GM Defect Case Headed Back to the West Coast

NEW YORK (CN) - A judge ruled that California's lawsuit against General Motors over a dangerous ignition switch failures belongs in state court through an exemption embedded in bankruptcy law.

In an order filed Tuesday, U.S. District Judge Jesse M. Furman agreed with state prosecutors that California's case against GM, part of several others in multidistrict litigation, was removable under the police powers exception of 28 U.S.C. 1452 - Removal of Claims Related to Bankruptcy Cases.

Earlier this year, Orange County District Attorney Tony Rackauckas filed a complaint against GM in California state court, alleging that ignition switch, power steering, airbag, and brake light defects increased the risk of injuries and death to drivers and passengers.

Widely reported in the media, ignition switch failures disable power, vehicle speed control, braking or airbags. The defect affected more than 1.5 million GM vehicles, Rackauckas said in the Aug. 5 lawsuit.

At least 35 people have died as a result of the defect, though an independent report commissioned by Center for Auto Safety said the death toll could be as high as 300.

According to Rackauckas, the defects led GM to issue 40 recalls in the first half of the year for an estimated 17 million vehicles.

"By concealing the existence of the many known defects plaguing many models and years of GM-branded vehicles and the fact that GM values cost cutting over safety, and concurrently marketing the GM brand as 'safe' and 'reliable,' GM enticed vehicle purchasers to buy GM vehicles under false pretenses," the complaint states.

After Rackauckas filed suit in August, GM removed the case to the to the federal district court in Los Angeles as part of the hundreds of claims against the Detroit-based multinational.

Rackauckas said the state is seeking to hold GM liable for omissions after its U.S. government-backed bankruptcy reorganization in 2009, and the sale of assets to the new GM.

The prosecutor argued that California's case is different from the others in the federal court because the suit was brought by a government unit seeking to enforce police power in effort to protect the public.

GM asserted that the case falls under the federal bankruptcy court's jurisdiction, and sought to enforce an order of that court that shields the "new" GM from the liabilities of its predecessor.

In 16-page order, Judge Furman found that the state was entitled to the police-power exception to bankruptcy jurisdiction, and said the case "exceeds the limits" of the federal courts.

"Plaintiff's claims arise solely under California state law. And although the UCL [California's Unfair Competition Law] claims are predicated, in part, on alleged violations of federal law the alleged federal law violations are anything but the 'only' issues contested in the case," the judge wrote.

While Furman said the court had effectively managed the claims of more than 1,000 plaintiffs, he said there was no reason why the court would not be able to coordinate with judges in pending state court cases.Furman granted California's motion and remanded back to the Orange County Superior Court.

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