GM bankruptcy could clear automaker of all accident claims, says John Penn

07/06/2009

Meltdown 101: GM's Bankruptcy and Liability Claims
Associated Press

American consumers assume they have the right to sue a company that has sold them a faulty product. In the upside-down world of bankruptcy — including the one General Motors is going through — those rights are not a given.

What kind of leeway does a bankruptcy judge have over product liability claims? Could GM have gotten permission from the bankruptcy court to erase all accident claims related to cars sold by the old GM?

It could have, according to John Penn of the law firm Haynes and Boone. Federal bankruptcy law allows a company to enter court protection and sell assets free and clear of any existing claims and certain future claims against the company, he said.

The rationale behind the bankruptcy code that allows this, Penn said, is that "the fewer burdens the new company has, the more likely it is to succeed in the future." So GM's bankruptcy filing gave it a legal argument to get rid of product claims, even those that were made because of some defect in its products.

However, it is important to note that the law is not clear-cut in this area: Lawyers say courts around the country have been split on the issue of product liability in bankruptcy, differing over which responsibilities are inescapable under the court's protection.

This article excerpted from the Associated Press.  For full text, click here.

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