September 18, 2015

DOJ Catch Of the Week — General Motors

By the C|C Whistleblower Lawyer Team 

This week’s Department of Justice “Catch of the Week” goes to General Motors.  Yesterday, the Detroit-based manufacturer of Chevrolet, Pontiac and Saturn brand vehicles, among others, entered into a deferred prosecution agreement with a host of federal regulators to settle criminal and civil charges of failing to disclose a deadly safety defect in its cars relating to the ignition switch.  Under the agreement — with the DOJ, Department of Transportation, the National Highway Traffic Safety Administration (NHTSA), the Troubled Asset Relief Program and the FBI — GM will pay $900 million and have an independent monitor appointed to oversee GM’s reporting of safety Issues and public statements.  GM admits it failed to disclose the safety defect to NHTSA and misled US consumers about it.  See DOJ Press Release.

The safety defect at issue involved an ignition switch that had been made with too-low torque resistance and could move easily out of the “Run” position into “Accessory” or “Off” positions.  When the switch moved out of Run, it could disable the car’s frontal airbags, increasing the risk of death and serious injury in certain types of crashes.  The affected models include certain makes of the Chevrolet Cobalt, Pontiac G5, Saturn Ion, Chevrolet HHR, Saturn Sky and Pontiac Solstice.  GM acknowledges a total of 15 deaths and numerous serious injuries that have been caused by the problem.

According to the government, GM engineers knew before the defective switch even went into production in 2002 that it was prone to easy movement out of the Run position.  In 2004 and 2005, as GM employees and customers began to experience sudden stalls and engine shutoffs caused by the defective switch, GM considered fixing the problem but chose not to citing cost and other factors.  GM simply promulgated an advisory to dealerships with tips on how to minimize the risk of unexpected movement out of the Run position.  GM even rejected a simple improvement to the head of the key that would have significantly reduced unexpected shutoffs at a price of less than a dollar a car.  At the same time, in June 2005, GM made public statements that, while acknowledging the existence of the defective switch, gave assurance that the defect did not pose a safety concern.

By the spring of 2012, GM knew the defective switch presented a safety issue.  This knowledge extended well above the ranks of investigating engineers to certain supervisors and attorneys at the company.  Yet not until approximately 20 months later, in February 2014, did GM first notify NHTSA and the public of the connection it had identified between the defective switch and airbag non-deployment incidents.  Thus, according to the government, the company “egregiously disregarded NHTSA’s five-day regulatory reporting requirement for safety defects.”  Moreover, for much of the relevant period, GM not only failed to correct its assurances that the defective switch posed no safety concern but also actively touted the reliability and safety of cars equipped with the defective switch.

In February 2014, GM finally conducted a recall of approximately 700,000 vehicles affected by the defective switch.  By March 2014, the recall population had grown to more than 2 million vehicles. The government credits GM with taking “exemplary actions” since February 2014 and the inception of this federal criminal investigation to demonstrate acceptance and acknowledgement of responsibility for its conduct.  Among other things, the company conducted a robust internal investigation, furnished the government with “a continuous flow of unvarnished facts,” terminated wrongdoers and established an independent victim compensation program that has to date paid out hundreds of millions of dollars in awards.

In announcing the settlement, the government stressed the importance of manufacturers — particularly car makers — dealing honestly and openly with the government and public about potential safety issues.  Attorney General Loretta E. Lynch said: “Every consumer has the right to expect that car manufacturers are taking their safety seriously.  The Department of Justice is committed to ensuring that the products Americans buy are safe; that consumers are protected from harm; and that auto companies follow the law.”  Anthony Foxx of the Department of Transportation echoed this sentiment — “Today’s announcement sends a message to manufacturers: deception and delay are unacceptable, and the price for engaging in such behavior is high.”  And as US Attorney Preet Bharara of the Southern District of New York so succinctly put it, “[t]hese measures are designed to make sure that this never happens again.”

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