Study of Product Liability: Toyota Motor Corp. Recalls in 2010

In 2010, Toyota faced a huge product liability lawsuit. More than thirty class action law-suits were filed, eventually leading to hundreds more, all seeking to recover damages from the lost use of vehicles and the now reduced value of Toyota’s cars affected by the recall.

The revised complaint in the case filed October 27, 2010 cites mechanical and electronic issues as well as the lack of appropriate fail-safe device. By extension, the complaint alleges in-sufficient testing and validation of these systems. The plaintiff's complaint also alleges that Toyo-ta “uniformly rejected” claims of these issues, made no timely public disclosures regarding the complaint, and affirmatively misled consumers as a result. The factual background seeks to show that the Toyota scandal was initially investigated starting in 2002 for problems with their electronic throttle control system and its “limited” fail-safe system. Specifically, Toyota is accused of hiding appropriate engineers from NHTSA who investigated in 2002, along with documentation saying that Toyota in fact knew of the “catastrophic” implications of a stuck throttle. When Toyota finally did issue a recall for the cases of unintended acceleration, plaintiffs allege the recall failed to apply to over 70% of affected vehicles, making the recall a hollow one (St. John vs. Toyota Motor Corp et al., 2010). Depositions of customers who experienced the sudden acceleration often revealed no mention of floor mats.

The factual background of the case begins with the reputation Toyota sought to cultivate among consumers. Toyota marketing campaigns promised safety in order to build consumer trust in the brand. Yet, in situations where cases of runaway vehicles emerged with its subsidiary brand, Lexus, Toyota did next to nothing in terms of alerting customers to a larger issue. The NHTSA declined Toyota’s offer to send a letter to customers reminding them not to install all-weather floor mats on top of existing mats, citing too many complaints about one model in particular, 2007 Lexus ES350 (Hennigan, 2012). This was a patchwork solution for a much larger technological problem which would go on to take the lives of four people in a notable car crash caused by the flaw in San Diego in 2009.

Toyota’s defense was a determined effort to show they had no knowledge of any technical defect, nor that a trace of said defect even existed. The LA Times, in the aftermath of the eventual settlement, revealed that both NASA and NHTSA investigated but were “unable to trace a defect.” However, “They said the settlement provides that 16 million current Toyota owners will be eligible for a customer care plan that provide a warranty for certain parts alleged to be tied to unintended acceleration claims” (St. John vs. Toyota Motor Corp et al., 2010, p.137). Afterwards, speaking about the settlement, Christopher P. Reynolds, Toyota Motor North America’s chief legal officer, said in a statement, “This was a difficult decision -- especially since reliable scientific evidence and multiple independent evaluations have confirmed the safety of Toyota’s electronic throttle control systems. However, we concluded that turning the page on this legacy legal issue through the positive steps we are taking is in the best interests of the company, our employees, our dealers and, most of all, our customers” (Hirsch, 2010). The settlement was agreed upon with obvious motivation to put the bad press resulting from the lawsuits behind Toyota.

Regarding the insurance, a firm was never mentioned in the proceedings or the settlement deal. In all, 105 people are estimated to have died as a result of sudden acceleration in Toyota vehicles. In a NY Times article, Carl B. Tobias, a professor specializing in property law at the University of Richmond, said, “The publicity surrounding a settlement will increase the pressure on Toyota to settle the wrongful death and personal injury cases for more than Toyota might have paid, had it settled those claims earlier” (Trop, 2014). This could be explained by the fact that the terms of the settlement included waved installation-fees for a better break-override system for customers who owned models affected by the recall. An extended warranty for these vehicles was added, plus some direct payments to customers whose trade-in values were diluted by the recall were also part of the settlement.

There is a possibility that a jury trial could have resulted in an even larger sum, however, a protracted legal fight was not deemed desirable. The filing party demanded a jury trial. The jury was not able to hear the case, as it was settled preemptively out of court for a sum estimated to be between $1.2-1.4 billion. Jury voting would have hinged on the ability of the plaintiffs to prove that Toyota mislead customers through a campaign of marketing that emphasized safety and customer service in addition to the burden of proving that the consumer reports produced by Toyota suggested a large-scale systemic problem with the product. Plaintiffs reviewed the consumer complaints of sudden acceleration and found that floor mats were only responsible for approximately 16% of cases. Therefore, in light of the acknowledgement that Toyota failed to respond comprehensively to a variety of consumer complaints that well-documented the sudden acceleration issue, Toyota would have been found liable regardless. Even more damming is the realization that the investigation really began back in 2002, leaving Toyota ample time to deal with the problem if management had chosen to. The complaint filed in October of 2010 alleges that an emphasis on faster production has caused Toyota to sacrifice safety for speed. “One reason why Toyota lacks sufficient test data on the reliability of ETCS…is the overall slip at Toyota in its attention to quality control” (St. John vs. Toyota Motor Corp et al., 2010, p.187). In one case described in the complaint, a consumer, after experiencing a sudden acceleration, hired a professional engineer to study the cause. After notifying Toyota that the engineer found the ETCS system was at fault, Toyota responded from its headquarters in Torrance, CA saying, “there have been no confirmed or documented reports or findings of any type of computer mal-functions acceleration/brake or electrical systems” (St. John vs. Toyota Motor Corp et al., 2010, p.168). This statement represents a serious rift in what Toyota knew, and what they were disclosing to the public. This suggests that Toyota was trying to avoid public culpability in light of their well-documented problem.

A jury trial hearing the arguments of this class-action suit would almost certainly resulted in a monetary payout to members of the class suit. Toyota’s management failed to take meaningful action to address an apparent problem with their product in a timely manner. Even more damning is their rejection of any claims to the contrary prior the lawsuit’s filing. Toyota's ethics were called in to question when the company falsely represented that floor mats were at fault for the sudden acceleration, even when they knew that this cause only accounted for roughly 16% of all reported cases. Alternatively, if Toyota had, in 2002 when reports started coming in, investigated and tightened quality control standards, they might have avoided putting millions of vehicles on the road which were later subject to a recall that heavily diminished their trade-in value, not to mention the avoidance of deaths that resulted. Toyota might have caught the problem earlier if modes of production had been studied more closely in conjunction with management’s knowledge of the problem. At the end of it all though, Toyota’s lack of a fail-safe system which would close the throttle and allow the breaks to be applied is what cost them the most. Even if sudden acceleration had been a problem, the initial lack of a fail-safe (later installed in the recall) can ultimately be blamed.  

References

Hennigan, W. (2012, December 26). Toyota settlement in sudden-acceleration case will top $1 billion. LA times. Retrieved from http://articles.latimes.com/2012/dec/26/business/la-fi-toyota-to-pay-at-least-12-billion-to-settle-suddenacceleration-lawsuit-20121226

Hirsch, J., & Pfeifer, S. (2010, February 12). Toyota faces massive legal liability. Los Angeles Times. Retrieved from http://articles.latimes.com/2010/feb/12/business/la-fi-toyota-liability12-2010feb12

St John v. Toyota Motor Corporation et al. (n.d.). Justia Dockets & Filings. Retrieved from http://dockets.justia.com/docket/georgia/gamdce/4:2010cv00075/79910

Trop, J. (2014, February 9). Toyota Faces Order To Recall Cars. NY Times. Retrieved from http://www.nytimes.com/2014/02/10/business/toyota-in-talks-on-final-settlements-over-car-recalls.html?_r=0