Litigation Over Toyota’s Throttle Recall
Auto Giant Faces Personal Injury, Shareholder Claims
By James A. Collura, Director
Coats Rose – Houston
In January 2010, Toyota announced a recall of over 3 million vehicles due to stuck-throttle problems, prompting thousands to file class action lawsuits against the automotive giant formerly known for its safety and dependability. At the center of the controversy is Toyota’s electronic throttle control system with intelligence or ETCS-i. This system controls the throttle with electronic signals sent from an accelerator pedal sensor. This is a “drive by wire” system where mechanical link throttle control is replaced with an electrical signal system.
In Texas, Pena v. Toyota was filed on January 29, 2010, in the United States District Court for the Southern District of Texas, Corpus Christi Division. The class action lawsuit seeks a class of “all persons who reside in Texas and presently own Toyota and Lexus vehicles equipped with ETCS-I and/or ETC.” The lawsuit claims Toyota failed to include a mechanical linkage between the gas pedal and throttle control to act as a failsafe against electronic malfunction. The lawsuit also claims Toyota failed to include a computer algorithm that would automatically reduce the engine to idle when the brakes are applied while the throttle is open. The class representative claims that on January 14, 2010, his 2008 Toyota Avalon unexpectedly accelerated at a stop sign causing a collision. According to the lawsuit, 16 deaths and 243 injuries have occurred due to sudden, unintended accelerations. The principal claims in Pena are breaches of implied warranty of merchantability and implied warranty of fitness for a particular purpose.
In addition to the expected personal injury and defect class actions, shareholder claims are already being filed. Stackhouse v. Toyota Motor Corp. was filed on February 8, 2010, against Toyota, company president Akio Toyoda and his top officers. The focus of this class action is a statement by individual defendant James E. Lentz, III on NBC’s Today show where he admitted Toyota had known about “sticky accelerator pedal” problems since October 2009. The Stackhouse class action on behalf of Toyota shareholders claims Toyota violated federal securities laws and artificially inflated the company’s stock price by concealing life threatening throttle defects. Thereafter, when the issues with the throttle became public, Toyota’s stock price fell approximately 20 percent.
Pena v. Toyota is merely the first of many personal injury class actions against Toyota. These types of class actions are likely to spread throughout the country quickly. It is equally likely that the initial stages of litigation shall be about which plaintiff controls litigation as much as it is the merits of the lawsuit. Stackhouse v. Toyota is an example of how stockholder derivate class actions can be as threatening from a legal and financial perspective as the personal injury class action.
Toyota isn’t out of the woods yet – in fact, the company can expect further customer and shareholder legal claims. At this early stage it is unknown whether the class actions shall include all Toyota/Lexus owners or those injured in throttle related accidents. However, Toyota may face further shareholder claims that may seek to compel Toyota to bring legal action against potentially responsible third parties (such as an outside parts manufacturer) or further seek breaches of fiduciary duties by the directors and officers of Toyota.
Companies should heed the following advice to avoid a sticky legal situation like Toyota’s:
- Be transparent in your communications. At first, Toyota remained silent on its various safety issues, before announcing that there were accelerator, brake pedal and other related safety concerns. Any delay in truth-telling will make your company seem like it’s hiding something.
- When warranted, offer sincere apologies and appropriate concessions. Today, Toyota has issued a multitude of public statements and offers zero percent financing in conjunction with lower-than-ever prices, in an attempt to lure back its once-loyal customers.
- Seek experienced legal counsel. A crisis of this magnitude is no job for an inexperienced legal team. Having the appropriate counsel can help minimize damage to your company’s brand, image, sales and revenue, but make sure you find a team you can trust and that works well with your staff.