New Chrysler Fails to Protect Consumers

Chrysler Bailout, Bankruptcy and Sale – The Aftermath:
Effect on Those Injured by Defective Products and Asbestos-Containing Brakes

June 19, 2009 — After a flurry of legal activity in the Chrysler bankruptcy to try and halt the sale of Chrysler to Fiat SpA, Chrysler was sold to Fiat on June 10th creating a “new” Chrysler company, Chrysler Group LLC. Their new slogan is “We’re Building a New Car Company. Come See What We’ve Built for You.” Hollow words for the millions of current Chrysler vehicle owners, those injured by defective car products and those injured by asbestos in Chrysler brakes, whom have all been hung out to dry.

Chrysler Reneges on Its Responsibility to Consumers

As part of the terms of the bankruptcy sale, Chrysler requested that the assets sold to Fiat be “free and clear” of all claims by either secured or unsecured creditors. Not only did this encompass claims currently against the automaker, but also forestalled the filing of any future claims. What this boils down to is that Chrysler Group LLC will not be responsible for any injury from a defective Chrysler product purchased prior to Fiat’s acquisition, although it will fix the defective vehicles and honor warranties.

The terms of the sale were announced on May 31st. National consumer groups as well as attorneys representing those injured by Chrysler products filed appeals to protest the terms and attempted to delay the sale. Alan Brayton and Christina Skubic of Brayton Purcell, through counsel Sander Esserman of Stutzman, Bromber, Esserman & Plifka, filed an appeal on behalf of their client, Patricia Pascale. Mrs. Pascale was appointed to the Official Committee of Unsecured Creditors in the Chrysler bankruptcy and sought to protect all unsecured creditors including those injured by asbestos in Chrysler brakes and other products. Her husband died from mesothelioma caused by his exposure to the asbestos in Chrysler brakes and Mrs. Pascale currently has a claim filed against Chrysler.

Although Justice Ruth Bader Ginsburg initially granted a stay of the sale on June 8th, it was short-lived as the stay was lifted and the sale finalized on June 10th. It remains to be seen exactly what dollar amount will be available to both the secured and unsecured creditors, but any recovery is estimated to be no more than pennies for each dollar of liability. Chrysler was granted an extension to August 13th to declare its current remaining assets–those not sold to Fiat as part of the bankruptcy sale.

It is also not known as to the true extent the restructuring, which relieved Chrysler of accountability for its defective and asbestos-containing products, will have on state economies. Since old Chrysler has no money, and Chrysler Group LLC has no responsibility to those injured by defective products purchased prior to its sale to Fiat, state Medicare and Medicaid programs may well have to foot the bill for the medical care required by those injured.

What Recourse Is There for Those Injured by “Old” Chrysler’s Defective Products?

Consumer groups have petitioned the Supreme Court for a writ of certiorari on the following two questions:

  1. “Whether successor liability under state law for product-liability claims can be eliminated through a sale under Section 363(f) of the Bankruptcy Code.”
  2. “Whether Section 363(f) authorizes a sale that eliminates successor liability for future product liability claims–that is, claims that have not yet accrued because injury has not yet occurred–and, if so, whether such a sale would violate the Due Process Clause of the Fifth Amendment.”

The Fifth Amendment promises that “No person shall … be deprived of life, liberty, or property, without due process of law ….” As the Chrysler bankruptcy stands now, those who have been or will be injured by Chrysler products sold before the creation of Chrysler Group LLC will have no legal recourse to right their wrongs.

It has been suggested that a victim’s fund, similar to those for asbestos victims of other bankrupt companies, be put into place. At the time of this writing, no action has been taken to develop this type of fund.

In the Washington D.C. area, television ads are running urging both Congress and President Obama to protect consumers who have either been injured or may be injured due to Chrysler products, including Chrysler brakes that contained asbestos. It remains to be seen what effect the ads may have or what type of consumer leverage will be brought to bear on this issue.

Senator John Rockefeller, Chairman of the Senate Commerce, Science and Transportation Committee stated in a June 16th press release that letters had been sent to the president of Chrysler and the CEO of General Motors. The letters requested responses on dealing with consumer, dealer and worker protection issues. Both Chrysler and GM responded to areas of concern around dealers. However, there are still a number of areas, including those related to consumer issues, the Committee remains concerned about. Chairman Rockefeller stated, “… I call on Congress to urgently review current bankruptcy laws to make certain that companies do not escape liability for injuries related to defective products.”