GM urges judge to throw out disputed ignition switch deal

By Tina Bellon

(Reuters) - Lawyers for General Motors on Monday urged a federal bankruptcy judge in Manhattan to throw out a settlement that would require the company to pay $1 billion to car owners suing over faulty ignition switches.

The carmaker made its argument on the first day of a scheduled three-day bench trial before Judge Martin Glenn of the U.S. Bankruptcy Court in New York. The trial will determine the validity of a deal the car owners said they reached in August with a trust that holds many GM liabilities from before its 2009 bankruptcy. [nL2N1L31WM]

The claims stem from GM's 2014 recall of 2.6 million vehicles with defective ignition switches, including one linked to 124 deaths.

Lawyers for the car owners say the trust agreed to a deal in August but walked away several days later, instead accepting GM's offer to help pay for its defence against the car owners' claims.

The judge questioned how that came about, noting GM had an interest in dissolving any deal that required it to pay more.

"I have trouble saying it passes the smell test," Glenn said, referring to a two-hour meeting between the trust and GM in August, after which the trust dropped the agreement with the plaintiffs.

But attorneys for the carmaker and the trust told Glenn the trust had every right to drop the agreement.

"Sometimes people simply get cold feet, even when they get married," said Susheel Kirpalani, a lawyer for GM, "and the same applies to settlements, your honour."

The carmaker said the deal with the car owners had never been signed, rendering it non-binding. Mitchell Karlan, an attorney for the trust, on Monday also said plaintiff lawyers contradicted each other in their testimony on when the agreement was allegedly reached.

But the car owners said the trust acted in bad faith and claimed the agreement was binding even without a signature, pointing to conversations and emails with the trust.

The settlement called for the trust to accept $10 billion in claims to resolve about 11.9 million allegations over economic loss and between 400 and 500 personal injury and wrongful death claims.

About 2.4 million claims, involving vehicles sold after GM's bankruptcy, would have remained pending in another court.

GM has already paid roughly $2.5 billion to settle ignition switch-related claims, including $900 million to settle a criminal probe by the U.S. Justice Department.

(Reporting by Tina Bellon; Editing by Anthony Lin and Cynthia Osterman)