Georgia lawsuit still causing trouble for GM

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Associated Press

Posted on July 1, 2014 at 2:34 PM

DETROIT (AP) — For more than a year, a lawsuit filed by Brooke Melton's family has caused major migraines for General Motors.

Litigation over the 29-year-old nurse's death was settled by GM last October. But not before it laid bare how the company allowed millions of small cars to stay on the road more than a decade after GM discovered ignition switch flaws linked to at least 13 fatalities.

Now the case could upend GM's strategy to compensate victims and limit its legal liabilities in such tragedies.

The Melton family lawyers want to reopen the case and show that GM fraudulently concealed the switch problem. If they win, more plaintiffs are likely to take the company to court or expect bigger payments.

Those payments are under the management of one of the nation's top crisis compensation experts. GM has hired Kenneth Feinberg to settle hundreds of death and injury claims from crashes caused by the switches. Feinberg, who announced terms of his plan Monday, says there's no limit on the total amount he can pay. But that total could rise if the Meltons' lawyers can prove that GM fraudulently hid the switch problem, and other plaintiffs start demanding higher compensation.

The family settled the case for $5 million, but now alleges that a GM engineer who designed the switch lied under oath and the company covered it up.

At issue are the ignition switches in 2.6 million older Chevrolet Cobalts, Saturn Ions and other GM compact cars sold from 2003 to 2010. The switches can slip from "run" to "accessory," causing engines to stall. That knocks out power steering and brakes, making the cars difficult to control, and it disables the air bags.

The Meltons face some obstacles before they get another day in court. Judges prefer not to reopen settled cases. And GM has moved the case from Cobb County, Georgia, to the federal system, avoiding, for now, a judge with extensive knowledge of GM's conduct.

Here's a look at the case and its impact:

THE CRASH

Just before 7:30 p.m. on a rainy Wednesday in March of 2010, Melton's 2005 Cobalt went into a spin on Highway 92 near Atlanta. Another car hit the passenger side, knocking it off the road and into a creek. Melton, who was wearing her seat belt, was killed.

At first, police thought she was driving too fast and hit standing water. Facing a legal claim from the other driver, Melton's family hired lawyer Lance Cooper, who sued GM because Melton's car had stalled inexplicably a few days before the crash. Sensors in the car showed the ignition switch had slipped into "accessory" just before the accident. The lawsuit alleged that she lost control because the engine stalled.

Through documents provided by GM in pretrial discovery, Cooper determined that engineers knew years before Melton's crash that the Cobalt's ignition switch could easily slip out of the run position. But instead of warning drivers through a recall, GM sent dealers a bulletin telling them how to fix the problem — but only if a customer complained.

A 'BOMBSHELL' AND A SETTLEMENT

During pretrial depositions, Cooper presented evidence from an engineering expert who found that parts inside Cobalt switches had been changed after Melton's car was manufactured. The change tightened the switches and made them unlikely to slip out of "run."

In one deposition, GM engineer Ray DeGiorgio, the lead switch designer, told Cooper that he knew nothing about the changes. Also, he never authorized part maker Delphi Corp. to alter the switches.

Cooper contends DeGiorgio lied under oath and GM's lawyers concealed it. There should be documentation of such a dramatic change to a part, but GM failed to produce it, even when ordered by a judge, Cooper said. "It's all part of the cover-up," he said.

After DeGiorgio's deposition in May 2013, an attorney representing GM reported the switch alteration to company lawyers, calling it a "bombshell."

Cooper knew he was on to something. But thinking he was at a legal dead-end to prove a cover-up, he reached the deal for GM to settle with Melton's parents, Beth and Ken.

A report released by GM last month shows that the lawyer who represented GM warned of a "substantial adverse verdict" in a trial.

SECRET DOCUMENT SURFACES

After the case was settled and GM recalled the cars, congressional subcommittees summoned CEO Mary Barra to Washington. Staffers demanded thousands of documents from GM and parts maker Delphi.

The request unearthed a major problem for GM. Delphi provided a GM Form 3660 from April of 2006 that showed that DeGiorgio signed off on changing the switches but didn't change the part number, making the alteration harder to track.

At a hearing, Sen. Claire McCaskill, D-Missouri, told Barra that DeGiorgio perjured himself, and also said GM withheld the form in the Melton case, even though legally required to provide it.

