GM’s Ignition Switch Recall – A Prime Example of Why It’s Not Sound Policy to Let
By itself, the 2009 GM bankruptcy was a poster child for some of the many flaws in chapter 11 and bankruptcy law as used to handle contingent liability claims. See, for example, here, here, here, and here. That said, Bankruptcy Judge Gerber sometimes did draw a due process lines in terms of cutting off claims without notice and a hearing. See here, here (Wilmer Hale article), here (brief of Public Citizen and others). On later appeal, Judge Kaplan, however, tossed out due process and barred tort claims with alacrity.
That poster child status is now reinforced by the emerging story about GM’s now started recall of defective ignition switches. This new recall is based on information indicating GM chose not to to act on that dates back to at least 2003, and appears to involve at least 13 deaths.
GM’s bankruptcy petition was not served on and did not give notice of the defective ignition switches to car owners, to subrogated property insurance companies that paid for damage to cars that were hit after stalls, or to subrogated health insurers that paid for medical services for killed or injured people. Perhaps GM is not or was not liable for negligence or under strict liability – that’s not clear. But plainly it is clear that due process is not possibly satisfied when bankruptcy courts cut off claims that are creatures of state law, and before the claims can be known, especially if the company failed to act despite superior information. See also here (Frost Brown Todd article), here (Kramer Levin article on use of Code section 105 powers); here (Linda Mullenix’ early 2003 paper on Agent Orange and due process rights of unknown claimants), here (later 2003 article by Mullenix); here (Second Circuit’s 2001 opinion in Stephenson v. Dow Chemical), here (popular press article on the rulings by SCOTUS in cert on Dow), and here (economic look at Dow).