GM, Auditor to Pay $303 Million to Settle Shareholder Suits

General Motors and its auditor have agreed to pay $303 million to settle shareholder charges that for seven years GM's officers and directors used accounting tricks and misinformation to hide the auto giant's declining fiscal health from investors.

The tentative settlement was brokered by a mediator appointed by the U.S. District Court for the Eastern District of Michigan, where numerous shareholder securities fraud and breach-of-duty lawsuits were consolidated into a multidistrict litigation.

The suits said investors lost billions of dollars because GM's officers and directors repeatedly inflated the company's stock value with improper accounting practices and misleading fiscal statements beginning in 2000 and that auditor Deloitte & Touche failed to raise a red flag on the fraud.

Though none of the defendants admitted any wrongdoing, GM said in a regulatory filing that it added a charge of $277 million in the second fiscal quarter to cover its part of the settlement. Deloitte will pay an additional $26 million, and GM said it believes its insurers will reimburse at least part of its payment.

Attorney Jay Eisenhofer, a partner at Grant & Eisenhofer, the co-lead plaintiff firm with Labaton Sucharow & Rudoff, hailed the recovery as one of the largest for shareholders in 2008.

"This is an extraordinary outcome for GM investors," Eisenhofer said in an e-mail. "To secure this level of recovery from General Motors in the current environment for the company is very telling, and we are extremely pleased ... with the outcome of this case for the shareholders."

Lead plaintiffs Deka Investment and Deka International, Luxembourg-based investment funds managed by Germany's DekaBank, were among investors who filed suits in various state and federal courts in 2006, allegedly after discovering a pattern of unacceptable accounting practices and misleading statements by GM officials dating back to 2000.

They claimed that the GM officers and directors breached their fiduciary duties and violated federal securities laws by hiding fiscal obligations, overstating assets and revenue, and masking financial problems.

The plaintiffs also said GM failed to properly account for two large transactions involving Delphi Corp., a parts supplier it spun off as a separate company.

In this case the plaintiffs said GM should have labeled a $237 million payment involving retired workers' benefits as a one-time occurrence but instead treated it as recurring revenue.

Delphi filed for bankruptcy in 2005 and was the target of shareholder suits alleging accounting irregularities and sham transactions with GM.

They further charged that the company:

• Overstated cash flow;
• Understated the benefit obligations owed to Delphi's workers when the company went bankrupt;
• Understated how much money it would be required to pay for product recalls;
• Failed to account for the cost of bad investments; and
• Issued statements company officials knew were false and misleading.

The suits claimed that Deloitte rubber-stamped fiscal statements even though it knew they were false and did not conform to generally accepted accounting principles.

Those suits eventually were consolidated into a multidistrict litigation under U.S. District Judge Gerald Rosen.

After the plaintiffs filed their third amended complaint and the defendants moved to dismiss it, Judge Rosen called in a retired judge to mediate a settlement.

At press time no documents relating to the proposed settlement had been filed.

The deal awaits Judge Rosen's approval.

To comment, ask questions or contribute articles, contact West.Andrews.Editor@ThomsonReuters.com.

The plaintiffs are represented by James Sabella of Grant & Eisenhofer in Wilmington, Del., and Jonathan Plasse, Eric Belfi and Richard Joffe of Labaton Sucharow & Rudoff in New York.The defendants are represented by Linton Childs of Sidley Austin in Chicago and Stephen Radin of Weil Gotshal & Manges in New York.

$5M Suit Filed Over New Orleans Oil Spill

Residents and businesses have filed a $5 million class-action lawsuit over a massive July 23 oil spill that closed the Mississippi River from New Orleans to the Gulf of Mexico.

Austin Sicard and others filed the complaint in the U.S. District Court for the Eastern District of Louisiana against Laurin Maritime (America) Inc., Whitfin Shipping Co., D.R.D. Towing Co., American Commercial Lines Inc. and the New Orleans-Baton Rouge Steamship Pilots Association.

On July 23 a collision between a ship and a barge on the Mississippi River caused the barge to split in half and release about 500,000 gallons of heavy fuel oil.

According to the Coast Guard, no one aboard the tugboat that drove the barge into the ship was properly licensed.

The complaint says the oil has contaminated the Mississippi River and its shorelines.

As a result of prevailing winds, toxic gases from the oil have spread from the site of the collision to the French Quarter and to the business district of New Orleans, the lawsuit says.

People and businesses in the affected areas have been prevented from working on or around the Mississippi River, causing a loss of revenue, according to the suit.

The water intakes for Algiers, Gretna, St. Bernard and Plaquemines parishes have been closed to prevent contamination of the drinking water supply, and those affected have been asked to conserve water, the lawsuit says.

The complaint alleges negligence and violations of the Oil Pollution Act, 33 U.S.C. § 2701. The plaintiffs are asking for compensatory and punitive damages.

They are represented by Hugh Lambert, Linda Nelson and E. Alexis Bevis of Lambert & Bevis in New Orleans; Gerald Meunier of Gainsburgh, Benjamin, David, Meunier & Warshauer in New Orleans; Ronnie Penton and Gair Oldenburg in Bogalusa, La.; Sidney Torres III and Roberta Burns in Chalmette, La.; Scott Bickford and Lawrence Centola of Martzell & Bickford in New Orleans; and Water Leger Jr. of Leger & Shaw in New Orleans.

