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Bankruptcy takes away plaintiffs' day in court
Chapter 11 is allowing Chrysler, GM to shed hundreds of injury and death claimsDoug Guthrie / The Detroit News
Detroit --Stevie Beale awoke in a hospital bed three years ago hearing her father's voice assuring, "No matter what anyone tells you, you are going to walk again."
"I thought, 'Oh, it's that bad,' " said Beale, now 20, at one of her three-times-a-week therapy sessions at the Detroit Medical Center's Rehabilitation Institute of Michigan.
The lawsuit the Lambertville, Mich., native filed against General Motors Corp. claims faulty seat belt attachment design caused her to be paralyzed from the waist down in a car crash.
She says engineers knew through testing that the steel floor in the 1998 Pontiac Bonneville was too weak.
But Beale's claims and hundreds of other injury and death lawsuits throughout the nation will be wiped out by controversial government plans to bring GM and Chrysler Group LLC out of bankruptcy debt-free.
"It's not fair that I'm not going to get the compensation I need from GM to live my changed life," said the former athlete. "I'm not even going to get my day in court so I can at least warn people about the danger."
The new Chrysler can't be held liable for incidents involving the estimated 10 million cars and trucks sold by the automaker before June 10, when the company emerged from bankruptcy. Victims and their survivors with pending and future lawsuits against the old Chrysler are in the least protected class of creditors, and are likely to get nothing.
The same rules could apply to General Motors' estimated 30 million vehicles already on the road when it emerges from bankruptcy, perhaps in July.
On Friday, attorneys general from eight states opposed the provision in GM's bankruptcy plan. They filed an objection in U.S. Bankruptcy Court in the Southern District of New York.
The attorneys general of Connecticut, Kentucky, Maryland, Minnesota, Missouri, Nebraska, North Dakota and Vermont argued that the rules would bar accident victims from key legal rights.
Critics say this blocks a bedrock American right to legal recourse and creates second-class status for unwitting drivers, who will remain behind the wheels of liability-free old GM and Chrysler vehicles for years to come.
It also is likely to derail numerous state "lemon laws" and consumer protection mechanisms that rely on lawsuits to track defects and force manufacturers to recall and correct unsafe vehicles, according to consumer advocates.
The new GM and Chrysler are promising to honor all product warranties and can be sued for defects causing injury in any vehicle sold after emerging from bankruptcy. But the companies and the government insist the legal curtain protecting the new companies from liability for past products is common in bankruptcies.
Both GM and Chrysler are self-insured against product liability, so there is nothing for victims if the old companies' coffers are drained.
Victims with already court-ordered awards will end up fighting over the old automakers' scraps with the biggest secured creditors, including suppliers, pension funds and stockholders.
"If your ball joint fails and a wheel falls off, they will fix that. This says they care more about parts than people," said Sean Kane, president of Safety Research & Strategy, a Massachusetts-based consulting firm for consumer groups and government agencies. "What incentive does the manufacturer have to improve safety on a car when they have no liability?"
The alternative was worse
GM and Chrysler emphasize the alternative was complete liquidation of the companies.
"Chrysler is saddened anytime someone is injured in one of our vehicles. Our vehicles meet or exceed all federal safety standards and have excellent safety records," said Michael Palese of Chrysler corporate communications. "The reality is that automobile accidents are unpredictable and dangerous events where bad things sometimes happen. An injury resulting from an accident or contact with a motor vehicle is not evidence that a vehicle is defective."
Tom Wilkinson, director of General Motors news relations, said, "If you just look at the headlines since June 1, you can see that this bankruptcy process has been very painful for many stakeholders -- employees, retirees, dealers, suppliers, plant communities, investors, etc. But again, the alternative to a successful Chapter 11 process is liquidation of the company, a situation under which claimants could expect little if any recovery."
Government takes hard line
Lynn LoPucki, a professor and bankruptcy expert at UCLA Law School, grew up in Belleville and is aware of the importance of the auto industry's survival to Michigan.
