GM, Chrysler Bankruptcies Make Targets of Dealers, Suppliers
July 11 (Bloomberg) -- General Motors Corp. and Chrysler Group LLC
dealers and suppliers, such as TRW Automotive Holdings Corp., are
becoming targets of product-liability lawsuits in the wake of the
Accident victims’ lawyers in California, Texas, Ohio, South Carolina,
Missouri and Colorado have sued dealers and parts- makers on finding
that GM and Chrysler are shielded from litigation by bankruptcy law.
Attorneys may have no other way to seek compensation for some clients,
lawyer James Lowe said.
“The car companies decided they didn’t want to take responsibility for
their own vehicles,” the Cleveland plaintiffs’ attorney said in an
interview. “I’m suing component-suppliers and dealers.”
Targeting defendants previously protected by the deep pockets of the
automakers, and by law in some states, adds a financial threat to
suppliers and dealers facing the worst auto market in 30 years. GM said
it had $973 million in potential product liability as of March 31.
Chrysler didn’t disclose such information.
In a South Carolina case over an allegedly faulty seat belt, a woman who
suffered a spinal injury didn’t sue Chrysler, which built the 1996 Dodge
Caravan she was riding in. Instead, the suit was filed against Honeywell
International Inc., which previously owned the buckle supplier, and
against five dealers that bought and sold the vehicle.
“This case is typical of what is happening or will be happening
throughout the country,” said the woman’s lawyer, Kendall Few of Greer,
South Carolina. He also added Honeywell to cases that he first filed
against only GM and Chrysler.
Chrysler formed a new company from the sale of its best assets June 10
with $12 billion in support from the Obama administration, which is
trying to restructure the U.S. auto industry to return it to profit. GM,
which filed for protection June 1 with $65 billion in U.S. aid,
completed its own asset sale yesterday.
Chrysler severed all the reorganized company’s liability for cars built
before the bankruptcy filing. GM agreed to accept potential liability
for accidents occurring after its asset sale, even if they involve
vehicles built before bankruptcy. The Detroit-based company is shedding
liabilities for existing accident claims, under a court order being
appealed by attorneys for current GM plaintiffs.
“Plaintiffs’ lawyers are very entrepreneurial,” said Steven Hantler,
chairman of the business-funded Foundation for Fair Civil Justice in
Atlanta. “When one source of potential deep pockets dries up, they will
try to find another.”
Suppliers who helped develop parts may be more vulnerable to lawsuits
than dealers, who can argue they are passive sellers, said Hantler, a
former Chrysler in-house lawyer.
“The allegiances change like shifting sand, depending on who is left
holding the bag,” he said.
Plaintiffs’ lawyers began retargeting lawsuits even before Chrysler
declared its insolvency, Lowe said. In one case, “just before the
bankruptcy, we dismissed Chrysler and are proceeding against TRW,” the
Cleveland lawyer said. The Livonia, Michigan- based company supplied a
faulty steering system, he said in the complaint.
In a case in which a woman says she was injured by an air- bag failure,
Lowe sued the seller of the Town & Country vehicle he says was struck
head-on by a snowmobile going 40 to 45 miles an hour.
“The air bag literally exploded,” Lowe said. “Shards of steel and bolts
came flying out of the air bag. One shard cut through the seat belt and
into her. One bolt hit her neck and spine, lodging there.”
‘Defective’ Vehicle Sold
The suit was filed not against Chrysler but against Key Safety Systems,
which made part of the air-bag system, and the dealer who sold the
vehicle “in defective condition,” according to the complaint.
Five of 25 states he has checked, including Kentucky and Georgia,
prohibit suing suppliers or dealers, Lowe said, and Colorado has some
limitations. The other 19, including New York, Delaware and Illinois,
allow the actions, he said.
Some state laws turned dealers into targets after the bankruptcies,
plaintiffs’ lawyer John Gsanger said. In Texas, accident victims
normally can’t sue a dealership for a manufacturing flaw, said Gsanger,
of Corpus Christi, Texas. That changes if the automaker becomes
insolvent, he said.
His firm settled all but four Chrysler cases before the bankruptcy and
came close in one. “We had a settlement with Chrysler, but we didn’t get
the checks in time,” he said.
With the suit against Chrysler ended, Gsanger said, he sued the dealer
over an alleged seat-back failure in the crash of a 1997 Dodge Dakota
“As soon as Chrysler found itself bankrupt, we wanted to be the first in
line with the dealerships,” he said. Even if these dealerships become
insolvent, “there’s insurance there” to pay claims, Gsanger said.
“Strategically we have to go against folks who are in the chain of
distribution, and that includes dealers,” said Robert Nelson of the San
Francisco plaintiffs’ firm Lieff Cabraser Heimann & Bernstein LLP. The
buyer of a new car from a dealer has a contractual relationship with the
business, he said.
The dealers most at risk are the estimated 1,350 at GM and 789 at
Chrysler that are being cut by the automakers. In most cases, dealers
kept by the new GM will be indemnified from product-liability losses by
the company, said one person familiar with GM’s franchise agreements.
Mike Palese, a Chrysler spokesman, declined to comment. Renee
Rashid-Merem, a GM spokeswoman, declined to comment
Hantler, of the Fair Civil Justice group, said dealers “with rare
exceptions” should face no liability.
“They are just selling a product,” he said.
Dealers didn’t make the car, didn’t test it and don’t have the technical
knowledge to find defects, said Richard Bowman of Bowman and Brooke LLP
Bowman, a longtime defense lawyer for auto companies, agreed with
Hantler that suppliers may be more vulnerable than dealers.
Suppliers “at least made the part,” he said. “But none of that applies
to the dealer, and a jury will know that. Defending a dealer before a
jury would be about as much fun as a defense attorney can have with his
In a Colorado case, six riders in a 1997 Dodge Caravan minivan that hit
a raised manhole cover are suing suppliers Honeywell, Key Safety Systems
and Robert Bosch GmbH and a dealership, alleging an air bag was defective.
In California, a case about to be filed will include a request for
damages from a fuel-tank supplier on a Chrysler model instead of the
automaker, said Ben Hogan, a Birmingham, Alabama, attorney who litigates
across state lines.
When plaintiffs’ lawyers first started suing companies that sold or used
products containing asbestos after the asbestos producers were all
bankrupt, no one thought those would succeed, Hantler said. More than 70
companies have been forced into bankruptcy by litigation, including
Honeywell, the world’s largest maker of airplane controls, sold its
seat-belt business in 1998 and no longer makes the product.
“The current state of the auto industry has no bearing whatsoever on
Honeywell’s limited liability for cases involving automobile accidents,”
spokesman Rob Ferris said. “These cases are typically fully insured.”
John Wilkerson, a TRW spokesman, and David Stoyka, a Key spokesman,
declined to comment. Cheryl Kilborn, a spokeswoman for Bosch, declined
to comment on the Colorado case because it is in litigation.
“Like everyone else in the industry, we’re monitoring” a possible rise
in cases, Kilborn said. “We feel it’s too early to say that this is a