Will GM, Chrysler leave injury lawsuits behind?

Plaintiffs with pending lawsuits against GM and Chrysler are getting abandoned in bankruptcy process, lawyers say.

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By Aaron Smith, CNNMoney.com staff writer

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Chrysler was king of the hill with its 300 series just a few years ago. Oh how the mighty have fallen.
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NEW YORK (CNNMoney.com) -- As Chrysler morphs into a new company and as General Motors moves ahead with its bankruptcy process, injured plaintiffs are getting left behind.

Hundreds of plaintiffs have pending lawsuits against the automakers that are worth nearly $2 billion. They blame automotive defaults for their injuries, which in many cases are severe and crippling.

But their lawyers have doubts as to whether they'll ever see any money because the plaintiffs are considered unsecured creditors in the bankruptcies. Therefore, they're at the bottom of the repayment pool - if there's even money left.

"We want all the people who have suffered injury, who have a lawsuit, to have their day in court," said Larry Coben, chairman of the Committee of Consumer Victims of General Motors and founder of law firm Coben & Associates in Scottsdale, Ariz. "[They] shouldn't be lost in the shuffle here."

Coben, and his colleague Barry Bressler, are among a team of lawyers representing 170 injured plaintiffs in the bankruptcy proceeding who have sued Chrysler for claims worth $600 million and 300 injured plaintiffs who sued GM for claims worth $1.25 billion.

Bressler, a partner with the Philadelphia firm Schnader, Harrison, Segal & Lewis, has a client who was a passenger in a GM vehicle and was paralyzed when it crashed, allegedly because of a faulty seatbelt.

"The seatbelt snapped and broke her neck and she's now quadriplegic," said Bressler. Bressler said that some of his clients are too disabled to care for themselves and they shouldn't be abandoned by the bankruptcy court. "It's really a shame what's happening to these folks," he said.

Still, they know they could face a tough fight if anything is to be learned from Chrysler's bankruptcy.

The Chrysler case

Bankruptcy Court Judge Arthur Gonzalez approved the transfer of Chrysler's best-performing assets, including factories and dealership contracts, to the newly formed Chrysler Group LLC. Some factories, dealerships and creditors were left behind in the bankruptcy process, including pension funds from Indiana teachers and state police, as well as a "Major Moves" construction fund.

Indiana Treasurer Richard Mourdock appealed -- first to the Court of Appeals, 2nd Circuit, and then to the U.S. Supreme Court -- that the pension funds, as secured creditors, should have higher status than unsecured creditors.

But the Supreme Court gave the Chrysler bankruptcy a green light; Mourdock's appeal succeeded only in delaying the process by a few days.

That does not bode well for the injured plaintiffs, whose open lawsuits against Chrysler are unsecured, meaning that they have lower priority than the Indiana pension funds.

"If you have a judgment or a settlement you move to the front of the line," said Chrysler spokesman Mike Palese to CNNMoney.com. "But the filing of a liability lawsuit is not proof that there is a default with the vehicle."

Injured plaintiffs can try to lay claim to the Chrysler assets left behind in the bankruptcy process, but there won't be much left, according to Bressler.

"There are probably going to be some assets left in old Chrysler and some claims to be decided," said Bressler. "[But] when you get all done liquidating that, you're probably no more than half a cent on the dollar, and more likely zero."

Coben is concerned about the future impact because, he said, plaintiffs injured by defects in Chrysler vehicles made before the bankruptcy won't be able to sue the new Chrysler.

"If you're driving down the road and the wheel falls off and you roll over and get paralyzed from the neck down, they'll replace your wheel [because it's covered by warranty], but you can't sue them for your injury," he said.

As a result, Coben said he will argue for "successor liability" in the GM case, where the open claims would be carried over to a newly formed company.

"We're trying to get those folks who are representing GM, and that really means the Treasury, to allow successor liability for GM," he said. "If we can't do that, we will certainly file objections to the proposed sale. You shouldn't be allowed to do away with successor liability."

But Coben admitted it's a long shot, unless he can convince the Treasury to intervene.

"Treasury was not involved in this decision, which the company made consistent with conventional bankruptcy practice," said Treasury spokeswoman Meg Reilly in an e-mail. "While unfortunate, the outcome would have been far worse had the government not intervened in the restructuring and Chrysler had liquidated."

But the prospects are much better for injured plaintiffs who have settled on a case. If the judge has awarded them damages prior to the bankruptcy filing, then they should still be able to receive their payments, according to GM spokesman Tom Wilkinson.

"Anything that is settled prior to the bankruptcy filing is settled," said Wilkinson. To top of page

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