NOW GM, MILLIKIN AND THE LEGAL DEPARTMENT FACE AN
uncertain future. Auto industry gadfly Peter DeLorenzo,
writing about the recall mess, said in an April blog post:
“GM’s legal staff needs to be blown up, starting with a
regime change at the top and a thorough purging of any
and all who have enthusiastically taken their marching
orders from the current chief counsel.” Some media have
speculated on whether Millikin will be ousted. But GM
issued a statement saying the general counsel, who turns
66 in August, has no plans to retire and will remain in his
position. At press time the U.S. bankruptcy court in Manhattan is considering whether some suits against GM over
the defects should be removed from bankruptcy protection. Under terms of the 2009 bankruptcy, the so-called
New GM (a new entity created by the bankruptcy) was
given protection against all liabilities that arose prior to the
bankruptcy, including crashes due to defects.
But attorney Alexander Schmidt, who brought an action
in bankruptcy court on behalf of eight plaintiffs, argues that
GM knew, or should have known, about the massive poten-
tial for liabilities over the defect “and failed to disclose that
information to the court or other interested parties” during
the 2009 proceedings. Schmidt, of Wolf Haldenstein Adler
Freeman & Herz, says GM “pulled the wool over the eyes
of the government when it fraudulently induced the gov-
ernment to support it during bankruptcy.”
Harry Wilson, an Obama administration adviser to the
2009 auto task force, confirmed the lack of knowledge.
Wilson said in May that the task force was unaware of the
switch problems when it crafted the $49.5 billion bailout for
GM five years ago, according to a Detroit News story. The
issue, Wilson said in the article, “sadly is emblematic of the
cultural problems” at the automaker.
GM says it’s changed, and is looking for a way to compensate crash victims. It hired Kenneth Feinberg, the victim
compensation expert who administered the September 11
Victim Compensation Fund and One Fund Boston, arising
out of the Boston Marathon bombings, to come up with a
plan to address hundreds of damage claims filed against
the automaker. The company, however, appears to continue
fighting economic claims that seek loss of value of defective
vehicles, according to its bankruptcy court filings.
And then there are the ongoing multiple investigations.
Both houses of Congress have held hearings on the recall
delay and intend to hold more. One senator threatened to
bring in GM’s lawyers for questioning. The next round of
hearings is expected now that Valukas has completed his
But perhaps most worrisome to the automaker is a
criminal probe by the Justice Department. Neither GM nor
Justice will discuss it, but the investigation has been widely
reported. NHTSA officials already accused the company of
committing a crime by not reporting the defect years ago.
Kam said he expects Justice to use its March settlement with
Toyota Motor Corporation as a model. In that deal, Toyota
agreed to pay a record $1.2 billion penalty for concealing deadly accelerator problems, admitted that it misled
consumers, signed a deferred prosecution agreement for
criminal wire fraud and accepted an independent monitor
to oversee its safety procedures.
Meanwhile, within GM some changes are evident. Some
safety officials reportedly have retired, left the company or
moved to other jobs. GM created a new job of vice president
of global vehicle safety. And Millikin named Lucy Clark
Dougherty, general counsel of GM North America, to be
the company’s chief legal adviser for global vehicle safety.
In addition, The Detroit News reported that the company
is more than doubling the number of engineers who look at
safety issues. With all this emphasis on safety, GM so far has
recalled a record 15. 8 million vehicles worldwide for various unrelated reasons—about 20 times as many vehicles as
it recalled last year.
But Congress isn’t satisfied yet. In May, Sens. Richard Blumenthal (D-Connecticut) and Lindsey Graham
(R-South Carolina) introduced a bipartisan bill requiring
federal judges to consider public health and safety in product liability cases before agreeing to seal court records. The
senators said sealed settlements in GM lawsuits since 2005
prevented the public from having earlier knowledge of the
defective ignition switches.
Safety expert Kam would like to see Congress do one
GM says IT’S CHANGED, and is looking for
more thing. “We need criminal penalties in the Safety Act,”
he says. Kam explains that now an executive considering a
recall that could cost hundreds of millions of dollars might
choose to wait, “and they just might get away with it. Or
at worst they face having to do a recall down the road and
pay a civil penalty to NHTSA. … It’s a cold cost-benefit
But, Kam continues, “imagine if in that hypothetical
case, instead of saying, ‘Let’s wait and save money,’ the
manager says, ‘But I can go to jail if I don’t do this recall as
the law requires.’ Then it’s a different equation.” ■
a way to compensate crash victims.