Bitter fruit - New fear in Chrysler bankruptcy: Liability claims may be voided
By Curt Guyette
At the end of March, President Barack Obama gave a speech intended to reassure consumers worried about buying vehicles from a U.S. automaker facing the possibility of bankruptcy.
"Let me say this as plainly as I can. If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired just like always," promised the president. "Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty."
The thinking was that consumers wouldn't buy vehicles if there were no guarantees the warranties backing them would be honored. Obama sought to quash those fears so that the automakers could keep selling their cars and trucks.
Since then, Auburn Hills-based Chrysler has indeed filed for bankruptcy, and, under intense pressure from the federal government, is negotiating an alliance with the Italian carmaker Fiat.
What hasn't been reported to this point is the concern of consumer advocates and product liability attorneys who warn that, as currently structured, the proposed Chrysler-Fiat agreement would leave victims of allegedly defective Chrysler products sold before the deal is consummated — someone paralyzed as the result of a rollover attributed to faulty design, for example — unable to pursue claims against the automaker. The same is said to be the case for so-called "lemon" cars that can't be repaired under the terms of a warranty. Court actions already under way — whether dealing with injury or death in cases involving product liability, or consumers who have filed suit under state lemon laws — would be closed, allowing the automaker to avoid its obligations, these critics claim.
Along with trying to cast this as an issue being raised by product liability attorneys worried about collecting paychecks, Chrysler contends that the controversy is simply part of a complicated bankruptcy proceeding that is still in its early stages.
"This is a complex process, and there are many, many issues that need to be addressed by the bankruptcy judge," says Chrysler spokesman Mike Palese. "There are some issues the bankruptcy court hasn't gotten to yet."
Critics of the proposed deal, however, say the liability issue is one that demands attention.
"It would wipe out all liability claims currently filed as well as those arising in the future, so long as a vehicle was sold before the merger," says Clarence Ditlow, director of the nonprofit Center for Automotive Safety in Washington, D.C.
The implications are vast.
As Auto News recently reported, a group called the Ad Hoc Committee of Consumer-Victims of Chrysler LLC "has more than 150 members who each have tort claims involving personal injuries against Chrysler. Those claims were valued by the Ad Hoc Committee's members and their counsel at a total of more than $650 million."
But that's just for accidents that have already occurred. "No one knows how much wiping out future lawsuits would cost consumers," Ditlow warns.
Also, Ditlow says, lemon law claims that would otherwise wind up in court if they can't be satisfied will also be scuttled.
"Chrysler is trying to pull a fast one," he says.
Chrysler has already been "losing cases that, in total, are costing the company hundreds of millions of dollars," Ditlow says. But it's not just victims of faulty products that stand to lose if they no longer have the opportunity to sue.
Larry Coben, an Arizona attorney appointed to represent in bankruptcy court the interests of those who have tort claims against Chrysler, points out that, if the company isn't held accountable, taxpayers will have to bear the cost of caring for people who suffer catastrophic injuries as a result of accidents involving defective vehicles.
There is much irony, he says, in the fact that it's those same taxpayers funding the bailout of a privately owned company.
Coben also points out what he says is a fundamental injustice that will occur if the situation isn't changed.
Rosemary Shahan, who heads the California-based nonprofit Consumers for Auto Reliability and Safety, says the last thing Chrysler needs right now is a public that's worried about the company's willingness to stand behind its products.
"In his speech, President Obama seemed to be telling people, 'Don't worry. We've got your back.' But if you look at the fine print, if you bought a car that kills you, or leaves you disabled, or if you bought a lemon, you are being abandoned."
Evidence of that abandonment has already surfaced.
"Chrysler's bankruptcy is throwing a wrench into California's lemon law, which is intended to make it easier for consumers to get refunds for defective vehicles," the Los Angeles Times reported earlier this month. "As the automaker's bankruptcy grinds away, settlement checks from Chrysler to unhappy car buyers are bouncing and complaints are stymied in and out of court."
After initially saying the problem would have to be addressed in bankruptcy court, Chrysler, apparently shaken by the negative publicity, reportedly reversed course and began buying back the lemons.
But the potential of that stopping once the deal with Fiat is completed is likely to have the same kind of negative impact once consumers learn what's in the "fine print," cautions Shahan.
"It just seems really counterproductive," she says. "Everyone understands that, on some level, Chrysler's survival depends on public confidence. The government can throw billions of dollars at the company, but it won't do any good if people won't buy its cars if, when push comes to shove, they don't have confidence that they will take care of their customers.
"That should be job one at this point, to figure out a way to protect consumers."
Steve Stancroff, a Farmington Hills attorney who specializes in breach of contract and lemon law claims, makes a similar point.
"If the new company that arises from this bankruptcy really wants to do right by consumers, and really does care about its client base, it will continue to back up and protect these individuals. "
Absent that kind of enlightened self-interest on the part of the company, Shahan says her group is part of a coalition of consumer advocates that intends to file a formal objection with the bankruptcy court in an attempt to have terms of the deal changed to better protect consumers. That filing, she says, is expected to be made in a matter of days in U.S. Bankruptcy Court for the Southern District of New York.
"There's still time to fix things," says Shahan.