Toyota Recalls Crisis Update

The BP Oil Spill and ensuing hearings shifted Congressional attention away from the Toyota Recalls and the draft legislation that would have imposed severe new regulatory requirements and potential penalties on automakers. That reprieve and then an election resulting in a lame-duck Congress stalled a last-ditch effort to enact a compromise bill before the new Congress assumed office and Republicans took control of House Committees and agendas.

Except for the severe penalties and some recall decision-making requirements contained in the proposed “Motor Vehicle Safety Act of 2010″ and outlined in a previous article about the Toyota recalls crisis, the reality is that the National Highway Traffic Safety Administration (NHTSA) is moving forward anyway within its existing rulemaking authority to adopt many of the requirements that were in the House and Senate bills. See “The Toyota Recall Crisis: More Than a Re-TREAD,” LJN's Product Liability Law and Strategy, Vol. 29, No. 2, August 2010.

In addition to the stalled legislation, there have been other important developments ' some coming as no surprise (the results of NHTSA and NASA study and more fines on Toyota) and another quite unexpected (1.1 million more vehicles recalled).

NHTSA and NASA Rule Out EMI

NHTSA and NASA completed their study of so-called intermittent electromagnetic interference (“EMI”) causing unintended acceleration and, with little surprise, refuted claims of EMI that had been alleged during the Congressional hearings by a psychology professor who had been “commissioned” by a “safety research organization” funded by plaintiffs' lawyers suing Toyota.

The study showed that pedal misapplication was the cause of almost all incidents studied by the agencies and attributed the others to the mechanical and design defects identified in the Toyota recalls ' floor mat interference and sticking accelerator pedals. See www.nhtsa.gov/UA. A National Academy of Sciences committee is also examining EMI and has held nine information-gathering meetings to develop recommendations to NHTSA to help assure the safety of electronic control systems through the Agency's research and defect investigation activities.

Despite the NASA and NHTSA studies, and an NAS report, many expect to reach a similar conclusion about EMI, plaintiffs' lawyers are vigorously advancing this allegation in over 100 consolidated class actions and product liability cases in federal court.

NHTSA's New Rulemaking

The draft legislation included calls for rulemaking on:

• Requiring Event Data Recorders (EDRs);
• Brake override systems;
• Pedal placement, clearance and floor pan configuration;
• Shift selector conspicuity;
• Standardized keyless “push-button” ignition systems that make it easier for drivers to understand how to turn off the engine; and
• Electronic system performance standards, considering the findings of the National Academy of Sciences EMI study.

An initial NHTSA Rulemaking and Research Priority Plan for 2010-2013 stated that the Agency will issue an Advanced Notice of Proposed Rulemaking (ANPRM) and Notice of Proposed Rulemaking (NPRM) this year to require EDRs. In addition, NHTSA set a milestone in 2011 for a standard for keyless ignition standards so that they have a consistent means for a driver to stop or slow a vehicle during an emergency.

Moreover, the Agency would “[e]xamine pedal placement and spacing and minimum clearances for foot pedals with respect to other pedals, the vehicle, floor, and any other potential obstructions.” The milestone for an Agency decision on “potential countermeasures” was set for 2013.

However, NHTSA did not identify these rulemakings as actual “Priority Projects,” but rather as “Other Significant Projects.”

In a press release announcing the findings of the NHTSA and NASA study, NHTSA stated that it “will propose rules, by the end of 2011, to require brake override systems, keyless ignition systems, and event data recorders.” But as to electronic systems performance standards, the Agency will simply begin “preliminary research” and for pedal placement “research” to see if any improvements can be made, without any milestone set.

Record Penalties Imposed

The earlier article about the Toyota recalls crisis had reported on a $16.375 million penalty ' by far the largest ever imposed on a manufacturer ' for delaying the sticking pedal recall. Toyota paid that penalty after a demand by NHTSA in a letter asserting that the “gravity of Toyota's violations is severe and potentially life-threatening” and “expose[d] millions of American drivers, passengers to the dangers of driving with a defective accelerator pedal that could result, in Toyota's words, in sudden vehicle acceleration.”

NHTSA did not stop there. Another investigation into the timeliness of the floor mat recalls resulted in an additional $16.050 million penalty (which, along with an unrelated penalty, brought the total to $48.8 million). NHTSA did not issue any demand letters for these new penalties and Toyota paid them without admitting to liability.

In NHTSA's press release issued Dec. 20, 2010, the Agency explained that the tragic (and highly publicized) crash in San Diego that killed a California highway patrol officer and three others in a Lexus led NHTSA to review crash evidence and other data showing that a 2007 recall of 55,000 vehicles for floor mat replacements was “insufficient and that there was a need to redesign the accelerator pedal.” Then, “at NHTSA's urging,” Toyota recalled 3.8 million vehicles in October 2009 and 1.1 million more in January 2010. The Agency concluded, after reviewing the chronology of events, that Toyota had failed “to meet its obligation to report a known safety defect within five days, as required by law.” (In an unrelated case described in the same press release, NHTSA said that Toyota withheld important information from the Agency when Toyota said that a recall of certain models was unnecessary in the United States even though a recall in Japan involved the same parts in U.S. vehicles.)

