In a ruling that could cost General Motors millions of dollars, a Federal Court of Appeals in Chicago yesterday vacated the landmark settlement between the automaker and 67,000 Oldsmobile owners whose cars were equipped with Chevrolet engines.
The three-judge panel, in a unanimous decision, overturned the $40 million settlement, negotiated more than a year ago by 44 state attorneys geneal for the car owners. The court said the settlement was "unauthorized."
The appeals court said there was "substantial evidence" to indicate that General Motors deliberately concealed the engine switch to increase its profits.
The settlement, which had called for $200 cash payments and a special three-year or 36,000-mile warranty on the power train of the cars in question, has been sharply criticized by attorneys representing many of the car owners.
The settlement, approved by the U.S. District Court in Chicago, was the first ever to be negotiated by the National Association of Attorneys General. The Association hailed the pact as a major consumer victory and proof that state authorites can deal with essentially ntional consumer complaints.
But private attorneys working on the case said at the time of the settlement that the attorneys general were interested only in the publicity they would receive in connection with the case -- many were running for ffice at the time -- and said the settlement should have been larger.
Several of those private attorneys, led by Pat Boyle of Illinois, then appealed the settlement, resulting in yesterday's appellate court decision.
The Court of Appeals sharply criticized the lower court's acceptance of the settlement proposal, and further echoed the fears of the private attorneys.
"To this day," the 7th circuit Court of Appeals said in its 58-page decision, "we have no idea how the participants in the negotiations arrived at the settlement package... The trial court should have made a more precise estimate of probable compensatory danages."
Further, the court said, "We think the objectors (the private attorneys) presented substantial evidence tending to show that General Motors deliberately concealed the source of the engines in kthe cars that it sold as Oldsmobiles and that it did so to increase profits."
In addition, the court said the method used by the attorneys general to settle the case "warranted greater scrutiny than the trial court permitted." The private attorneys had contended that the attorneys general had gone around them to strike the deal with GM.
In an obvious reference to the charges by the private attorneys about the conduct of the attorneys general, the court said that "the prestige attendant upon negotiating a large settlement against a corporate defendant and kthereby acquiring reputation as consumer advocates may place public attorneys in a situation analagous to private consel who hope to win large fees."
None of the payments to Oldsmobile owners have been made, since GM was awaiting the outcome of the appeal. But some 20,000 Buick and Pontiac owners, who were not part of the original suit, but found their cars with Chevrolet engines, have accepted similar payments as settlement for their situations.
Because the Buick and Pontiac owners were not part of any court case, they cannot appeal their settlements, even though they were modled after the agreement.
The case is now remanded back to the District Court, where it will proceed as if no settlement had been reached.