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Early Moves In Court Could Limit Toyota Recall Liability

By Erin Marie Daly

Law360, New York (February 18, 2010) — With at least one expert estimating that Toyota Motor Corp.
could be on the hook for up to $5 billion in legal claims, now is the time for the beleaguered carmaker
to put together a litigation strategy that could minimize the damage resulting from its mass recalls,
experts said.

As the negative publicity over the recalls fuels a rash of lawsuits against Toyota, the Japanese
automaker’s best litigation strategy will be to reduce potential damages by knocking down economic
harm claims and quietly settling personal injury cases before they go to a jury, lawyers and professors
said. But the task will become more challenging as the company’s woes continue to dominate the
headlines, they said.

Since Toyota announced in late January its most recent recall of 2.3 million vehicles due to sticking
accelerator pedals, the company has scrambled to assure consumers that it is tightening its safety
controls and implementing measures to improve product quality.

But trying to allay the public’s fears has become an uphill battle for the auto giant in recent weeks as
new issues surface.

The National Highway Traffic Safety Administration has demanded documents from Toyota to
determine if the automaker conducted its recent recalls — which have affected more than 8.1 million
vehicles worldwide since they began in October — in a timely manner, putting the company on the line
for millions of dollars if violations are found. The agency has also opened a separate investigation to
probe possible steering issues on about 500,000 Toyota Corollas.

Lawyers said this continued presence in the spotlight — and Toyota’s handling of the recalls — would
likely weigh heavily on the company’s defense strategy in the face of mounting lawsuits by
consumers, auto dealers and shareholders.

“To date, it’s been a public relations disaster, in large part because the perception is that Toyota
doesn’t have its hands around the problems or a very effective management strategy to fix the
issues,” said Jeffrey Judd, a partner at the Judd Law Group.

The longer this perception goes on, Judd said, the more it puts Toyota behind the eight ball and
increases the tension between the company’s public relations and legal strategies.

“The standard PR advice is that the company should take responsibility, apologize and fix the problem
as soon as possible,” he said. “But legally, you want to be careful not to make any admissions that
could be used in litigation later.”

So far, Judd said, Toyota hasn’t managed to demonstrate to the public that it knows what the root
cause of problems are, or what the solution is — a lapse that gives momentum to plaintiffs and
increases potential settlement values.

Indeed, plaintiffs have wasted no time in taking legal action in the wake of the recalls. The company is
already facing more than 30 proposed class actions over its vehicles’ electronic throttle system,
alleging a variety of claims, including negligence, breach of warranty, unjust enrichment and violation
of a slew of state consumer protection laws.

Other putative class actions involve claims by auto dealers across the country that claim they are
bearing the financial brunt of the recalls and deserve to be compensated, as well as accusations that
the company violated the federal racketeering statute by deceiving car owners and dealers as to the
mechanical and electrical problems mushrooming within its fleet of vehicles.

Toyota also faces shareholder claims that it inflated its stock price by failing to tell investors about
problems that led to the recalls.

In addition, while the number of personal injury suits to date is much smaller, that pool could widen:
NHTSA’s auto-safety database has reflected a sharp jump in motorist complaints involving Toyota
vehicles that allegedly accelerated out of control in the past decade, bringing the number of fatalities
to at least 34 as of this week.

Among the various lawsuits, the most substantial monetary threat Toyota faces — at least for now —
comes from the mounting number of economic injury claims.

“The amount of money claimed will be relatively small per consumer … but [the claims will be] much
more numerous because everyone who owns a Toyota has less value attached to their vehicle than a
month ago,” said Richard L. Cupp Jr., a professor at the Pepperdine University School of Law.
Toyota’s best chance for defeating such claims, he said, would be to defeat class certification bids by
arguing that economic injuries vary too greatly among individual car owners.

For now, at least, recognizing the potential for successful class status bids in economic damages
actions should be at the top of Toyota’s priority list, according to David Owen, a law professor and
director of tort studies at the University of South Carolina School of Law.
Owen — who estimated the company will ultimately end up shelling out between $2 billion and $5
billion for litigation expenses associated with the recall — said Toyota could also exploit the difficulty
plaintiffs might face in proving causation.

