Opinion

Alison Frankel

How GM’s legal department failed the company and its customers

By Alison Frankel
June 5, 2014

There’s a heartbreaking moment deep in the internal investigation report GM released Thursday, detailing the company’s botched response to a sometimes fatal defect in Cobalt ignition switches. A young lawyer named Nabeel Peracha, who had joined GM in April 2012, was at a meeting just a few months later with other GM lawyers. Their topic was the settlement of a West Virginia product liability case stemming from a crash in 2009 of a Chevrolet Cobalt that skidded on black ice, ran off the road and hit two trees. The front-seat passenger sustained head injuries when the Cobalt’s airbag failed to deploy.

The crash investigation showed that the car’s ignition switch was off at the time of the impact. That was potentially a big problem for GM, according to its outside defense lawyers at Eckert Seamans, because the victim’s expert had turned up a 2007 Indiana University study identifying a link between Cobalt ignition switch defects and air-bag deployment failures, as well as a GM service bulletin from 2006 that noted the Cobalt’s unexplained stalling problem. Moreover, the lawyers from Eckert Seamans warned, the plaintiff’s lawyer knew about other Cobalt crash cases in which ignition switches were in the off position and the air bags never deployed. If GM didn’t settle, the lawyers said, it risked seven-figure punitive damages.

The in-house lawyers at the weekly Roundtable meeting to discuss important settlements agreed that GM’s litigation posture was only going to get worse, so it made sense to settle. Peracha, the rookie lawyer, piped up: Considering the Eckert Seamans evaluation of Cobalt problems, why hadn’t GM issued a recall on the cars? According to the GM report, “The response from the other attorneys was that engineering did not know how to fix the problem, that the incident rate was low, and that ‘we told engineering and they’re looking into it.’” Almost two years later — after the Cobalt defect exploded into a huge corporate scandal — Peracha told GM investigator Anton Valukas of Jenner & Block that the other GM lawyers at the 2012 meeting, who’d been at the company longer than he had and had been hearing about these Cobalt ignition-switch cases since 2006, conveyed the impression that they had already done everything they could.

Valukas concluded — resoundingly — that they had not. In fact, one of the most powerful and disturbing themes of the former prosecutor’s 276-page report is how many times GM’s in-house lawyers seemed to disregard opportunities to mitigate the crisis their company is now mired in. Valukas’ firm, of course, has worked closely with the GM legal department as one of the company’s regular outside counsel, so skeptics may question the report’s implication that GM’s in-house attorneys weren’t badly intended when they failed over the course of more than seven years to sound alarms about the Cobalt’s safety defect. No one, however, can doubt that Valukas and his Jenner colleagues believe GM’s lawyers didn’t serve their client — or GM’s customers — well enough.

Corporate lawyers ought to play “a critical and unique role” in identifying and resolving safety concerns, Valukas said in a concluding section of the report. He suggested various improvements in GM’s communications, training and procedures for lawyers to make sure the company doesn’t repeat the Cobalt fiasco. Those are helpful, I suppose, but for lawyers, the real message of Valukas’s report is that when your decisions can have fatal consequences, it’s not enough to say, “We tried,” or “We did enough.”

GM’s lawyers, according to the Valukas report, were first put on alert about problems with the Cobalt all the way back in 2004, when the model launched. Automotive journalists noticed that the car had a tendency to stall when drivers accidentally jostled their key rings. When The Cleveland Plain Dealer contacted GM about the problem, senior attorney William Kemp suggested providing the newspaper with a videotape showing how remote the risk was. Another lawyer said she was “not optimistic we can come up with something compelling.” Kemp responded in an email that they had to do something: “We can’t stand hearing, after the article is published, that we didn’t do enough to defend a brand new launch.” (Kemp, who continued to be apprised of reports of Cobalt problems for the next 10 years as the main liaison between the legal department and GM safety investigators, was reportedly ousted from the company on Thursday.)