"There is a whole process set up to handle Chapter 11 cases and they are end-running this, and it makes it difficult or impossible for creditors to participate," LoPucki said.
GM has reported expenditures of $928 million for product liability in 2008, while revenues totaled $149 billion. That figure lumps legal costs with payments for claims. In 2007, liability expenses were $1.1 billion, while revenues totaled $180 billion.
"That's why this is such a strange decision. The figures aren't going to be that big, and aren't going to make a big difference," said LoPucki.
"They should assume liability for their cars. Instead, they give people a very good reason to not buy their cars," she said.
"Certainly, if you are smart, you shouldn't buy a GM car right now. Not until the bankruptcy is complete. And it's all because they simply are nickeling and diming their own customers."
John Pottow, a University of Michigan law professor and bankruptcy expert, was returning Thursday from a conference in New York, where he said General Motors lawyers gave him the impression they are still considering how to proceed.
"They still are saying they need to close their liability on vehicles produced by the old GM, but this is a very serious issue, and there is some consideration of at least including vehicles sold during the pendency of GM's bankruptcy," Pottow said.
"What's fascinating about this is that it is the government taking the hard line here, insisting that the new company should emerge free of those liabilities. It's the government actually thinking like hardheaded investors instead of taking the more predictable, more socialist line," Pottow said.
"It's actually the government saying to the owners of these old Chrysler and GM cars, 'Too bad to be you.' "
Brian Catalano, 35, a laid-off millwright for a Port Huron auto parts supplier, said, "Everyone is paying through their taxes to a company that I feel killed my mother."
Linda Catalano, 55, was run over Aug. 3 near Harbor Beach by her Chrysler minivan. A lawsuit claims the transmissions in Chrysler's vans are infamous for jumping from park to reverse. A trial was set for January 2010, but Brian Catalano expects now that the case will be thrown out.
Anger, bitterness arise
"We understand how much we absolutely need the automakers to survive," said Catalano, whose brother, Bradley, and sister, Christina, are United Auto Workers members in Metro Detroit. "But at what cost? This plan takes every customer that has been with Chrysler and GM and throws them to the curb."
In another case, the parents of 16-year-old Justin Fox bought a 2002 Chevrolet Silverado believing their son would be safe in a large pickup. He died July 4, 2007, when he was broadsided at a rural intersection by a St. Johns High School hockey teammate. The Foxes sued GM.
"He didn't die from injuries suffered in the crash. He burned to death," said his mother, Michelle Fox. "I always tried to buy American-made, and now it makes me bitter and feel guilty that what I did to protect him cost his life. We believe that if my son had been in another vehicle, he'd still be alive."
Lambertville's Beale said her life changed "180 degrees" after the June 15, 2006, crash. Her best friend and fellow backseat passenger, Charlie Fackelman, 17, died. His parents also are suing GM.
She said she's lost friends because her special needs no longer fit their spontaneous lifestyle. Her family home -- where she can't cook or do laundry because it's not handicapped-accessible -- has been for sale for three years. Her parents divorced under the stress of high medical bills and their daughter's overwhelming needs.
"When I first got home, I couldn't go to the bathroom by myself," said Beale, who is a psychology major at Lourdes College, just across the state line in Sylvania, Ohio. "I can never travel far from my parents because they help me all the time. Day-to-day is a constant battle."
Members of Congress are awakening to the fine print in the Chrysler agreement, said Joanne Doroshow, executive director of the consumer legal affairs advocacy group Center for Justice and Democracy. She calls the deal "morally reprehensible."
Critics are lobbying to establish government-supported victims' compensation funds. Up to 1,000 people are hurt or killed annually by auto design defects, Doroshow said. "There is a lot of discussion in Washington about compensation funds, which happens frequently in cases like this. Look at the failed asbestos industry and the claims that were handled in the wake of 9/11," Doroshow said. "When you have products that have and will continue to kill people, there are funds set up for victims."
