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Toyota Agrees to $1.1 Billion Settlement in Class-Action Suit

Source: WSJ

Posted on 27 Dec 2012 by Neilson

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Toyota class lawsuitToyota Motor Corp. has agreed to pay about $1.1 billion to install new safety equipment and reimburse owners of up to 16 million cars to settle a U.S. class-action suit stemming from 2009-10 recalls related to complaints of unintended acceleration in its vehicles.

The settlement, filed in a federal court in California on Wednesday, will result in Toyota taking a $1.1 billion pretax charge this quarter, a person familiar with the matter said. The settlement is one of the largest in a lawsuit involving the automotive industry, said Steve W. Berman, one of the lead plaintiff lawyers.

If approved by U.S. District Court Judge James Selna, the agreement would provide payment or safety equipment to the owners of as many as 16 million vehicles. The settlement includes no admission of fault by Toyota. It also avoids the risks associated with battling a lengthy jury trial.

Toyota's costs related to the recalls and probes are likely to exceed $3.1 billion. Toyota estimated in 2010 that the costs of recalls and lost sales world-wide would be around $2 billion, a figure that didn't include the latest settlement, its legal fees, fines from the U.S. government and additional floor-mat recalls that came afterward. Toyota declined to give a total cost.

A U.S. government probe of accidents blamed on unintended acceleration absolved the electronics in the vehicles and found that driver error was to blame for most of the accidents with sticky accelerator pedals and floor mats playing a role in others.

Toyota continues to face two separate lawsuits related to the 2009-10 recalls, a consumer-protection and fraud suit in Orange County, Calif., and an unfair-business-practice case brought by the attorneys general of 28 states, the person familiar said.

"One of our overriding goals has been to vigorously defend the safety of our vehicles and we believe we have done that," said Mike Michels, a Toyota spokesman.

The class-action lawsuit alleges that a flaw in Toyota's electronic throttle-control system--and not ill-fitting floor mats and sticky accelerator pedals--were causing Toyota drivers to accelerate out of control and crash.

Mr. Berman said the settlement breakdown includes cash payments capped at $250 million to Toyota owners who sold or turned in their vehicles between Sept. 1, 2009, and Dec. 31, 2010, for lost value; $250 million in payments for car owners whose vehicles can't be updated with brake-override systems; between $200 million and $400 million to install brake-override systems on up to 3.25 million vehicles; $400 million for extending warranties; and about $200 million in attorneys' fees.

The court must set plaintiff attorneys' fees.

Toyota recalled more than 5.3 million vehicles in the U.S. alone for problems related to ill-fitting floor mats and an additional 2.77 million for accelerator pedals that could stick. It has been fined more than $66 million by the National Highway Traffic Safety Administration for not notifying the agency in a timely manner when it knew problems existed. Two weeks ago, the agency fined Toyota $17.35 million for not telling the agency about floor-mat issues in its Lexus RX 350 compact SUVs.

Toyota's issues with floor mats came to light in 2009 when an off-duty California highway patrolman in a borrowed Lexus ES 350 sped out of control and crashed, killing himself and three passengers. For months, lawyers and some safety advocates argued that Toyota's unintended acceleration problems were caused by defects with its electronic throttle control system.

Initially supporting their claims were data collected by government agencies that showed unintended acceleration events occurred more frequently in Toyota vehicles than in any other brand as well as firsthand accounts from drivers who claimed to have acceleration problems that weren't related to the two recalls.

The scandal led company Chief Executive Akio Toyoda to vow in testimony before Congress that the company would overhaul the way it handled quality control.

Mr. Berman, a partner in Hagens Berman LLP in Seattle, said the settlement accomplished several of the suit's objectives, including getting more safety equipment installed on Toyota vehicles. But it didn't prove if there still are additional flaws in Toyota's system.

"We have not resolved the issue of is there a bug" in the system, he said. Although Toyota is steadfast that there were no other problems with its systems than those that were recalled, the settlement includes extended warranties on vehicles' engine-control module, cruise-control switch, accelerator pedal assembly, stop-lamp switch and throttle body assembly. Toyota maintains there are no problems with these parts.

Mr. Berman is valuing the settlement at up to $1.4 billion, an estimate that assumes the maximum recovery and costs for repairs and equipment.

Toyota officials felt that the company had proven that its vehicles were safe and that it had recovered enough from the scandal to settle the case without harming its image, a person familiar with the matter said.

Toyota's U.S. sales were up 29% through November this year over a year earlier and it has gained 2 points of market share. Globally, Toyota also may regain its top spot in sales.