GM Faces Derivative Shareholder Lawsuit

General Motors (GM) has recently faced a flurry of legal problems and bad publicity stemming from a decision to delay the recall of nearly 3 million vehicles with allegedly faulty ignition switches.  The automaker is being investigated by multiple government entities, including the Department of Justice, regarding the timing of its recall.  Now it can add one more problem to the list.  A shareholder recently filed a derivative shareholder lawsuit against GM, several current and former GM officers, and several GM board members. The Plaintiff’s lawsuit, which was filed in federal court in Michigan, alleges a breach of fiduciary duties and a waste of assets.  The shareholder is seeking damages and a court order requiring the Detroit automaker to overhaul its corporate governance structure to protect shareholders from future “damaging events.”  Specifically, he wants GM to create a board committee responsible for safety, inspection, and maintenance.  He claims that such a committee will give shareholders more input into board polices and guidelines.  The Plaintiff has also sought a court order that shareholders be allowed nominate at least four candidates to the board. Regardless of whether the Plaintiff is successful in this suit, GM looks to be in a world of trouble over this recall controversy.  We expect to see the federal government levy a fine against GM that is as bad or worse than that handed down to Toyota.  In March, Department of Justice officials scolded Toyota for its actions during the unintended acceleration recall and announced a $1.2 billion criminal penalty against Toyota.   The irony of GM running into problems with the government is that GM was essentially owned by the federal government from 2008 until just last December.  This time period covers at least part of the time when GM is alleged to have committed wrongdoing with respect to failing to recall the vehicles.

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