of the sale was that the new GM would be protected from product liability claims originating with accidents that occurred before the bankruptcy. That kind of legal protection has been standard practice for companies that file for Chapter 11 bankruptcy.

But the appeals court said bankruptcy code doesn’t shield GM because the company knew about the flaw before the bankruptcy and should have told customers.

"At minimum, Old GM knew about moving stalls and airbag non‐deployments in certain models, and should have revealed those facts in bankruptcy," the court said in its ruling. "New GM essentially asks that we reward debtors who conceal claims against potential creditors. We decline to do so."

Now, legal attention will swing to a federal court in New York, where a judge is overseeing lawsuits related to claims of economic loss for the value of customers' vehicles, 370 injury lawsuits and 84 death lawsuits, according to Law360.

"My best sense is now the judge in New York is really going to get down to work," Tobias said. "The goal will be to move these cases towards settlements."

Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely. USA TODAY reporter Nathan Bomey contributed to this report.