Toyota (TM) Falls to the Tort Bar

Score another one for the tort lawyers.

Toyota Motor Corp. (TM) agreed to pay about $1.1 billion to settle a class-action lawsuit stemming from complaints of unintended acceleration in its vehicles that soured its reputation for quality and undermined its sales globally.

If you’re unfamiliar with the circumstances that led to this payout, here is a brief recap.

Around 2009 people started experiencing episodes of sudden uncontrollable acceleration of various Toyota cars. They were crashing into all sorts of things and tragically a few people were killed in accidents attributed to this problem. The media latched onto the issue and Congress obligingly followed. The farce reached its crescendo during committee hearings when Department of Transportation Secretary Ray LaHood in response to a question from a congressman opined that those Toyota models suspected of being faulty were not safe to drive and needed to go back to the dealer. He was shortly after the committee hearing obviously counseled by some cooler heads in his department and retracted his statement. The damage to Toyota was extensive as its sales and market share nose dived. The DOT not content to let the market extract its toll fined the company a total of $83 million for failing to tell it about the problems.

Mr. LaHood’s comments, the media circus and general public paranoia they inspired were based on, well, nothing, no scientific evidence. Never let a good story get in the way of the facts. Naturally, some actual scientific examination ensued and, as has been the case in all other incidents of unexplained acceleration of motor vehicles, the cause was attributed to drivers pressing on the accelerator though they mistakenly thought they were applying the break pedal. It was determined that in some cases the drivers side floor mats were removed for by car wash attendants and then not properly secured when placed back in the vehicle. The mats then slid forward and pushed against the accelerator pedal.

So Toyota was more or less not at fault, paid a heavy price in fines, corporate reputation, recall expenses and sales. But any trial lawyer worth his salt not to mention sleazy reputation could see a payday in this one and boy did they get one. The little graph below shows how the loot is to be divied up.

Note that aside from the lawyers who naturally are collecting an absurd amount of money the actual litigants, those members of the class that sued, are being monetarily rewarded because they allegedly lost money when they traded in their vehicles. Point of does a fine job of pointing out the absurdity.

The class action that was settled mostly involved people who had never had an incident of unintended acceleration, but who were suing because the resale value of their vehicles was allegedly diminished by the (false) belief in the market that Toyotas could accelerate all by themselves. That ground of suit is nowhere legally accredited, and is baseless on several grounds: Toyota does not guarantee nor is there any legal right to any given resale value; the mistaken market belief about Toyotas, if it existed, was caused by misleading press reports and not by Toyota; etc.

So Toyota cave. It’s often said of the corporate income tax that it isn’t in fact paid by corporations, that they just act as the tax collector for the government as they pass the cost on to their customers. I suppose the corollary to that might be that in this day and age those who choose to settle these humongous class actions are merely the conduit for funds flowing from the public to the lawyers. Unfortunately, in choosing to act the agent Toyota abets the growth of this shakedown racket.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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