Chapter 11 is allowing Chrysler, GM to shed hundreds of injury and death claimsDoug Guthrie / The Detroit News
Detroit --Stevie Beale awoke in a hospital bed three years ago hearing her father's voice assuring, "No matter what anyone tells you, you are going to walk again."
"I thought, 'Oh, it's that bad,' " said Beale, now 20, at one of her three-times-a-week therapy sessions at the Detroit Medical Center's Rehabilitation Institute of Michigan.
The lawsuit the Lambertville, Mich., native filed against General Motors Corp. claims faulty seat belt attachment design caused her to be paralyzed from the waist down in a car crash.
She says engineers knew through testing that the steel floor in the 1998 Pontiac Bonneville was too weak.
But Beale's claims and hundreds of other injury and death lawsuits throughout the nation will be wiped out by controversial government plans to bring GM and Chrysler Group LLC out of bankruptcy debt-free.
"It's not fair that I'm not going to get the compensation I need from GM to live my changed life," said the former athlete. "I'm not even going to get my day in court so I can at least warn people about the danger."
The new Chrysler can't be held liable for incidents involving the estimated 10 million cars and trucks sold by the automaker before June 10, when the company emerged from bankruptcy. Victims and their survivors with pending and future lawsuits against the old Chrysler are in the least protected class of creditors, and are likely to get nothing.
The same rules could apply to General Motors' estimated 30 million vehicles already on the road when it emerges from bankruptcy, perhaps in July.
On Friday, attorneys general from eight states opposed the provision in GM's bankruptcy plan. They filed an objection in U.S. Bankruptcy Court in the Southern District of New York.
The attorneys general of Connecticut, Kentucky, Maryland, Minnesota, Missouri, Nebraska, North Dakota and Vermont argued that the rules would bar accident victims from key legal rights.
Critics say this blocks a bedrock American right to legal recourse and creates second-class status for unwitting drivers, who will remain behind the wheels of liability-free old GM and Chrysler vehicles for years to come.
It also is likely to derail numerous state "lemon laws" and consumer protection mechanisms that rely on lawsuits to track defects and force manufacturers to recall and correct unsafe vehicles, according to consumer advocates.
The new GM and Chrysler are promising to honor all product warranties and can be sued for defects causing injury in any vehicle sold after emerging from bankruptcy. But the companies and the government insist the legal curtain protecting the new companies from liability for past products is common in bankruptcies.
Both GM and Chrysler are self-insured against product liability, so there is nothing for victims if the old companies' coffers are drained.
Victims with already court-ordered awards will end up fighting over the old automakers' scraps with the biggest secured creditors, including suppliers, pension funds and stockholders.
"If your ball joint fails and a wheel falls off, they will fix that. This says they care more about parts than people," said Sean Kane, president of Safety Research & Strategy, a Massachusetts-based consulting firm for consumer groups and government agencies. "What incentive does the manufacturer have to improve safety on a car when they have no liability?"
The alternative was worse
GM and Chrysler emphasize the alternative was complete liquidation of the companies.
"Chrysler is saddened anytime someone is injured in one of our vehicles. Our vehicles meet or exceed all federal safety standards and have excellent safety records," said Michael Palese of Chrysler corporate communications. "The reality is that automobile accidents are unpredictable and dangerous events where bad things sometimes happen. An injury resulting from an accident or contact with a motor vehicle is not evidence that a vehicle is defective."
Tom Wilkinson, director of General Motors news relations, said, "If you just look at the headlines since June 1, you can see that this bankruptcy process has been very painful for many stakeholders -- employees, retirees, dealers, suppliers, plant communities, investors, etc. But again, the alternative to a successful Chapter 11 process is liquidation of the company, a situation under which claimants could expect little if any recovery."
Government takes hard line
Lynn LoPucki, a professor and bankruptcy expert at UCLA Law School, grew up in Belleville and is aware of the importance of the auto industry's survival to Michigan.
