By Sue Reisinger, From Corporate Counsel
General Motors Co. unloaded a truckload of legal problems Thursday by agreeing to pay $900 million in criminal penalties and $575 million in civil settlements related to an ignition switch defect that led to more than 100 deaths.
But critics were quick to say the penalties are not enough.
U.S. Attorney Preet Bharara in Manhattan outlined the details of the deferred prosecution agreement (DPA), which included two felony charges of scheming to conceal a deadly safety defect from U.S. regulators and of committing wire fraud. “GM admits and stipulates that the facts … are true and accurate,” the documents state.
“The mistakes that led to the ignition switch recall should never have happened. We have apologized and we do so again today,” said a statement from GM CEO Mary Barra. “We have faced our issues with a clear determination to do the right thing both for the short term and the long term.”
Under the deal, GM accepted a corporate monitor to be selected by the U.S. attorney’s office and approved by the U.S. deputy attorney general. It is a three-year DPA, with prosecutors having the right to extend it a fourth year under certain conditions.
The lengthy statement of facts carried the footprints of unnamed GM lawyers throughout them–from taking part in various meetings about the defect to secretly settling cases involving it. Their actions helped delay a recall of defective vehicles for nine years.
The agreement was signed by GM general counsel Craig Glidden, an outsider brought in March 1 to rebuild the legal department after former GC Michael Millikin resigned under fire and at least four lawyers were dismissed for their roles in the scandal.
The deal was also signed by Anton Valukas, a former U.S. attorney who is chairman of Jenner & Block. It was Valukas who conducted the controversial “independent” internal investigation for GM on how it handled the defect, and then helped represent the company in negotiations with the U.S. attorney.
The agreement states, “GM admits that it failed to disclose to its U.S. regulator and the public a potentially lethal safety defect that caused airbag nondeployment in certain GM model cars, and that GM further affirmatively misled consumers about the safety of GM cars afflicted by the defect.”
While prosecutors did not charge any individuals, GM has agreed to continue its cooperation if the investigation continues.
The $900 million criminal penalty could have been much more. It was based on GM’s profit from selling defective cars from the spring of 2012–when it definitively knew about the problem–until the recall in February of 2014. Conceivably it could have gone back several years earlier, when a number of GM engineers and lawyers realized they had a problem and began a drawn-out investigation of it.
But prosecutors indicated that they took into account GM’s cooperation and acceptance of responsibility. They specifically cited the company’s conducting a “swift and robust internal investigation,” providing a continuous flow of information and unvarnished facts, terminating wrongdoers, and establishing an independent victim compensation fund that is expected to pay out over $600 million.
Still, the criminal penalty was less than the $1.2 billion that Toyota Motor Corp. paid last year in settling criminal charges over its unexpected acceleration problems. Toyota also paid $1 billion in civil damages.
Also on Thursday, GM announced it was taking a $575 million charge as a result of settling civil suits and a shareholder class action connected to the switch scandal. The company said it reached a memorandum of understanding potentially covering 1,380 individual death and personal injury claimants–more than half of the personal injury plaintiffs in multidistrict litigation in New York.
“The parties to these agreements have resolved difficult claims without the burden, expense and uncertainty of litigation,” said Glidden, the GC, in the statement.
At least one critic believes paying a settlement is not enough. Clarence Ditlow, head of the Center for Auto Safety, told the Detroit News, ““GM killed over a 100 people by knowingly putting a defective ignition switch into over 1 million vehicles. Yet no one from GM went to jail or was even charged with criminal homicide. This shows a weakness in the law not a weakness in the facts. GM killed innocent consumers.”
Ditlow continued, “GM has paid millions of dollars to its lobbyists to keep criminal penalties out of the Vehicle Safety Act since 1966. Today, thanks to its lobbyists, GM officials walk off scot-free while its customers are six feet under.”
Another critic saying the law should be changed was plaintiffs attorney Bob Hilliard, of Hilliard Muñoz Gonzales, one of the co-lead counsels in the multi-district litigation.
“To have the single most egregious and successful cover up in the history of this country result in such a gentle slap on the wrist through the payment of these pennies in a fountain, does not bode well for tomorrow’s victim of the next auto defect,” Hilliard said in a statement. “Without a change in the law, there simply will be no deterrent for car companies that decide to cut corners and kill customers.”
Hilliard then compared the financial penalty to what Toyota paid. “Toyota paid more but was guilty of less,” he said. “Hundreds of deaths resulted from GM’s conduct and yet they simply write a check and go home. This is a remarkably jaw-dropping and incredibly sad result.”
GM’s future is not all rosy yet. Despite major legal burdens being taken off their shoulders today, Glidden and GM still must tackle more legal issues ahead.
They have more civil litigation, including 84 death cases and 380 injury cases not yet settled in the multidistrict suit. The trial is scheduled to start in January.
The company also faces ongoing investigations by the Securities and Exchange Commission, Transport Canada and all 50 state attorneys general.
And it could face some tax consequences. The U.S. attorney’s office “does not agree not to prosecute GM for criminal tax violations,” according to wording in the DPA.
IMAGE: Southern District U.S. Attorney Preet Bharara testifies before the Moreland Commission at a hearing on Sept. 17, 2013 at Pace University. NYLJ/Rick Kopstein
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