(Corrects the figure in graf 7 from 8 million to 8 billion)
By Alison Frankel
NEW YORK Feb 28 Late this afternoon, the
automakers Honda, Ford, Toyota, Nissan, Mazda and BMW will head
to federal court in Miami to argue that a $1 billion plea
agreement between the U.S. Justice Department and the airbag
maker Takata Corporation should absolve them from liability for
installing dangerous Takata airbags in tens of millions of cars
sold in the U.S.
Takata admitted as part of the plea that it reported
incorrect airbag test results to carmakers. So according to the
automakers, they are properly viewed as victims of Takata’s
admittedly fraudulent scheme – not as perpetrators of their own
deception of car buyers.
As my colleague Joe White has reported, Takata has agreed to
set up an $850 million fund to compensate automakers for the
cost of replacing recalled airbags.
Owners of the cars, who are suing the automakers for
economic damages in consolidated litigation, have a rather
different view of the implications of Takata’s guilty plea,
which was approved Monday by U.S. District Judge George Steeh of
Detroit. Their lawyers, led by Peter Prieto of Podhurst Orseck,
claim to have plenty of evidence that carmakers were
independently aware of problems with Takata’s airbags.
Takata’s guilty plea, car owners argued in a status report
filed Monday with U.S. District Judge Federico Moreno of Miami,
proves nothing at all about what the carmakers themselves knew
about flaws in the airbags, which were installed even after car
owners began reporting dangerous ruptures.
“Despite this knowledge, the automotive defendants continued
to equip their vehicles with Takata’s ticking time bombs and
misrepresent to the unsuspecting public that their vehicles were
safe,” car owners said in the status report.
BILLIONS AT STAKE
The dispute over the automakers’ liability could be worth
hundreds of millions or even billions of dollars. In addition to
the cost of replacing faulty airbags – which could be nearly $8
billion, according to the judge who approved Takata’s guilty
plea - car owners contend Honda, Ford and the other carmakers
owe them damages because car buyers overpaid for defective
vehicles that have diminished in value.
Car owners also claimed in their latest consolidated
complaint that they deserve punitive damages from automakers.
The automakers said in their status report to Miami judge
Morena that Takata’s admissions in its agreement with the
Justice Department undermine car owners’ claims for economic
“The plea agreement confirms, among other things, that
Takata engaged in a fraudulent scheme to keep the automotive
defendants from knowing what Takata knew about the inflators and
their potential to rupture,” the carmakers said in a status
report filed last week.
“Even before Takata’s admission of guilt, plaintiffs had no
way to prove they suffered actual economic loss, as the
automotive defendants are offering, and will continue to offer,
free replacements of recalled Takata inflators. In short,
Takata’s guilty plea makes the theory of plaintiffs’ case even
more implausible than it already was.”
Plaintiffs’ lawyers said in their retort Monday that Honda
and the other carmakers had overstated the impact of the Takata
plea deal, which, “neither excuses the automotive defendants’
own reckless, deceptive conduct nor undermines the economic loss
claims asserted against them.”
The filing accused carmakers of opting to use Takata airbags
to save time and money. In a response issued late Monday, Honda
called the allegation that cost considerations led it to use a
dangerous product “categorically false,” adding that Takata’s
airbag components were not even consistently priced lower than
those of competitors. (Honda also reiterated that Takata’s
guilty plea belies car owners’ economic loss claims.)
Takata and its U.S. subsidiary, TK Holdings, meanwhile,
argued in their status report to Judge Moreno that the parent
corporation’s admissions in its plea deal with the government
should have “limited (if any) impact” on car owners’ economic
loss claims in the consolidated civil litigation.
As part of the plea deal, Takata agreed to establish a $125
million restitution fund for plaintiffs who were injured by
defective airbags. Those claims are consolidated on a separate
tracks from the economic loss claims.
Plaintiffs’ lawyers in the civil litigation had theorized in
a pair of filings Monday before the Detroit judge overseeing the
Takata criminal case that the parent corporation would try to
use the plea agreement to shield its U.S. subsidiary from
liability for car owners’ economic losses. Instead, Takata and
its subsidiary urged Judge Moreno to dismiss economic loss
claims against both of them.
At the moment, both sides’ jockeying over the impact of the
plea agreement is just posturing. All of the defendants have
moved to dismiss the latest complaint by car owners. Those
motions, which preceded the Takata plea deal, are pending before
Judge Moreno. It’s not clear, in other words, whether the judge
will even consider Takata’s admissions in deciding whether to
keep the economic loss cases alive.
If plaintiffs survive dismissal motions, the automaker
defendants may well ask the judge to grant them summary judgment
based on Takata’s guilty plea. Lead counsel Prieto seems to be
already primed to respond.
“What the automakers knew and when they knew it is an issue
of fact,” he told me. “It’s for the jury to decide.”
(Reporting by Alison Frankel. Editing by Alessandra Rafferty.)