In the News Law360

New York Court Certifies Appeal in GM Ignition Switch Claims

The multibillion-dollar question of whether General Motors owes car owners for lowering the value of their vehicles by revealing a deadly defect is headed to the Second Circuit, after the New York federal judge overseeing a sprawling multidistrict litigation against the auto giant agreed to fast-track the issue.

In a 33-page order filed Thursday, U.S. District Judge Jesse M. Furman said he did not “make this decision lightly,” since granting the car owners’ so-called interlocutory appeal could well result “in potentially lengthy delay.”

In general those requests are rare, as they allow parties to appeal individual rulings before an entire case is concluded.

But Judge Furman said that given the “five-plus years of litigation” and “untold trees felled and ink spilled by the parties” in the massive MDL thus far, he thinks sending the issue to the Second Circuit will help grease the wheels for what everyone involved expects to be the final outcome: a settlement.

The appeal will allow the Second Circuit to examine an Aug. 6 decision by Judge Furman that essentially gutted the ability of GM car owners to sue the auto giant for economic losses they incurred after it initiated a massive recall in 2014 for a deadly ignition switch defect.

That defect led keys to slip out of the run position in certain GM cars, abruptly shutting off the car and preventing airbags from deploying, among other things. More than 100 deaths have been attributed to the design flaw thus far.

The car owners claim that when GM initiated the recall it caused the value of their cars to fall, although GM later repaired many of those vehicles. Judge Furman said in his August 6 order that those repairs might cancel out anything owed to car owners, another point that's hotly disputed by those owners. 

There are many other issues at play in the MDL, but because those claims — referred to in the case as the “economic loss” claims or “successor liability” claims — affect so many car owners, they represent by far the largest potential source of liability for GM.

In a nutshell, Judge Furman said in the Aug. 6 order that the economic loss claims were fatally flawed because they relied entirely on a consumer survey in order to show how much money GM should be on the hook for.

That survey, the judge said, measured only consumers' willingness to pay for cars with and without different defects — not GM's willingness to actually sell those hypothetical vehicles.

Judge Furman likened the survey results to showing how much more consumers would pay for a product labeled "100% Fruit Juice" versus "50% Fruit Juice," all the while assuming that the juicemaker — GM in this analogy — would be perfectly willing to sell the product with either type of label.

But because the ignition switch defect has been tied to dozens of deaths, Judge Furman said a better example would be "one in which a merchant is alleged to have sold juice containing 5% poison (and to have concealed that fact)."

"To pass muster … [the survey] would have to assemble market based pricing data for the equivalent of a juice box labeled '5% Poison,'" Judge Furman said, acknowledging that doing so would be next to impossible.

But without some way of measuring supply, the judge said, it’s useless to talk about a drop in market price caused by the recall since market price is determined by supply and demand.

Steve Berman of Hagens Berman Sobol Shapiro LLP, which represents the car owners, told Law360 that he looks forward to having "the Second Circuit review what we believe are rather fundamental errors in the" August 6 decision.

"We believe California law is clear that if you lie to someone at the point of sale, and it is undisputed that GM did so, you don’t get a free pass" just because "years after you have been caught you repair the car," he added. "That’s fundamentally at odds with consumer protection law. Don’t forget hundreds of folks died or were injured by the defect so this was a material and potentially deadly lie GM told."

Rick Godfrey of Kirkland & Ellis LLP, which represents GM, said Judge Furman's earlier decision was the right one, adding that he expects it to be broadly important "for economic loss class actions in which plaintiffs’ have attempted to use this flawed damages approach.”

Wendy Bloom, another Kirkland & Ellis attorney on the case, told Law360 that Judge Furman "relied upon the law, settled economic principles, as well as the admissions of plaintiffs’ own expert as the basis for rejecting their claim of economic losses."

That August 6 ruling only affected claims that come from the bellwether states of California, Texas and Missouri, but it set an ominous precedent for claims from the other 24 states that Judge Furman has ruled allow car owners to sue under that damages theory.

When the car owners responded to Judge Furman’s Aug. 6 ruling, they submitted two motions side by side. One asked him to reconsider it and pointed out what they saw as mistakes in his reasoning, and the other asked that, failing reconsideration, they be allowed to take the issue straight to the Second Circuit.

Judge Furman refuted all of the car owners' arguments against his ruling point by point but said ultimately it didn’t matter because they “do not come close to meeting the strict standards that would call for” the very rare step of granting their motion for reconsideration.

GM had opposed the request for interlocutory appeal by arguing that it would require the Second Circuit to “study the record” and dig through the evidence underlying the economic loss claims, requiring the appeals court to run afoul of guidelines that only let it review legal questions, not factual ones.

But Judge Furman said the dispute boils down to the simple question of whether the type of consumer survey report produced by the car owners, known as a conjoint analysis, can be used to support an economic loss damages theory.

Judge Furman called his decision to grant interlocutory appeal “a close one” but said he felt compelled to send the issue to the Second Circuit because the stakes are so high.

On top of that, he said, if he allows the Aug. 6 order to stand without granting the appeal, the MDL will likely settle anyway, meaning the Second Circuit would never get a chance to review the issue.

“The court is not infallible,” Judge Furman said. “And, in the judicial system of this nation, it is not intended to be final.”

“Yet, absent an interlocutory appeal, the court might well have the only — and thus final — word on these important issues,” he added.

Representatives for GM did not respond Monday to a request for comment. 

GM is represented by Richard Godfrey, Wendy Bloom and Andrew Bloomer of Kirkland & Ellis LLP.

The drivers are represented by Steve Berman of Hagens Berman Sobol Shapiro LLP, Elizabeth Cabraser of Lieff Cabraser Heimann & Bernstein LLP and Robert Hilliard of Hilliard Muñoz Gonzales LLP.

The MDL is In re: General Motors LLC Ignition Switch Litigation, case number 1:14-md-02543, in the U.S. District Court for the Southern District of New York.