One More Recall and Case Closed

After one recall and then another, and then the expansion of those recalls to include more models and model years, on Feb. 24, 2011, Toyota agreed to recall 11 models totaling 1.1 million more vehicles to reconfigure the accelerator pedal and, in some vehicles, the shape of the floor surface. With that, NHTSA Administrator David Strickland pronounced that now “our investigation is closed.”

The Litigation Speeds Up

NHTSA may have closed its investigation, and NASA has down-played EMI as a cause of unintended acceleration, but that has not curtailed the litigation against Toyota. The San Diego crash case has been settled for $10 million by Toyota, yet the company still faces individual and class actions cases consolidated in the United States District Court for the Central District of California. One consolidated class action is for economic damages and the other for product liability. Judge James V. Selna is presiding and has already denied in part Toyota's Motion to Dismiss, required a final discovery plan by April 21, 2011, and also ordered the parties to identify by that day three to five bellwether cases for trial in 2013.

The first trial in Judge Selna's court will be in the first quarter of 2013 and another in the second quarter. The court declined to indicate if the first cases will be for economic loss or for product liability. But we may not need to wait that long for a trial. Sitafalwalla v. Toyota Motor Sales, a product liability case, was tried in federal court, New York, in March. On April 1, the jury found that Toyota Motor Corp is not responsible for causing a New York doctor's 2005 Scion to accelerate unexpectedly and smash into a tree. In the consolidated litigation, the plaintiffs allege the mechanical defects in the recall and EMI. In response to an amended Complaint, Toyota has again asked the court to dismiss the case based on the NASA and NHTSA study: “Despite months of document-intensive discovery, Plaintiffs' latest descriptions of the alleged 'defect' continue to follow a consistent pattern: the more time and resources that the parties and this Court expend on this massive litigation, the more elusive Plaintiffs become with their theory of an ETCS-i defect in Toyota's vehicles. Plaintiffs are chasing a phantom theory of defect that only last week NASA and NHTSA, after an extensive investigation, jointly confirmed does not exist.”

Last, Toyota also confronts lawsuits in state court, Los Angeles, by seven insurance companies that allege that 725 crashes resulted from the recall defects and that a brake override system would have prevented them. The subrogation lawsuit, however, seeks reimbursement for 14 cases.

The Congressional and NHTSA investigations may be finished, but the litigation surely is not.

Professor Nicholas J. Wittner, a member of this newsletter's Board of Editors, teaches Product Liability and International Civil Litigation classes at the Michigan State University College of Law.

The BP Oil Spill and ensuing hearings shifted Congressional attention away from the Toyota Recalls and the draft legislation that would have imposed severe new regulatory requirements and potential penalties on automakers. That reprieve and then an election resulting in a lame-duck Congress stalled a last-ditch effort to enact a compromise bill before the new Congress assumed office and Republicans took control of House Committees and agendas.

Except for the severe penalties and some recall decision-making requirements contained in the proposed “Motor Vehicle Safety Act of 2010″ and outlined in a previous article about the Toyota recalls crisis, the reality is that the National Highway Traffic Safety Administration (NHTSA) is moving forward anyway within its existing rulemaking authority to adopt many of the requirements that were in the House and Senate bills. See “The Toyota Recall Crisis: More Than a Re-TREAD,” LJN's Product Liability Law and Strategy, Vol. 29, No. 2, August 2010.

In addition to the stalled legislation, there have been other important developments ' some coming as no surprise (the results of NHTSA and NASA study and more fines on Toyota) and another quite unexpected (1.1 million more vehicles recalled).

NHTSA and NASA Rule Out EMI

NHTSA and NASA completed their study of so-called intermittent electromagnetic interference (“EMI”) causing unintended acceleration and, with little surprise, refuted claims of EMI that had been alleged during the Congressional hearings by a psychology professor who had been “commissioned” by a “safety research organization” funded by plaintiffs' lawyers suing Toyota.

The study showed that pedal misapplication was the cause of almost all incidents studied by the agencies and attributed the others to the mechanical and design defects identified in the Toyota recalls ' floor mat interference and sticking accelerator pedals. See www.nhtsa.gov/UA. A National Academy of Sciences committee is also examining EMI and has held nine information-gathering meetings to develop recommendations to NHTSA to help assure the safety of electronic control systems through the Agency's research and defect investigation activities.

Despite the NASA and NHTSA studies, and an NAS report, many expect to reach a similar conclusion about EMI, plaintiffs' lawyers are vigorously advancing this allegation in over 100 consolidated class actions and product liability cases in federal court.

NHTSA's New Rulemaking

The draft legislation included calls for rulemaking on:

• Requiring Event Data Recorders (EDRs);
• Brake override systems;
• Pedal placement, clearance and floor pan configuration;
• Shift selector conspicuity;
• Standardized keyless “push-button” ignition systems that make it easier for drivers to understand how to turn off the engine; and
• Electronic system performance standards, considering the findings of the National Academy of Sciences EMI study.