Accident reports involving Cobalts and another model with air bag deployment problems, the Ion, began to reach the in-house legal department beginning in late 2005 and early 2006, according to the report. GM engineers assigned to “field performance assessment” conducted investigations of individual crashes that were the subject of insurance claims or litigation. But under the company’s structure, neither those engineers nor the lawyers supervising them coordinated with safety investigators elsewhere in the company who were looking at Cobalt ignition problems. The legal department received two crash studies in 2007, one by a Wisconsin state trooper and the other by researchers at Indiana University, that suggested a link between the ignition switches moving into the off position and airbags failing to deploy. According to the Valukas report, GM lawyers didn’t even know they had the documents — which correctly diagnosed the Cobalt’s fatal flaw six years before GM did — until 2014.

By 2010, GM’s outside counsel at King & Spalding were concerned that GM’s investigation of the “sensing anomaly” that kept airbags from deploying in head-on collisions was going to subject the company to punitive damages. The K&S case settled at the end of 2010, but at a meeting in January 2011, according to Valukas, several GM lawyers talked about organizing a meeting to ask safety engineers to find out more about the Cobalt ignition switch issue.

That meeting didn’t take place until July 2011, when senior lawyer Kemp finally ordered an investigation. Valukas criticized the time lag: “Witnesses could not explain why six months passed before the meeting took place but the delay again highlights the lack of urgency in addressing the issue.”

While GM engineers tried to diagnose the ignition switch problem, GM’s lawyers continued to review and settle cases involving the defect. There weren’t a whole lot of them, but Valukas faulted the legal department for its passivity. “The lawyers felt they had done their job by emphasizing the importance of the issue to the engineers,” he wrote. “But, faced with a pattern of crashes that had resulted in fatalities and an unexplained ‘anomaly’ that affected the deployment of airbags, they did not at the same time elevate the issue to the general counsel and do not appear to have insisted on a quick and concrete timetable for the safety investigation.”

Even after the plaintiff’s expert in the 2012 case defended by Eckert Seamans found the Indiana report and GM safety bulletins on Cobalt stalls — and even after Peracha inquired about a recall at that July Roundtable meeting — GM lawyers didn’t escalate concerns about the Cobalt. Valukas found it notable that an outside expert, with only limited access to information from within GM’s files, was able to figure out the connection between the ignition switch and airbag failures before anyone at GM.

In 2013, GM settled a Cobalt case for $5 million, after an expert hired by plaintiffs lawyer Lance Cooper uncovered what GM’s own outside counsel called “bombshell” evidence that the company changed the ignition switch between 2005 and 2008 — “evidence that had eluded GM engineers for years,” Valukas wrote. King & Spalding spelled out exactly how devastating the evidence was in a case evaluation it prepared for GM’s legal department: The plaintiff’s lawyer “can compellingly argue that GM has known about this safety defect from the time the first 2005 Cobalts rolled off the assembly line and essentially has done nothing to correct the problem for the last nine years.”

And still, Valukas said, no one in the legal department told GM’s general counsel since 2009, Michael Milliken, about the Cobalt flaw. “Senior attorneys did not elevate the issue within the legal chain of command,” he wrote, “even after receiving the … evaluation in the summer of 2013 that warned of the risk of punitive damages.” Milliken only learned of the defect and the litigation over fatal crashes it caused in February 2014, when GM had decided to recall the faulty cars.

As I said, Valukas didn’t accuse GM’s lawyers of trying to hush up the Cobalt defect or of any legal improprieties. By his account, the department’s sin was one of omission: GM lawyers didn’t detect a looming problem as quickly as they could have and didn’t push hard enough to solve it once they realized the company needed answers. GM’s culture was fearful and evasive, Valukas said; employees received training on avoiding liability-laden phrases when they were writing about safety issues, and many GM employees told him they didn’t take notes at meetings about safety because the legal department frowned on that practice. Those attitudes have to change, according to Valukas, especially among GM lawyers.

I imagine that any lawyer who defends consumer products — whether inside a corporation or outside — will read Valukas’s report and wonder whether they would have behaved as GM’s lawyers did. Perhaps the next time any of them start to tell themselves that they’ve done enough to address safety, they’ll think again.

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