To comment, ask questions or contribute articles, contact West.Andrews.Editor@ThomsonReuters.com.

Use of Sexual-Conduct Evidence Prejudicial in Tire Defect Case

A California appeals court has vacated a verdict for Michelin North America in a tire defect case and ordered a new trial, ruling that the admission of evidence on the plaintiff's sexual conduct caused a miscarriage of justice.

"From start to finish," the 2nd District Court of Appeal said, "Michelin painted [the plaintiff] as a liar, cheater, womanizer and a man of low morals based principally, if not solely, on what we have concluded was inadmissible evidence."

The plaintiff, identified in the opinion as Winfred D., used a rented cargo van to transport produce from Los Angeles to Las Vegas. He contends the tread came off a Michelin tire Aug. 23, 2004, and caused him to lose control of the vehicle.

He suffered a severe brain injury in the accident, which left him with severe cognitive and physical disabilities, the opinion says.

Winfred sued the tire maker in the Los Angeles County Superior Court, seeking damages for negligence, strict product liability, and breach of express and implied warranties. All claims related to the design, manufacturing, maintenance and marketing of the tire.

The plaintiff argued that the Michelin tire was defective in part because it lacked a nylon cap ply, a layer of nylon wrapped around the steel cords in the tire body.

Winfred also said adhesion problems in the tire interior contributed to the tread separation.

His expert witness, David Osborne, found no indication that the tire failed because of an overload, which Michelin claimed was the cause.

The trial judge allowed the company to present evidence that, while Winfred was married to his first wife, he had an affair with and later married his business partner's wife.

According to Michelin, Winfred had told his second wife that he was divorced, and he then had an affair with a third woman, with whom he had two children.

The court said this evidence was relevant to Winfred's credibility and related to the overloading question because the plaintiff, in Michelin's view, was trying to earn more money to support his two families.

The jury returned a verdict for Michelin, and Winfred appealed.

Reversing, the Court of Appeal said the evidence was unduly prejudicial and caused a miscarriage of justice.

"The disputed evidence was so inflammatory it appears reasonably probable that had it been excluded, plaintiff could have obtained a verdict in his favor," the panel ruled.

The appeals court said judges must act carefully when disputed evidence involves the privacy and reputations of nonparties.

In this case, the panel said, the numerous references to the full names of Winfred's second wife and mistress could expose them to possible ridicule and doubts about their character.

Finally, the appeals court said, there was no proof that Winfred supported one family, let alone two.

"Michelin's motive theory had insufficient evidentiary support and did not provide a basis for the admissibility of Winfred's extramarital affair ... or the existence of his illegitimate children," the panel concluded.

To comment, ask questions or contribute articles, contact West.Andrews.Editor@ThomsonReuters.com.

Use of Sexual-Conduct Evidence Prejudicial in Tire Defect Case

A California appeals court has vacated a verdict for Michelin North America in a tire defect case and ordered a new trial, ruling that the admission of evidence on the plaintiff's sexual conduct caused a miscarriage of justice.

"From start to finish," the 2nd District Court of Appeal said, "Michelin painted [the plaintiff] as a liar, cheater, womanizer and a man of low morals based principally, if not solely, on what we have concluded was inadmissible evidence."

The plaintiff, identified in the opinion as Winfred D., used a rented cargo van to transport produce from Los Angeles to Las Vegas. He contends the tread came off a Michelin tire Aug. 23, 2004, and caused him to lose control of the vehicle.

He suffered a severe brain injury in the accident, which left him with severe cognitive and physical disabilities, the opinion says.

Winfred sued the tire maker in the Los Angeles County Superior Court, seeking damages for negligence, strict product liability, and breach of express and implied warranties. All claims related to the design, manufacturing, maintenance and marketing of the tire.

The plaintiff argued that the Michelin tire was defective in part because it lacked a nylon cap ply, a layer of nylon wrapped around the steel cords in the tire body.

Winfred also said adhesion problems in the tire interior contributed to the tread separation.

His expert witness, David Osborne, found no indication that the tire failed because of an overload, which Michelin claimed was the cause.

The trial judge allowed the company to present evidence that, while Winfred was married to his first wife, he had an affair with and later married his business partner's wife.

According to Michelin, Winfred had told his second wife that he was divorced, and he then had an affair with a third woman, with whom he had two children.

The court said this evidence was relevant to Winfred's credibility and related to the overloading question because the plaintiff, in Michelin's view, was trying to earn more money to support his two families.

The jury returned a verdict for Michelin, and Winfred appealed.

Reversing, the Court of Appeal said the evidence was unduly prejudicial and caused a miscarriage of justice.

"The disputed evidence was so inflammatory it appears reasonably probable that had it been excluded, plaintiff could have obtained a verdict in his favor," the panel ruled.

The appeals court said judges must act carefully when disputed evidence involves the privacy and reputations of nonparties.

In this case, the panel said, the numerous references to the full names of Winfred's second wife and mistress could expose them to possible ridicule and doubts about their character.

Finally, the appeals court said, there was no proof that Winfred supported one family, let alone two.

"Michelin's motive theory had insufficient evidentiary support and did not provide a basis for the admissibility of Winfred's extramarital affair ... or the existence of his illegitimate children," the panel concluded.

To comment, ask questions or contribute articles, contact West.Andrews.Editor@ThomsonReuters.com.