"There is a whole process set up to handle Chapter 11 cases and they are end-running this, and it makes it difficult or impossible for creditors to participate," LoPucki said.
GM has reported expenditures of $928 million for product liability in 2008, while revenues totaled $149 billion. That figure lumps legal costs with payments for claims. In 2007, liability expenses were $1.1 billion, while revenues totaled $180 billion.
"That's why this is such a strange decision. The figures aren't going to be that big, and aren't going to make a big difference," said LoPucki.
"They should assume liability for their cars. Instead, they give people a very good reason to not buy their cars," she said.
"Certainly, if you are smart, you shouldn't buy a GM car right now. Not until the bankruptcy is complete. And it's all because they simply are nickeling and diming their own customers."
John Pottow, a University of Michigan law professor and bankruptcy expert, was returning Thursday from a conference in New York, where he said General Motors lawyers gave him the impression they are still considering how to proceed.
"They still are saying they need to close their liability on vehicles produced by the old GM, but this is a very serious issue, and there is some consideration of at least including vehicles sold during the pendency of GM's bankruptcy," Pottow said.
"What's fascinating about this is that it is the government taking the hard line here, insisting that the new company should emerge free of those liabilities. It's the government actually thinking like hardheaded investors instead of taking the more predictable, more socialist line," Pottow said.
"It's actually the government saying to the owners of these old Chrysler and GM cars, 'Too bad to be you.' "
Brian Catalano, 35, a laid-off millwright for a Port Huron auto parts supplier, said, "Everyone is paying through their taxes to a company that I feel killed my mother."
Linda Catalano, 55, was run over Aug. 3 near Harbor Beach by her Chrysler minivan. A lawsuit claims the transmissions in Chrysler's vans are infamous for jumping from park to reverse. A trial was set for January 2010, but Brian Catalano expects now that the case will be thrown out.
Anger, bitterness arise
"We understand how much we absolutely need the automakers to survive," said Catalano, whose brother, Bradley, and sister, Christina, are United Auto Workers members in Metro Detroit. "But at what cost? This plan takes every customer that has been with Chrysler and GM and throws them to the curb."
In another case, the parents of 16-year-old Justin Fox bought a 2002 Chevrolet Silverado believing their son would be safe in a large pickup. He died July 4, 2007, when he was broadsided at a rural intersection by a St. Johns High School hockey teammate. The Foxes sued GM.
"He didn't die from injuries suffered in the crash. He burned to death," said his mother, Michelle Fox. "I always tried to buy American-made, and now it makes me bitter and feel guilty that what I did to protect him cost his life. We believe that if my son had been in another vehicle, he'd still be alive."
Lambertville's Beale said her life changed "180 degrees" after the June 15, 2006, crash. Her best friend and fellow backseat passenger, Charlie Fackelman, 17, died. His parents also are suing GM.
She said she's lost friends because her special needs no longer fit their spontaneous lifestyle. Her family home -- where she can't cook or do laundry because it's not handicapped-accessible -- has been for sale for three years. Her parents divorced under the stress of high medical bills and their daughter's overwhelming needs.
"When I first got home, I couldn't go to the bathroom by myself," said Beale, who is a psychology major at Lourdes College, just across the state line in Sylvania, Ohio. "I can never travel far from my parents because they help me all the time. Day-to-day is a constant battle."
Members of Congress are awakening to the fine print in the Chrysler agreement, said Joanne Doroshow, executive director of the consumer legal affairs advocacy group Center for Justice and Democracy. She calls the deal "morally reprehensible."
Critics are lobbying to establish government-supported victims' compensation funds. Up to 1,000 people are hurt or killed annually by auto design defects, Doroshow said. "There is a lot of discussion in Washington about compensation funds, which happens frequently in cases like this. Look at the failed asbestos industry and the claims that were handled in the wake of 9/11," Doroshow said. "When you have products that have and will continue to kill people, there are funds set up for victims."
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