Second Circuit Says GM Bankruptcy Not a Bar to Ignition Defect Claims

Second Circuit Says GM Bankruptcy Not a Bar to Ignition Defect Claims

The U.S. Court of Appeals for the Second Circuit ruled yesterday that plaintiffs may assert successor liability claims arising from ignition switch defects against the “new” General Motors, despite a ʺfree and clearʺ provision in the bankruptcy court’s 2009 order selling “old” General Motors to “new” GM as part of the U.S. government’s bailout of “old” GM.  The Second Circuit held that plaintiffs asserting claims arising out of ignition switch defects in certain models of GM cars were denied procedural due process because they did not receive actual or direct mail notice of the bankruptcy proceedings, even though they did not assert their claims until 2014 (well after the bankruptcy order), because GM knew or should have known of the ignition switch defect at the time of the bankruptcy and said nothing.  Further, the Second Circuit, without deciding the question of whether a due process violation requires as showing of prejudice, concluded that the claimants were prejudiced by the lack of notice, because the final bankruptcy order could have been shaped to contemplate their claims had notice been given. [7/14/16]

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