Bankruptcies Leave GM, Chrysler Defect Victims in the Dust

July 8, 2009— -- A third-degree burn is devastating to anyone, but for Terry Cole, it meant the end of a dream: walking again.

Cole, who has been confined to a wheelchair for more than 30 years, in November 2007 suffered severe burns that he says were caused by a defect in the seat of his General Motors car, a Cadillac Escalade.

Cole was told the skin damage he suffered would make it impossible for him to resume the rigorous physical therapy that had given him hope of getting back on his feet.

The 53-year-old Missouri man is one of at least 400 people suing for damages after being hurt or having family members killed in a General Motors or Chrysler vehicle. He is also one of hundreds who, thanks to the government-backed bankruptcy restructuring of GM and Chrysler, don't know if they'll ever get their day in court.

"I never thought they would throw us to the side like we weren't anything," Cole said.

The order issued late Sunday by the judge in the General Motors bankruptcy case that allowed "old" GM to sell its assets to a "new" GM -- part of GM's efforts to reinvent itself as a lean and competitive company -- also allowed the new company to free itself of injury and wrongful death claims filed before bankruptcy proceedings began. An effort to appeal the ruling met with a setback late last night after a judge ruled that such an appeal could not go directly to the 2nd Circuit Court of Appeals -- which could result in a speedier resolution -- but must be brought before a district court instead.

Under the terms now approved for GM's bankruptcy restructuring, consumers can still sue the old company, but lawyers for the accident victims say they expect that the "old GM" -- the company charged with liquidating any assets not inherited by the new GM -- won't have the cash needed to meet their claims.

The bankruptcy proceedings for fellow struggling automaker Chrysler, which concluded June 10, provided that company the same benefit and more: In Chrysler's case, the judge ruled that the car company that emerged from bankruptcy is off the hook for liability claims related to any Chrysler car manufactured before the bankruptcy proceedings, even if the claims are filed after the bankruptcy.

That means that someone injured in a Chrysler car next week, for instance, couldn't sue the company if they bought their car before June.

GM had initially sought a similar arrangement, but relented after objections from state attorneys general and consumer groups.

'Essential for Survival'

The companies are "abandoning people who have been hurt in (their) cars," said Joanne Doroshow of the Center for Justice and Democracy, which helped organize some of the victims. "It's horrendous."

General Motors declined to comment on the issue.

Chrysler e-mailed a statement to ABCNews.com saying that while "Chrysler is saddened anytime someone is injured in one of its vehicles," freeing itself of product liability claims was "essential to the new company's survival."

In its statement, the company also issued a general defense against its product liability claims, saying that an "injury resulting from an accident or contact with a motor vehicle is not evidence that a vehicle is defective -- to suggest otherwise would be misleading and irresponsible."

Asked about consumers' pending claims against GM and Chrysler, the Obama administration, which has worked closely with the companies on their reorganization plans, reiterated its support for both automakers.

"This was a commercial decision by the company, which we are confident will not interfere with the future viability of GM. While the U.S. Treasury was engaged in this process, GM was responsible for determining the best approach going forward," an administration official said.

Chrysler's decisions, meanwhile, were "consistent with conventional bankruptcy practice," according to the official.

"While unfortunate, the outcome would have been far worse had the government not intervened in the restructuring and Chrysler had liquidated," the official said.

Hope for Victims?

Critics like Doroshow argue that what makes the efforts of GM and Chrysler to scuttle the lawsuits particularly egregious is that the companies have received tens of billions in taxpayer funds via government aid.

"All the taxpayers in this country were asked to help bail out these companies," she said. "The ... very people who have helped bail the companies out, these taxpayers, are now seeing their rights extinguished."

There are, however, at least three potential sources of relief for consumers like Cole, though it's unclear which, if any, will pan out:

Appealing the Bankruptcy Judge's Decision: Steven Jakubowski, a lawyer for several GM victims, is appealing Sunday's GM order, arguing that the bankruptcy judge overstepped his authority in freeing GM of its product liability claims.

"All that we're asking is that the bankruptcy court effectively respect its jurisdictional boundaries," he said.

Jakubowski says the appeal is not intended to stop the GM bankruptcy proceedings, but rather to allow victims to pursue their lawsuits in their home states against the company after it emerges from bankruptcy.

He said he hopes to eventually have his appeal combined with that of Chrysler car accident victims for consideration by the Supreme Court, but that effort met a setback late yesterday after a judge ruled that the GM appeal could not go directly to the 2nd Circuit Court of Appeals.

Jakubowski told ABCNews.com last night that he would instead pursue the appeal in district court, which is expected to result in a slower appeals process -- some 18 months longer, Jakubowski projected.

It's "taking the slow boat to China," he said.

Action by Congress: A bill proposed by Rep. Andre Carson, D-Ind., would force both GM and Chrysler to buy product liability insurance that would cover claims made against the companies for cars produced before their respective bankruptcies.

The legislation, introduced late last month, "would protect the fundamental rights of American consumers while not interfering with the bankruptcy proceedings of either automaker," Carson said in a written statement.

Carson named the bill the Jeremy Warriner Consumer Protection Act, in honor of an Indianopolis man whose legs were amputated after he nearly died in a traffic accident when his Jeep Wrangler erupted in flames.

Warriner had been scheduled to go into mediation with Chrysler, but the proceedings were cancelled after the automaker filed for bankruptcy.

Suing the Dealers: The bankruptcy proceedings don't preclude car accident victims from suing the dealers who sold them the cars, and that's exactly what Daniel T. DeFeo, the lawyer representing Terry Cole, said his client will do.

GM, Chrysler Bankruptcies Cause 'Legal Gymnastics'

But DeFeo said the prospect for success in such suits are grim. Juries may find it hard to hold a dealer responsible for injuries stemming from alleged defects in GM and Chrysler cars when the auto companies themselves may be to blame.

"Part of this whole scheme is to prevent people like the Coles from having responsible parties" to sue, DeFeo said. "It's just plain legal gymnastics."

For now, Cole said he wishes the government would stop investing taxpayer money in GM.

"I think if they're going to not take care of their obligations, we don't need to give them a penny," he said.