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Senators to GM: Why wasn't top lawyer fired?

By Ben Klayman and Eric Beech

(Reuters) - Senators on Thursday demanded to know why General Motors Co did not fire its top lawyer after it was revealed this year that the automaker's litigation department knew of a widespread and deadly ignition flaw but failed to escalate the safety issue.

GM Chief Executive Mary Barra defended General Counsel Michael Millikin as "a man of incredibly high integrity" during the Senate Commerce subcommittee hearing at which both appeared.

But senators said Millikin should be held responsible for lower-level lawyers who for years worked on private lawsuits involving deadly crashes in which a vehicle's ignition switch could slip out of position, causing the car to stall, disabling air bags, power steering and power brakes.

"I do not understand how the General Counsel for a litigation department that had this massive failure of responsibility, how he would be allowed to continue in that important leadership role in this company," said Senator Claire McCaskill, chairwoman of the Senate Commerce subcommittee.

GM has attributed a total of 16 deaths to ignition-switch failures across its product lines, including at least 13 deaths and 54 crashes stemming from the specific defect discussed at Thursday's Senate hearing and which was found mostly in Chevy Cobalts and Saturn Ions.

Millikin responded repeatedly that he did not know about the safety risks posed by the ignition switch until early February of this year, shortly before the company issued its first public recall for the issue.

Millikin admitted that GM lawyers who worked on an April 2013 case involving a fatal crash had enough information to alert GM engineers, but they did not take action.

"That was tragic. If they had brought it to my attention at that time, I certainly would have made sure that they had done something," he said.

Lower-level lawyers are among the 15 people GM has dismissed in the safety debacle that has resulted in millions of recalled vehicles.

Barra said she disagreed with the notion that Millikin should be fired. "He's the person I need on this team. He had a system in place," she said. "Unfortunately, in this instant it wasn't brought to his attention frankly by people who brought many other issues forward."

Prior to the series of ignition-related recalls that began in February, GM attorneys had permission to settle lawsuits for up to $5 million without notifying Millikin. GM changed that policy after the recall crisis.

GM has also hired large law firm Quinn Emanuel Urquhart & Sullivan, primarily known for litigating business matters, to review the automaker's litigation practices, according to one of the firm's managing partners, John Quinn.

Millikin told senators he has already reorganized the legal staff to report directly to him, and that he will personally review for engineering issues any case involving a fatality or serious injury that goes to trial or a settlement.

DELPHI DODGES BLAME

Also appearing before the committee on Thursday was Rodney O'Neal, the chief executive of Delphi Automotive, the maker of the defective part. It was his first public appearance before Congress.

Delphi has so far largely avoided the harshest criticism from lawmakers, and O'Neal on Thursday said his company should not shoulder the blame for the ignition-switch flaw.

O'Neal said Delphi followed the requirements dictated by GM in making the part, which was designed with low resistance because GM wanted it to turn smoothly. "GM knowingly approved a final design that included less torque than the original target," O'Neal said in prepared testimony. "In our view, that approval established the final specification."

GM CEO Barra accepted that the part's design was the fault of her company and not Delphi's.

The Justice Department is not targeting Delphi in its criminal probe of GM's handling of the safety defect, according to sources familiar with the investigation.

O'Neal said Delphi has four production lines running to make replacement ignition switches. He said Delphi has shipped more than 1 million new switches and is on track to deliver more than 2 million by the end of August.

BANKRUPTCY SHIELD

Senators also pressed GM officials and outside lawyer Kenneth Feinberg about how the automaker plans to compensate victims. GM has appointed Feinberg to set up and administer a fund for victims.

Millikin told the senators that GM would not consider waiving bankruptcy protection outside of the fund.

That protection was granted to the automaker by the terms of its 2009 exit from bankruptcy, which created the so-called New GM and left liability for accidents that occurred prior to its bankruptcy exit with what remained of "Old GM."

GM has asked the Manhattan judge who oversaw that bankruptcy to rule on whether certain claims are blocked by those terms, in a pre-emptive move aimed at holding off dozens of lawsuits from customers who say they suffered financial losses from the recall.

Barra said GM sees no need to expand the compensation fund to cover other cars with bad switches outside the initial recalls.

(Reporting by Eric Beech in Washington and Ben Klayman in Detroit; Additional reporting by Jessica Dye and Casey Sullivan in New York and Annika McGinnis in Washington; Writing by Julia Edwards; editing by Matthew Lewis and Karey Van Hall)

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