An initial NHTSA Rulemaking and Research Priority Plan for 2010-2013 stated that the Agency will issue an Advanced Notice of Proposed Rulemaking (ANPRM) and Notice of Proposed Rulemaking (NPRM) this year to require EDRs. In addition, NHTSA set a milestone in 2011 for a standard for keyless ignition standards so that they have a consistent means for a driver to stop or slow a vehicle during an emergency.

Moreover, the Agency would “[e]xamine pedal placement and spacing and minimum clearances for foot pedals with respect to other pedals, the vehicle, floor, and any other potential obstructions.” The milestone for an Agency decision on “potential countermeasures” was set for 2013.

However, NHTSA did not identify these rulemakings as actual “Priority Projects,” but rather as “Other Significant Projects.”

In a press release announcing the findings of the NHTSA and NASA study, NHTSA stated that it “will propose rules, by the end of 2011, to require brake override systems, keyless ignition systems, and event data recorders.” But as to electronic systems performance standards, the Agency will simply begin “preliminary research” and for pedal placement “research” to see if any improvements can be made, without any milestone set.

Record Penalties Imposed

The earlier article about the Toyota recalls crisis had reported on a $16.375 million penalty ' by far the largest ever imposed on a manufacturer ' for delaying the sticking pedal recall. Toyota paid that penalty after a demand by NHTSA in a letter asserting that the “gravity of Toyota's violations is severe and potentially life-threatening” and “expose[d] millions of American drivers, passengers to the dangers of driving with a defective accelerator pedal that could result, in Toyota's words, in sudden vehicle acceleration.”

NHTSA did not stop there. Another investigation into the timeliness of the floor mat recalls resulted in an additional $16.050 million penalty (which, along with an unrelated penalty, brought the total to $48.8 million). NHTSA did not issue any demand letters for these new penalties and Toyota paid them without admitting to liability.

In NHTSA's press release issued Dec. 20, 2010, the Agency explained that the tragic (and highly publicized) crash in San Diego that killed a California highway patrol officer and three others in a Lexus led NHTSA to review crash evidence and other data showing that a 2007 recall of 55,000 vehicles for floor mat replacements was “insufficient and that there was a need to redesign the accelerator pedal.” Then, “at NHTSA's urging,” Toyota recalled 3.8 million vehicles in October 2009 and 1.1 million more in January 2010. The Agency concluded, after reviewing the chronology of events, that Toyota had failed “to meet its obligation to report a known safety defect within five days, as required by law.” (In an unrelated case described in the same press release, NHTSA said that Toyota withheld important information from the Agency when Toyota said that a recall of certain models was unnecessary in the United States even though a recall in Japan involved the same parts in U.S. vehicles.)

One More Recall and Case Closed

After one recall and then another, and then the expansion of those recalls to include more models and model years, on Feb. 24, 2011, Toyota agreed to recall 11 models totaling 1.1 million more vehicles to reconfigure the accelerator pedal and, in some vehicles, the shape of the floor surface. With that, NHTSA Administrator David Strickland pronounced that now “our investigation is closed.”

The Litigation Speeds Up

NHTSA may have closed its investigation, and NASA has down-played EMI as a cause of unintended acceleration, but that has not curtailed the litigation against Toyota. The San Diego crash case has been settled for $10 million by Toyota, yet the company still faces individual and class actions cases consolidated in the United States District Court for the Central District of California. One consolidated class action is for economic damages and the other for product liability. Judge James V. Selna is presiding and has already denied in part Toyota's Motion to Dismiss, required a final discovery plan by April 21, 2011, and also ordered the parties to identify by that day three to five bellwether cases for trial in 2013.

The first trial in Judge Selna's court will be in the first quarter of 2013 and another in the second quarter. The court declined to indicate if the first cases will be for economic loss or for product liability. But we may not need to wait that long for a trial. Sitafalwalla v. Toyota Motor Sales, a product liability case, was tried in federal court, New York, in March. On April 1, the jury found that Toyota Motor Corp is not responsible for causing a New York doctor's 2005 Scion to accelerate unexpectedly and smash into a tree. In the consolidated litigation, the plaintiffs allege the mechanical defects in the recall and EMI. In response to an amended Complaint, Toyota has again asked the court to dismiss the case based on the NASA and NHTSA study: “Despite months of document-intensive discovery, Plaintiffs' latest descriptions of the alleged 'defect' continue to follow a consistent pattern: the more time and resources that the parties and this Court expend on this massive litigation, the more elusive Plaintiffs become with their theory of an ETCS-i defect in Toyota's vehicles. Plaintiffs are chasing a phantom theory of defect that only last week NASA and NHTSA, after an extensive investigation, jointly confirmed does not exist.”

Last, Toyota also confronts lawsuits in state court, Los Angeles, by seven insurance companies that allege that 725 crashes resulted from the recall defects and that a brake override system would have prevented them. The subrogation lawsuit, however, seeks reimbursement for 14 cases.

The Congressional and NHTSA investigations may be finished, but the litigation surely is not.

Professor Nicholas J. Wittner, a member of this newsletter's Board of Editors, teaches Product Liability and International Civil Litigation classes at the Michigan State University College of Law.