Law firms hurt by auto bankruptcies

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Robert Palmer’s clients reacted in different ways when he broke the bad news that Chrysler’s and GM’s bankruptcies might wipe out their cases.

The police officer whose arm was shattered when an airbag went off had seen it coming. Others were devastated.

Palmer, a partner at Springfield firm PalmerOliver, himself had spent hundreds of hours and tens of thousands of dollars pursuing seven product liability lawsuits against the two automakers. Though he hopes to salvage a couple of the lawsuits that also included dealers as defendants, he said, by and large the cases are now worthless. 

“I have very deserving clients,” Palmer said. “I was very upset for them and clearly was disappointed for myself.”

Chrysler shed its liability for past product liability claims when it emerged from its monthlong bankruptcy as Fiat-controlled Chrysler Group in June. GM will do the same under a July 5 order from the judge overseeing its bankruptcy.

“New GM,” largely owned by the U.S. government, will get most of the company’s assets and remain “free and clear of claims” from any accidents before the close of the bankruptcy.

Unlike Chrysler, GM agreed to assume liability for any future accidents involving any GM vehicle.

“That was a very big victory for us,” Palmer said. “It’s a big change from Chrysler’s bankruptcy, thank God.” 

As of press time, a Chicago law firm suing GM over personal injury claims appealed the bankruptcy order to the 2nd U.S. Circuit Court of Appeals, hoping to revive liability for past claims. The bankruptcy judge denied the claimants an expedited appeal.

The bankruptcies came with plenty of warning but left PalmerOliver and another plaintiffs’ law firm to cope by turning down potential cases, focusing more on lawsuits against other automakers and continuing some litigation with the remaining defendants: dealers and parts manufacturers.

Defense firms branch out

Defense firms also are adjusting.

Turner, Reid, Duncan, Loomer & Patton partner Rod Loomer has only two clients: Ford and GM. When Loomer heard about GM’s vice presidents selling all the stock they could, he figured bankruptcy was a foregone conclusion.

That gave Turner Reid an opportunity to make sure their bills – and those for experts used in lawsuits – were submitted and paid before the GM filing. Many firms that work for the automaker get a flat-fee rate. The firm is preparing its bill for June and will submit it to the bankruptcy court, Loomer said.

“In effect, we’ll take a hit,” Loomer said. “By the same token, we won’t be doing any work [for GM] either.”

Work for GM made up a smaller percentage of Turner Reid’s business than Ford representation, Loomer said. Four of the firm’s 13 attorneys are active in automotive defense work.

“I will say this: Five years ago [GM’s bankruptcy] would have had a devastating effect on our firm,” Loomer said. “At the time, we did not represent Ford.”

The firm also had not branched out as much into other practices, Loomer said. Turner Reid now does medical malpractice and insurance defense work.

Palmer also started diversifying about a year ago, by adding personal injury work, when he saw carmakers’ difficulties on the horizon. Still, the automotive work is more than half Palmer’s practice. “It’s a big deal,” he said.

Langdon & Emison partner Bob Langdon has reason to be grateful for his firm’s decision to move into more practice areas.

Langdon & Emison’s Web site highlights automotive defect cases, which once made up 65 to 70 percent of the firm’s business. Then the Lexington-based firm added other focuses, taking on railroad, truck and pharmaceutical work and class actions.

Now only about 25 percent of Langdon & Emison’s business is in automotive lawsuits, Langdon said.

“We started diversifying three years ago,” Langdon said. “It’s not because we’re soothsayers; it’s just that to handle the cases is so expensive.”

Shifting to dealerships

The GM bankruptcy still hurts. Langdon was near a settlement with GM for a client paralyzed after an accident when the automaker filed. Langdon’s client is a man in his 40s who was ejected from his car and ended up underneath it. The lawsuit now is against the dealership that sold the car, Langdon said.

“I don’t know how much dealers carry in the way of insurance,” Langdon said. “It’s something we’re going to have to find out now.”

Langdon & Emison also may be left holding the bag on one case in which the firm has invested about $250,000. The firm hasn’t dropped any lawsuits but recently rejected three “excellent” cases, including one that involved a lap-only seat belt, Langdon said.

“I’m not going to take these cases,” Langdon said. “I don’t know if the dealer will be in business. I don’t know if the parts manufacturer will be in business. If they get wiped out with the bankruptcy, we don’t have a case.”

On July 7, a U.S. House panel voted to require GM and Chrysler to restore franchise agreements with dealerships cut during their bankruptcies.

GM might still work out a deal to indemnify dealerships that survive the bankruptcy, Langdon said.

But the company likely would extend indemnification to dealers only in suits claiming specific product defects, said Loomer, the Springfield defense attorney. Dealers would stay on the hook for individual acts of negligence, he said, such as neglecting to repair a vehicle or failing to follow product recall procedures.

Meanwhile, Langdon is agitating to keep the “New GM” on the hook for litigation over automobile defects. When it exits bankruptcy, the company will walk away from 300 product liability claims nationwide, he said. He’s representing clients in 10 claims.

Langdon has been talking with governors and Missouri members of Congress, and he has been working with plaintiffs’ attorney group Attorney Information Exchange Group.

One possibility is for Congress to create a fund to pay for past claims, as was done for asbestos litigation, Langdon said. If the victims don’t get relief for their injuries, they’ll strain state and federal health care systems, he argued.

“It is a huge problem that nobody has really looked at,” Langdon said.

– Staff reporter Allison Retka contributed to this story.