Chrysler Bankruptcy Ruling Absolves Accountability, Hurts Consumers

Bankruptcy Judge Relieves Chrysler of Accountability to Consumers–National Consumer Groups File Appeal

June 4, 2009 — In a move to protect consumer rights, national consumer groups filed an appeal late Tuesday in response to the bankruptcy court’s May 31st ruling in the Chrysler bankruptcy proceedings. The bankruptcy ruling concerned the sale of assets to the new Fiat/Chrysler company that will emerge from the ashes of Chrysler’s bankruptcy. In the time it took to sign his name, the bankruptcy judge relieved the new company from all responsibility for any past, present or future injury claims for defective Chrysler vehicles currently on the road.

The appeal, filed on behalf of the Center for Auto Safety, Consumer Action, Consumers for Auto Reliability and Safety (CARS), National Association of Consumer Advocates (NACA) and Public Citizen, asks the court to preserve consumer protection laws and the right to seek compensation for those victims injured due to vehicle design flaws and defects. Adina H. Rosenbaum of Public Citizen, lead counsel for the consumer groups, stated “Even in the event of bankruptcy, consumers must be able to hold corporations like Chrysler accountable.” The appeal was filed jointly with three individuals who suffered injuries and/or deaths from defective Chrysler vehicles. They are represented by the law firms of Lieff Cabraser Heimann & Bernstein located in San Francisco, California, and Stichter, Riedel, Blain & Prosser in Tampa, Florida.

The New Ruling–Where Does it Leave Plaintiffs, Unsecured Creditors and Consumers?

Under the bankruptcy ruling, plaintiffs with pending claims will have no legal recourse against the new company. Their only hope lies in the outcome of Chrysler’s bankruptcy. Among the last to be paid in bankruptcy proceedings, plaintiffs and other unsecured creditors run the very real risk of being left with nothing as the sale of Chrysler’s assets may not provide enough funds. Included in this group are asbestos claimants represented by a widow of a mesothelioma victim through her attorneys, Alan Brayton and Christina Skubic of Brayton Purcell, a California law firm. Mr. Brayton stated, “The current ‘sale’ of Chrysler assets, free and clear of any responsibility for the harm caused by their products, is a clear ‘end run’ around the protections of the Bankruptcy Code enacted to protect victims of asbestos-related disease.” Brayton Purcell serves on the Official Committee of Unsecured Creditors in the Chrysler Bankruptcy and has appealed the court’s ruling that would insulate Fiat/Chrysler from liability for existing and future claims for victims of asbestos-related disease.

The only exception would be if the plaintiffs’ legal judgments were covered by insurance. Joanne Dorosho, executive director of The Center for Justice & Democracy, proposed that Chrysler purchase retroactive insurance to cover not only past and present injury claims, but future claims as well. She suggested a fund of $300 million be created by the Michigan automaker.

In a press conference on June 3, Clarence Ditlow, director of the Center for Auto Safety stated, “Either the bankruptcy system has to take care of victims or the Obama administration needs to come up with a victim’s fund much as we did in 9/11.” The press conference was held prior to a hearing before the Congressional Committee on Commerce regarding not only the Chrysler Bankruptcy but General Motor’s bankruptcy as well.

During the hearing, Sen. John Rockefeller IV, Chairman of the Committee, said, “Let me be very clear–I don’t believe that companies should be allowed to take taxpayer funds for a bailout and then leave … their customers to fend for themselves with no real notice and no real help. That is just plain wrong.”

Lemon Laws Restricted–Another Blow to Consumer Rights?

The judge’s decision will affect lemon laws currently in place across the country. Language in the Fiat/Chrysler sales order approved by the bankruptcy judge would exclude the new Chrysler from certain civil penalties and other liabilities due to defective vehicles. Consumers seeking refunds under state lemon laws would be faced with severely limited remedies. Mr. Ditlow, Center for Auto Safety, said, “The bankruptcy court is eliminating key provisions in 25 state lemon laws that consumer groups have worked for 30 years to get on the books. These crucial protections went out the door with the stroke of a pen in the Chrysler bankruptcy order.”

What Recourse Is There for Those Injured by “Old” Chrysler’s Defective Products?

Consumer groups have petitioned the Supreme Court for a writ of certiorari on the following two questions:

  1. “Whether successor liability under state law for product-liability claims can be eliminated through a sale under Section 363(f) of the Bankruptcy Code.”
  2. “Whether Section 363(f) authorizes a sale that eliminates successor liability for future product liability claims–that is, claims that have not yet accrued because injury has not yet occurred–and, if so, whether such a sale would violate the Due Process Clause of the Fifth Amendment.”

The Fifth Amendment promises that “No person shall … be deprived of life, liberty, or property, without due process of law ….” As the Chrysler bankruptcy stands now, those who have been or will be injured by Chrysler products sold before the creation of Chrysler Group LLC will have no legal recourse to right their wrongs.

It has been suggested that a victim’s fund, similar to those for asbestos victims of other bankrupt companies, be put into place. At the time of this writing, no action has been taken to develop this type of fund.

In the Washington D.C. area, television ads are running urging both Congress and President Obama to protect consumers who have either been injured or may be injured due to Chrysler products, including Chrysler brakes that contained asbestos. It remains to be seen what effect the ads may have or what type of consumer leverage will be brought to bear on this issue.

Senator John Rockefeller, Chairman of the Senate Commerce, Science and Transportation Committee stated in a June 16th press release that letters had been sent to the president of Chrysler and the CEO of General Motors. The letters requested responses on dealing with consumer, dealer and worker protection issues. Both Chrysler and GM responded to areas of concern around dealers. However, there are still a number of areas, including those related to consumer issues, the Committee remains concerned about. Chairman Rockefeller stated, “… I call on Congress to urgently review current bankruptcy laws to make certain that companies do not escape liability for injuries related to defective products.”

In this time of economic hardship, how will Americans have confidence in purchasing American products if they have no legal recourse when the products prove defective causing property loss, injury or death? Brayton Purcell has advocated for consumer rights for over 25 years. Please contact our attorneys with any legal questions you may have regarding defective products.