“It’s a panic mentality that is driving down the resale value of these cars,” he said. “It isn’t irrational,
but over time my hunch is that the Blue Book value will go back up. A careful court would be troubled
by the temporary nature of this phenomenon.”

As more reports surface of injuries and death related to Toyota vehicles, the company must also begin
considering its legal stance with regard to personal injury cases, attorneys say.

How big the claims in those cases will be is still unclear, Cupp said, but will depend on two variables:
how many people were actually injured, and whether it can be proved that Toyota hid information
regarding safety or was misleading about the nature of the defects.

If intentional misconduct is found, he said, such suits will become much more valuable because
punitive damages will likely be awarded on top of compensatory damages.

“If juries perceive Toyota as having more moral culpability, they’ll value pain and suffering at a
greater amount,” Cupp said. “The defense is already in a tough position here, because Toyota has
already admitted it had a problem. It will probably be left to argue that the cause of the accident is
indeterminate, and will certainly argue as to the extent of damages. But if it can show it didn’t engage
in intentional misconduct, it will get off a lot cheaper.”

The fact that only a relatively small number of accidents have so far been attributed to the
acceleration issue bodes well for Toyota in the short term, according to Judd.

“The good news is that there likely won’t be thousands of cases involving huge coordination
proceedings with these types of cases,” he said. “But the publicity will cause Toyota to be more willing
to pay higher settlement figures just to get out of the press and demonstrate that they’re doing the
right thing.”

But as the recall fallout continues, the nature and extent of the litigation filed against Toyota stands to
be determined, in large part, by the company’s strategy in dealing with the situation.

Some experts praise Toyota for taking a proactive approach by actively working to identify the root
cause of the current problems and to see what other issues might exist, instead of simply waiting for
the next lawsuit or request for documents from regulators.

“The ultimate goal, of course, is to end the problems, and assure regulators and consumers
that Toyota remains a brand worth embracing,” said R. Matthew Cairns, director and
shareholder at Gallagher Callahan & Gartrell PC and president-elect of DRI, the nation’s
largest organization of civil defense attorneys.

While the current lawsuits appear to involve different issues, Cairns said, quality control
seems to be at the heart of Toyota’s troubles — and is something that can be addressed in a
global as well as product-specific manner.

The company may also benefit from its historic brand loyalty and consideration, despite reports this
week that in the wake of the recalls, brand loyalty has significantly increased for Korean and domestic
automakers such as Kia, Hyundai, Chevrolet and Ford.

“Brand loyalty is a fairly sticky thing,” Judd said. “People are usually willing to continue to be loyal as
long as they’re convinced about the quality of a manufacturer’s products, so if Toyota hunkers down
and fulfills its main mission, that will likely be the take-home.”

Cupp said that while he was glad Toyota had stopped selling the defective cars when it realized there
was a problem, he wasn’t sure if the move helped or hurt with the company’s ultimate liability.

“The problem is that the defects have received so much attention,” he said. “Toyota will have a
problem finding jurors who don’t have a preconception about the company doing something wrong.”
To that end, Cupp said, Toyota’s attempt to seek redemption through a massive advertising campaign
could help its future legal liability.

After all, the more Toyota is in the news about recalls, the greater the likelihood of jurors forming an
opinion that could potentially influence their deliberations. “Toyota is conscious that potential jurors and
judges will be watching these commercials, and that the feelings they have toward the company will make a
difference with regard to legal liability,” he said.

Cairns said that while the commercials won’t necessarily make plaintiffs less likely to sue,
they do show a company concerned with safety and the public and that is doing what it
believes is necessary to solve its problems.

What these efforts will do, he said, is “help sensitize potential jurors to Toyota’s efforts and
undermine the concerted effort by the plaintiffs bar to paint Toyota as a profit-driven
uncaring corporate behemoth.”

Owen cautioned, however, that while the apparent sincerity of Toyota’s efforts to remedy the defect
issue could positively sway jurors’ hearts, a real question of fact remained as to when the company
discovered the problems.

“If these recent efforts to solve the problem are months or years later than when the company
became sincerely concerned, then it’s in real trouble in terms of punitive damages and criminal
charges,” he said.

http://www.law360.com/articles/150471

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