Chrysler Bankruptcy: Consumer Groups Object

May 20, 2009— -- Farbod Nourian can't sit for long periods of time. The recent college graduate can't lift anything heavy. He suffers constant back problems.

Nourian says he injured himself a year and a half ago when his cousin's 1996 Chrysler Jeep Grand Cherokee slipped from park into reverse, throwing Nourian, who was walking around the back of the car, onto a concrete garage floor. Nourian says he suffered three ruptured disks, a crushed vertebrae and internal bruising and injuries. Nourian is suing Chrysler and has a November court date.

Attorneys say this is the very type of person who stands to be injured -- again -- by the Chrysler bankruptcy proceedings. Under the bankruptcy plan, they say, the "new" Chrysler absolves itself of any liability for legal claims for vehicles bought before the bankruptcy. With Nourian's case scheduled for trial against Chrysler in November, his attorney Scott Nealey says the suit would likely be thrown out.

Nealey and a number of consumer groups this week filed an objection to the bankruptcy arrangement, saying Chrysler car owners will be left in the lurch after the automaker's bankruptcy. They say that if you own a Chrysler vehicle and have an accident that you believe was caused by a manufacturing defect, you would be out of luck. You could not sue Chrysler for damages, they say.

"Chrysler has asked for the sale to be free and clear," Nealey, an attorney with San Francisco's Lieff Cabraser law firm, told ABC News. "They take all the assets and they have no obligations to people who have Chrysler vehicles right now. So if you have a design defect with Chrysler and it is something the company would normally fix, or you have a personal injury, you would be left with no remedy whatsoever.

"So they are basically seeking to cut off any liability under state law for prior vehicles made by Chrysler," he said.

This issue has now caught the attention of Congress. The House Judiciary Committee has hastily scheduled a hearing for tomorrow on the Chrysler bankruptcy and will hear from some of the consumer groups that have filed an objection.

Clarence Ditlow, executive director of the Center for Auto Safety, is among those who will testify. He told ABC he will tell lawmakers that "the bankruptcy court outright ought to address the issue of why consumers are getting nothing, and if the court won't do it, then the government needs to step in because consumers who are injured should not walk away with nothing, which is exactly what is happening."

Chrysler's attorneys today did not deny that the new company would wash its hands of liability claims. Attorney Corrine Ball told ABC News, "That is a very complicated question." She said the new company "has agreed to take ordinary warranty claims."

Liability lawyer Larry Coben, who has been appointed by the court to represent the liability interests of unsecured creditors, called the arrangement "troubling."

"It's weird," he said today. "You have the "new" Chrysler agreeing to be responsible for all the warranty claims and if a wheel falls off and it's under warranty then they'll fix it. But if the wheel falls off and the car rolls over and you're catastrophically injured, then they have no responsibility."

Coben added that a consumer who bought that a Chrysler car today and suffers a horrible injury because of a defect would have no right to sue, but a consumer who buys the same car after the bankruptcy goes through can bring a liability lawsuit.

"You have 10 million Chrysler products out there and they will be on the road five or 10 years," Coben said. "And you will have people who will be victims and they will have no cause of action."

Will Political Pressure Change the Terms of the Chrysler Bankruptcy?

Both Coben and Ditlow believe it's unlikely the court will change the terms of the bankruptcy. They believe it will take political pressure on Congress and the administration.

Ultimately, it may also take more taxpayer money to cover future liability claims.

Ditlow will make that point in testimony tomorrow.

"People are throwing billions around like nickels, why not put another billion dollars into this to take care of consumer injuries, like we are taking care of all the financial institutions?" he asked.

Nealey said the current bankruptcy deal not only leaves consumers high and dry, it devalues a Chrysler car.

"The problem is, if you own a Chrysler car and you find out that if something goes wrong with it the company has washed their hands of it, is anyone going to buy that car from you?" he asked.

"I can't think of another major industrial company that sells to consumers that says to those consumers - drop dead," Nealey said.

Nealey has about a dozen lawsuits pending against Chrysler, but his legal objection to the bankruptcy is joined by Public Citizen, Center for Auto Safety, Consumer Action, Consumers for Auto Reliability and Safety, and the National Association of Consumer Advocates.

The court is expected to approve the bankruptcy next week.

Meantime, Nourian graduated from UCLA this winter, nearly a year late due to the accident. Nealey said the 1996 Jeep Cherokee was clearly defective and, in fact, Chrysler recalled the vehicle to fix the problem of the car slipping out of park and into reverse. But Nourian's cousin never got the recall notice because he bought the car used.

Nourian is now applying to law schools and trying to figure out how to pay tens of thousands of dollars in unpaid medical bills. He is schedule to speak Thursday at a news conference designed to put pressure on the government to ensure Nourian and others like him do not lose their day in court.