NEW YORK -- General Motors could be forced to give up more than $1 billion in new stock if a judge approves a settlement between a trust handling its old bankruptcy claims and customers who sued years ago over faulty ignition switches.
An accord was reached Wednesday over hundreds of lawsuits, which allege that ignition switches could get jostled causing stalls, airbag failures and fatalities. It potentially resolves claims that predated old GM’s 2009 bankruptcy, but still requires court approval. While customers and a trust set up by the Chapter 11 case have signed on, GM will challenge the deal.
"At this time, we have not seen the purported settlement agreement and thus have no details to provide," GM spokesman David Caldwell said in an email. "We will vigorously contest any attempt to obtain adjustment shares from GM."
The deal was reached April 25 between Wilmington Trust and car owners who purchased their vehicles before July 10, 2009, plaintiffs’ attorney Steve Berman said. It addresses hundreds of personal-injury cases, as well as a class-action suit over millions of vehicles that allegedly lost value due to a series of recalls.
Wilmington Trust, the M&T Bank Corp. unit that manages the claims, has struggled to reach such a settlement. They said in a court filing Wednesday that details of the deal will be filed by May 2. A judge in January said the trust negotiated a nearly identical deal in "bad faith."
"We are confident we have an agreement that the court will approve," said Berman, of Hagens Berman Sobol Shapiro LLP. Speaking by phone Thursday, he said the deal may trigger a provision of GM’s 2009 bankruptcy requiring the company to contribute as much as $1.14 billion in "adjustment shares."
The unusual court fight has pitted GM against a trust for general unsecured creditors of what is known as "Old GM." It was created during the 2009 bankruptcy sale of "old GM" in order to split off massive liabilities from current GM.
U.S. Bankruptcy Judge Martin Glenn in January threw out the earlier accord saying it was unenforceable. The trust had backed out of that deal at the last minute, deciding instead to strike a deal with GM for an infusion of cash to keep fighting the plaintiffs in court.
Under the earlier settlement, the trust intended to accept $10 billion in previously disputed claims, adding to previous accepted claims to push the total beyond a key $35 billion threshold. That would have triggered a provision of the 2009 sale that would have forced GM to contribute the stock to help pay the claims.