GM Recall Probe Shifts Focus to Company's In House Legal Dept. - In House
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GM Recall Probe Shifts Focus to Company's In House Legal Dept.

Executives have been axed. Thirty-five million dollar fines have been imposed. Lawsuits have been filed. And legal reinforcements have been called in to make arguments in bankruptcy court about New GM's liability for Old GM's defective ignition switches.

Legally, it's a nightmare (unless you are outside counsel). And the nightmare is about to get worse for GM's legal department as federal investigators turn their attention to the company's in- house attorneys, who quietly settled a series of cases, refused to turn over documents, and either refused to investigate or kept a lid on the defective ignition switches that have led to at least thirteen deaths, possibly hundreds of accidents, and millions of recalled vehicles.

A Timeline of Delayed Action

Last September, just before Jim Federico was set to be deposed in an ignition switch-related lawsuit, GM had a sudden change of heart and agreed to a previously rejected confidential settlement, reports The New York Times. Federico was an executive engineer who supervised hundreds of employees in GM's small cars program and who has since departed the company in the wake of the recall scandal.

Another executive, Raymond DeGiorgio, was deposed on April 29, 2013, and testified that he had never approved changes in the switch, despite such changes occurring in 2006. (Documents obtained by regulators would contradict this assertion.) Three other midlevel employees were also deposed, according to the Times. Of the four, one retired, two were suspended with pay (including DeGiorgio) after the recall, leaving one still remaining with the company.

GM's legal department was also asked to turn over documents about the modified switch, but failed to do so as of last July, reports the Times. Also in July, an investigator from the National Highway Traffic Safety Administration sent the company a letter accusing them of being slow to react to safety problems.

In October, after the case settled, and five months after the NHTSA letter, GM finally contacted a supplier to obtain the change records, which were located later that month. The records showed that the switch had been drastically improved in 2006, yet no recall was issued, nor was the part number changed to reflect the improvements.

It wasn't until mid-December that a senior safety committee met to discuss the matter, and January 31 of this year when the recall was finally issued.

Five Settlements, Five Months and Five Days

Last year's confidential settlement was the fifth of its kind for the company.

Five months after DeGiorgio's apparently false testimony, the company made the settlement. It would be five more months before the recall was issued.

GM has already been fined $35 million for the delayed disclosure of the defect, which it claims only a handful of midlevel employees were aware of. The company is required to report safety defects within five days, but has admitted that some employees knew about the defect for as long as ten years. But even with the fine, government investigators aren't done with the company.

According to the Times, the federal probes, from multiple agencies, are turning their attention to the company's legal department, which from the newspaper's account of things, appears to have played a large part in delaying the public reporting for as long as possible -- through settlements, delayed investigations, and if the company's account about the limited awareness of the problem is true, intentional obliviousness.

It's an important reminder to in-house attorneys: While it may be tempting to do everything in your power to delay the release of embarrassing information, that benefit has to be weighed against legal and public relations considerations that come from a company playing ostrich to a deadly defect.

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