Posted by Deane Franco.
In a recent article posted in the Wall Street Journal, I read about General Motors being charged with punitive damages due to a defective part causing multiple deaths. General motors had been in the process of recalling millions of vehicles, when a defective ignition switch caused 100 or so deaths.
The punitive damages will be limited to the extent of a lawsuit based on claims and knowledge that GM had of a new company auto maker’s 2009 restructuring. GM attempted to prevent plaintiffs for bringing punitive damages based on personal injury or wrongful death. Unfortunately for GM, Robert Hilliard who is representing all those injured by GM feels that punitive damages “are the only way to properly compensate victims who have been harmed by defect.” This is because punitive damages are meant to be a large enough punishment to the corporation to send a notable message with the intent of assuring the corporation understands its wrong doing.
Although GM tried to fight the punitive damages, the plaintiffs won outright. What this means for GM is that punitive damages could reach millions or even billions of dollars awarded to those affected, depending on the ruling, previous defective GM part cases may also be included.
GM has already paid $935 million in damages and has also agreed to $625 million in compensation for the victims. But we will see if the court will stop there. Moreover, GM is being considered for additional charges because they had acknowledged that they mislead regulators about the defective car parts and still put them into production. The hairy part, however, comes in when GM addresses their bankruptcy filing, because technically, “Old GM” filed for bankruptcy and would be responsible for all these defective parts liabilities and, “New GM,” the product of the bankruptcy reorganization, is a new company separate from the actions of the old.
This article relates to the discussion post this week in class where we discussed the hot coffee spill in Liebeck vs. McDonalds. In that situation, punitive damages were used not necessarily as a fair compensation to the victim, but to ensure McDonald’s knew of its intentional wrong doing and would be more likely to halt such procedures.
The pricing of the punitive damages was said to be very important for Mr. Hillard because he knows that those damages tend to run very high and would lead to fair compensation for the victim’s losses. This is a little different from the Liebeck case, because in that case, there appeared to be dual responsibility as to both the temperature and the spilling of coffee; in this GM case, all responsibility falls on the manufacturer for selling a defective car which caused death to numerous victims. It does not matter that GM has rebranded itself after going through bankruptcy filings. At this point in time, there may be products on the market that have not been recalled, which caused injury and or death to numerous victims. For these reasons, the punitive damages should be high to balance out the victim’s loss and GM’s punishment.
Deane is a member of the The Gerald P. Buccino ’63 Center for Leadership Development at the Stillman School of Business, Seton Hall University, and a finance and information technology management major, Class of 2018.