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Delphi’s liability in GM recall could be tested

Delphi’s liability in GM recall could be tested

RECALL:While Delphi made the part, GM set the specifications and ultimately approved its use, according to documents from civil litigation and congressional investigations. Photo: Reuters

By Jessica Dye

NEW YORK (Reuters) – Delphi Automotive’s name does not appear on the outside of the 2.6 million vehicles recalled by General Motors Co since February, but the company is getting drawn into a mounting wave of litigation for its role in producing the faulty ignition switch that prompted the recalls.

Plaintiffs have now named Delphi, one of the largest auto parts suppliers in the world, in at least two lawsuits stemming from the recall. One was filed by a former Delphi employee whose daughter was killed in a 2013 crash involving a recalled 2006 Chevy Cobalt, the other by customers who claim the ignition problems caused their cars to lose value.

Delphi’s legal exposure may hinge on how much control it had over decisions involving the design of the switch, and the terms of its four-year bankruptcy, which ended in 2009.

While Delphi made the part, GM set the specifications and ultimately approved its use, according to documents from civil litigation and congressional investigations.

Delphi spokeswoman Claudia Tapia declined to comment, except to say that the company was “working cooperatively with GM on this matter.” The company has not yet filed responses to the two lawsuits. GM spokesman Jim Cain said that Delphi owned the intellectual property for the switch but declined to comment on questions of liability or lawsuits.

The February and March recalls center on concerns that ignition switches supplied by Delphi could unexpectedly turn off engines during operation and leave airbags, power steering and power brakes inoperable.

GM has linked the defect to 13 deaths and has apologized for how it handled the recall and said it is committed to helping affected customers.

BANKRUPTCY SHIELD

Even though there’s no doubt that Delphi made the ignition switch, the company would likely benefit from defenses that are not available to GM, which itself faces a spate of lawsuits over the recall.

Like GM, Delphi went through bankruptcy and emerged in 2009 as a different legal entity. In purchasing “old” Delphi’s assets, the new company largely shed liability for past actions. The terms of Delphi’s bankruptcy asset sale preclude “successor liability,” meaning that the new entity would generally not assume liabilities created by its predecessor.

GM went through a similar process and also has a so-called shield from certain kinds of liabilities. But Delphi’s shield is stronger.

GM agreed to modify the terms of its bankruptcy exit to allow “new” GM to assume liability for post-bankruptcy accidents involving pre-bankruptcy products.

Delphi, which emerged from a four-year trip through bankruptcy just months later, did not.

For Delphi, “there’s that potential that there’s just no responsibility at all” said Larry Coben, a plaintiffs’ attorney with the firm Anapol Schwartz, who represented GM product liability claimants during its bankruptcy.

To penetrate this shield, plaintiffs’ lawyers could mount a two-pronged argument. First, they would have to convince a judge that Delphi was engaged in an ongoing cover-up of the defects, and second, that because of this cover-up, the court should invoke “successor liability” and allow the suits to proceed against “new” Delphi.

LONG-TIME PARTNERS

If plaintiffs can get past the bankruptcy issue, Delphi may also be able to invoke what is known as the “component parts doctrine” and argue that it doesn’t bear the same responsibility as GM, since it only supplied the part and was not responsible for the overall vehicle.

But if Delphi is found to have played a meaningful role in the design decisions, “then they’re liable,” said Mark Geistfeld, a professor at New York University School of Law who specializes in civil litigation.

Delphi began as a GM subsidiary and was spun off into an independent company in 1999. GM is Delphi’s largest customer, accounting for approximately 17 percent of its net sales, according to Delphi’s latest annual report.

Delphi told congressional investigators that GM approved the original part in 2002, despite the fact that it did not meet GM’s own specifications, according to a memo released by the U.S. House of Representatives Energy and Commerce Committee.

During a hearing on the recall on Tuesday, Rep. Marsha Blackburn, a Republican from Tennessee, said that both GM and Delphi engineers worked on the switch.

The two companies, Blackburn said, “have a shared responsibility and liability in this entire issue.”

But that’s easier said than proved in court.

“Ultimately, it would be up to a jury,” said Lance Cooper, a plaintiffs’ attorney from Georgia who is involved in litigation against GM. “If Delphi makes the switch and they know it’s a bad switch, they could point the finger at GM, but that’s not going to keep them out of a courtroom.”

(Reporting by Jessica Dye; Editing by Eric Effron and Peter Henderson)

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