ThePopTort: GM’s “Uh Oh” Hiring of Ken Feinberg

In congressional testimony this week, GM CEO Mary Barra announced that the company has hired and would soon be meeting with “special master of disaster” Ken Feinberg, to help them “evaluate the situation and recommend the best path forward.” Not “best path forward” as in “do we need more recalls?” This is about GM’s victims.

First a reminder. As we noted in this recent post, in 2009, GM cut a deal with the government to reorganize under bankruptcy laws. This deal bailed out the company and immunized it from every product liability claim it had at the time - a reprehensible immunity deal the company did not need, which kicked these claims out of court and left hundreds of victims with nothing. Since the faulty ignition switch disaster, there has been a significant push to force GM to compensate pre-bankruptcy victims of not only the switch defect, but also all defects - i.e., all claims that were kicked out of court at that time, switch or not. (See yesterday’s letter to GM from consumer groups and consumer advocates.)

Rather than announce any sort of fund this week, GM has hired Ken Feinberg to tell them what to do (but only with regard to the switch defect. So to begin, that’s too bad.)

Since 9/11, Mr. Feinberg has been the “go to” guy to divvy up money to victims in two situations: 1. victims harmed by large events, who have no recourse in the courts (as for the 9/11 victims); and, 2. victims harmed by extremely negligent companies, who are facing large numbers of claims and who want to stop or weaken lawsuits (as in BP’s Gulf Coast disaster.) GM now finds itself in both camps. So watch closely what GM and Mr. Feinberg do next.

As to the pre-bankruptcy claims, for which the company is currently immune, the situation is similar to Feinberg’s task following 9/11. There, the airlines received immunity from most litigation, so Congress tacked onto the immunity bill an entitlement program that afforded 9/11 victims a pretty good avenue for compensation. Mr. Feinberg was brought in to make those determinations.

However, the BP situation was very different. BP was/is an oil giant that caused an enormous disaster. The company hired Mr. Feinberg to figure out how to compensate its victims while encouraging people not to sue it. To accomplish this, BP paid Feinberg’s law firm, Feinberg Rozen, $850,000 per month to essentially represent the company as its attorney while directly engaging victims (often) outside of the presence of their own counsel in a judicially unsupervised claims process. He had duties of confidentiality and loyalty to BP; he was required to turn over all claims information to BP; and, BP had a central role in hiring and firing everyone Feinberg brought on to help. Notably, Feinberg required that families sign away all legal rights not only for themselves, but for their spouse, their children, their parents and all of their heirs even though no one knew then what losses they might suffer in the future due to this ongoing disaster. This sweeping release, which assigned victims' claims to BP, benefited only one actor: BP -- the company that paid Mr. Feinberg's salary.

In a strong rebuke to BP and Feinberg ethics, a federal judge ruled that it was misleading for Feinberg to call himself “neutral” or “independent” of BP in administering the fund. Renowned legal ethics expert Monroe Freedman said, “The opinion therefore confirms that Feinberg has been engaging in unethical conduct that has been misleading claimants and posing a serious threat to the administration of justice.”

The lesson here is that courts are the proper venue to compensate victims and hold accountable negligent companies who have harmed large numbers of people. Victim compensation funds are a last resort only in unique situations where court cases are not possible due to some sort of immunity.

We don’t yet know the type of victim fund Feinberg and GM may propose, assuming they do. A fund for the pre-bankruptcy victims who currently have no recourse in court? Good idea. But extending this fund to cover post-bankruptcy victims to compete with class actions that are currently proceeding, and coaxing victims to stay out of court while signing away their rights? If it's possible to do this, it should not be allowed.

Earlier, Monroe Freedman discussed the wide-ranging implications of the BP and Feinberg set up, where a compensation fund could “be used in any case in which a defendant is potentially liable for multiple causes of action and/or a class action – e.g., for an oil spill; an airplane crash; a pharmaceutical that causes disability, death, or birth defects; etc. … It seems to me that this kind of device can effectively nullify applicable ethical duties, as well as seriously impair access to justice on the part of claimants. Shouldn’t something be done about this?”

It was a dangerous precedent. Let’s hope GM does not follow BP’s lead.