Senators investigating recalls targets GM's legal staff, calls for firing top lawyer

7/17/2014

WASHINGTON — Lawmakers on Thursday demanded General Motors fire its chief lawyer and open its compensation plan to more potential victims as a Senate subcommittee delved deeper into deadly recalls involving GM small cars.

Sen. Claire McCaskill, D-Mo., who chairs the subcommittee, praised GM CEO Mary Barra, saying she “has stepped up, and with courage and conviction has confronted the problem head on and the corporate culture that caused it.”

But McCaskill also put Barra on the spot, telling the CEO that she should have fired GM’s corporate counsel, Michael Milliken, based on the conclusions of an internal report by outside attorney Anton Valukas. Milliken sat next to Barra as she defended him as a man of “tremendously high integrity.”

The Valukas report found that GM’s legal staff acted too slowly to share details of settlements it was making in cases involving Chevrolet Cobalts and Saturn Ions where the front air bag hadn’t deployed in a crash, possibly due to a defect in the ignition switch. The lawyers didn’t alert engineers or top executives to a potential safety issue.

She also questioned why Milliken didn’t inform GM’s board or the U.S. Securities and Exchange Commission of the potential for punitive damages as GM settled the cases, saying, “This is a either gross negligence or gross incompetence on the part of a lawyer,” she said.

Barra said Milliken had a system in place but it failed. Some lawyers were among the 15 people the company let go based on Valukas’ report.

Milliken said he only learned about the ignition switch problems in February and acted quickly once he did. He said any potential settlement, no matter how small, must now be brought to him before any action is taken.

But Sen. Richard Blumenthal, D-Conn., also called for Milliken to be fired, saying that an ongoing Justice Department investigation will likely find evidence of “cover-up, concealment, deceit and even fraud” within GM’s legal team.

He also asked Milliken whether the company would make public all of the documents it gave to Valukas, whether it would unseal previous settlements and whether GM would waive the legal shield from its bankruptcy that protects it from lawsuits related to crashes that happened before July of 2009.

In all three cases, Milliken said no.

Milliken also acknowledged that the attorneys dismissed from GM received a retirement package based on the salary they would have made if they hadn’t been terminated. Sen. Roy Blunt, R-Mo., suggested that’s why the attorneys aren’t challenging their dismissal.

GM has admitted that it knew about the faulty switches for more than a decade before recalling the cars. The ignition switches can fall out of the “run” position, causing the engines to stall. It took years for GM engineers to connect the switch problem to the failure of front air bags to deploy in certain crashes.

GM recalled 2.6 million small cars beginning in February. That recall prompted an unprecedented safety review within the company, which has since issued 54 separate recalls for 29 million vehicles.

Lawmakers also questioned Rodney O’Neal, the CEO of Delphi, which made the switches for GM. The switches didn’t meet GM’s specifications when they were first used in 2001. Later, a GM engineer changed the design but didn’t change the part number, making it harder to trace the problem.

O’Neal said Delphi wasn’t informed about problems until February, and said the company bears no responsibility. Barra agreed.

O’Neal also said it’s common for changes to be made in parts without changing the part number. In 2013, he said, Delphi had about 120,000 engineering changes, and only about 40 percent of them had a part number change. In the case of the GM switch, however, Barra has previously called not changing the part number “unacceptable.”

Compensation expert Kenneth Feinberg, who is administering a plan for victims’ families, was the first to testify Thursday. The plan will begin taking claims Aug. 1.

Blumenthal asked Feinberg if the compensation plan should be expanded to cover victims of other recalls, specifically a June 30 recall of 8.2 million older large cars such as the Chevrolet Impala and Malibu with ignition key defects. In that case, the switch meets GM’s regulations but the key can pull it out of the “run” position.

Feinberg said it’s not up to him which vehicles to include.