"Corporations think they can get away with hiding documents from litigants and there will be no consequences," McCaskill told her. "I want to make sure there's consequences."

Barra replied that if GM withheld a document, it will "deal with" those responsible.

REOPENING THE CASE

About a month after that hearing, Cooper filed a motion in Cobb County, Georgia, contending that the Meltons would not have settled had they known that DeGiorgio lied and GM covered it up.

Their lawyers say punitive damages against GM could far exceed the $5 million settlement. And they won't settle with Feinberg because they want a trial to find out what happened in Brooke's crash.

"We hope someone during our case will be helped, maybe a life will be saved somewhere," Ken Melton said.

Three weeks ago, GM dismissed 15 employees after former U.S. Attorney Anton Valukas issued a report blaming its failure to recall the cars on a dysfunctional corporate culture. DeGiorgio and some lawyers were among those let go.

In his report to GM's board, Valukas wrote that he found DeGiorgio's change form in company files, where it had been since June of 2006.

Yet GM didn't produce the document when ordered by the Georgia judge, Cooper said. That could mean legal trouble for GM.

Historically, courts have been reluctant to reopen lawsuits once they're settled. But the document with DeGiorgio's signature could help the Meltons' cause, said Peter Henning, a law professor at Wayne State University in Detroit.

If the family wins, other settled cases could be reopened and could go to trial, raising the risk of big punitive damages, Henning said. Lawyers in other cases also will want bigger payments from Feinberg because if Cooper can prove fraud, it makes their cases stronger.

The GM lawyers who told the court the DeGiorgio document didn't exist are at risk of disciplinary action, according to Henning. Lawyers can't tell a court something doesn't exist and then say they didn't know about it. "If you say it's not in there, it was your obligation to make sure it wasn't in there," he said.

Prosecutors also could pursue a perjury charge against DeGiorgio, but it's difficult to prove, Henning said. DeGiorgio told Valukas that he didn't remember signing the document.

The Associated Press has been unable to reach DeGiorgio. GM's law firm in the Melton case, King & Spalding, would not comment.

GM'S STRATEGY

Using a methodology developed to compensate victims of the Sept. 11, 2001, terrorist attacks, Feinberg rolled out his compensation plan on Monday. In death cases, it considers age, annual earnings and number of dependents. People can opt for quick settlements, or they can go to Feinberg with extraordinary circumstances that might warrant more money. There's no limit to how much Feinberg can pay in death cases, and GM has no right to appeal.

At a press conference, the biggest settlement example Feinberg cited under his formula was $7.8 million for a 10-year-old whose crash injuries paralyzed two limbs.

There are legal loopholes that protect GM and make it appealing for victims to go to Feinberg instead of going to trial. Most states give people one or two years after a crash to file lawsuits. If they miss that statute of limitations, they usually can't file. Also, under its bankruptcy deal, GM is shielded from claims due to crashes that happened before it left bankruptcy protection in July of 2009. Those claims instead go against "Old GM," the company that existed before the automaker filed for Chapter 11. That entity has few assets. This creates two classes of claims, one against the old company and the other against the new GM with deep pockets — a $27 billion cash stockpile.

GM has asked that the bankruptcy judge enforce the shield, but lawyers want all claims to go against the "New GM."

Cooper says using the bankruptcy shield contradicts what GM wants the public to see — a company willing to atone for its misdeeds.

GM wants to appear willing to pay victims, but the bankruptcy shield "effectively says 'we want to compensate you under the rules that we choose,'" Wayne State University's Henning said.

GM spokesman Greg Martin says the company is voluntarily compensating victims.

Still, for crashes like Melton's, which happened after GM's bankruptcy, neither loophole applies. That puts GM at risk since it has admitted the switches were defective and its employees were incompetent and negligent.

"GM has essentially pulled all of its defenses," Henning said.

The Melton case is even worse for GM, as noted in an August, 2013 case summary from Phil Holladay, a King & Spalding lawyer defending the company. According to Valukas, who viewed the summary, Holladay wrote that the case was a poor candidate for trial.

Cooper, Holladay wrote, will argue that GM knew about the defective switches since the Cobalt first rolled off the assembly line, yet it has "essentially done nothing to correct the problem for the last nine years."

Cooper says if the Meltons can reopen their case, a trial would finally expose the truth.

"This case is the best case to get at what GM knew and when they knew it," he said.

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