Toyota to pay $1.2 billion penalty for misleading consumers about sudden acceleration safety issues

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by Eric Pearson

The U.S Department of Justice recently announced that it had filed criminal fraud charge against Toyota Motor Corporation asserting that Toyota defrauded consumers in the fall of 2009 and early 2010 by issuing misleading statements about safety issues in Toyota and Lexus vehicles. At the same time, the Department of Justice also announced a “deferred prosecution agreement” with Toyota under which the company admits that it misled U.S. consumers by concealing and making deceptive statements about two safety issues affecting its vehicles, each of which caused a type of unintended acceleration.

The agreement requires Toyota to pay a $1.2 billion financial penalty – the largest penalty of its kind ever imposed on an automotive company. The agreement also imposes an independent monitor on Toyota to review and assess policies, practices and procedures relating to Toyota’s safety-related public statements and reporting obligations.

According to the allegations in the information, as well as other documents filed today in federal court, including the Statement of Facts:

In the fall of 2009, Toyota deceived consumers and the National Highway Traffic Safety Administration (“NHTSA”) by claiming that it had “addressed” the “root cause” of unintended acceleration in its vehicles through a limited safety recall of eight models for floor-mat entrapment, a dangerous condition in which an improperly secured or incompatible all-weather floor mat can “trap” a depressed gas pedal causing the car to accelerate to a high speed. Such public assurances deceived customers and NHTSA in two ways: First, at the time the statements were made, Toyota knew that it had not recalled some cars with design features that made them just as susceptible to floor-mat entrapment as some of the recalled cars. Second, only weeks before these statements were made, Toyota had taken steps to hide from NHTSA another type of unintended acceleration in its vehicles, separate and apart from floor-mat entrapment: a problem with accelerators getting stuck at partially depressed levels, known as “sticky pedal.”

After an August 2009 fatal floor-mat entrapment accident in San Diego, several articles critical of Toyota appeared in U.S. newspapers. The articles reported instances of customers allegedly experiencing unintended acceleration and the authors accused Toyota of, among other things, hiding defects related to unintended acceleration.

On Nov. 25, 2009, Toyota announced its floor-mat entrapment resolution with NHTSA. In a press release that had been approved by Toyota: “The safety of our owners and the public is our utmost concern and Toyota has and will continue to thoroughly investigate and take appropriate measures to address any defect trends that are identified.” A spokesperson for the subsidiary stated during a press conference the same day, “We’re very, very confident that we have addressed this issue.”

In truth, the issue of unintended acceleration had not been “addressed” by the remedies announced. A-Pedal Company pedals which could experience stickiness were still on the road and still, in fact, being installed in newly-produced vehicles. And the best-selling Corolla, the Highlander, and the Venza – which had design features similar to models that had been included in the earlier floor-mat entrapment recall – were not being “addressed” at all.

Again, on Dec. 23, 2009, Toyota responded to media accusations that it was continuing to hide defects in its vehicles by authorizing a U.S. subsidiary to publish the following misleading statements on the subsidiary’s website: “Toyota has absolutely not minimized public awareness of any defect or issue with respect to its vehicles. Any suggestion to the contrary is wrong and borders on irresponsibility. We are confident that the measures we are taking address the root cause and will reduce the risk of pedal entrapment.” In fact, Toyota had “minimized public awareness of” both sticky pedal and floor-mat entrapment. Further, the measures Toyota had taken did not “address the root cause” of unintended acceleration, because Toyota had not yet issued a sticky pedal recall and had not yet recalled the Corolla, the Venza, or the Highlander for floor-mat entrapment.

When, in early 2010, Toyota finally conducted safety recalls to address the unintended acceleration issues it had concealed throughout the fall of 2009, Toyota provided to the American public, NHTSA and the United States Congress an inaccurate timeline of events that made it appear as if Toyota had learned of the sticky pedal in the United States in “October 2009,” and then acted promptly to remedy the problem within 90 days of discovering it. In fact, Toyota had begun its investigation of sticky pedal in the United States no later than August 2009, had already reproduced the problem in a U.S. pedal by no later than September 2009, and had taken active steps in the months following that testing to hide the problem from NHTSA and the public.

The $1.2 billion settlement concludes a lengthy criminal investigation. Last year, Toyota agreed to pay more than $1 billion to resolve hundreds of lawsuits claiming that owners of its cars suffered economic losses because of the recalls. But that settlement did not include wrongful death and personal injury lawsuits.

The Toyota agreement comes as General Motors is also under investigation over its handling of an ignition switch failure linked to a dozen deaths. GM last month recalled more than 1.6 million vehicles 13 years after first noticing the issue.

The U.S. Attorney’s office in Manhattan is investigating GM’s handling of its ignition-switch recall. GM faces probes by Congress and safety regulators at the National Highway Traffic Safety Administration, as well as lawsuits from GM drivers who say their cars lost value because of the defects.

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