Wednesday, December 26, 2012

Class Action Lawyers Stick Up Toyota for $1.1 Billion

Here's an excerpt from the February 2011 Report of the National Highway Traffic Safety Administration on their assessment of alleged problems with Toyota Electronic Throttle Control (ETC) systems, which were said to be behind widely reported cases of UA (unintended acceleration).  

"After conducting the most exacting study of a motor vehicle electronic control system ever performed by a government agency, NASA did not find that ETC electronics are a likely cause of large throttle openings in Toyota vehicles as described in consumer complaints to NHTSA.  NASA found that many safety features are designed into the ETC system to prevent UA and, if faults are detected, to initiate safe modes of operation that limit acceleration (e.g, limp home, fuel cut strategies).  NASA found no flaws in the software code controlling the Toyota ETC system that could cause UA.  NASA also found that the electromagnetic compatibility (EMC) testing at exposure levels well above current certification standards did not produce an open throttle.  NASA found no evidence that any failures of the ETC system had an effect on the performance of the braking system. /...

NHTSA and NASA both reviewed relevant consumer complaints and warranty data in great detail.  Both agencies noted that the publicity surrounding NHTSA's investigations, related recalls, and Congressional hearings was the major contributor to the timing and volume of complaints. /...
The results of NHTSA's field inspections of vehicles involved in alleged UA incidents during 2010 supported this analysis.  Those vehicle inspections, which included objective evidence from event data recorders, indicated that drivers were applying the accelerator and not applying the brake (or not applying it until the last second or so), except for one instance involving pedal entrapment."  

So, Toyota will settle all these alleged claims for between $1.1-$1.4 billion, even though  the facts as studied by NHTSA, NASA and the National Academy of Sciences debunks virtually all allegations and public relations grandstanding fomented by the class action law firms.

The benefit from all this? More safety mechanisms aboard Toyotas, for which every consumer will pay more money and which may not add commensurate incremental value.  The class action law firms are slated to take home $227 million out of the $1 billion plus settlement, a historically large share. Let's hope that the courts minimally cap the lawyers fees below the egregious level of $227 million.

Just for comparison, the purported largest insider trading scandal in history, the Matthew Martoma/SAC Capital Advisers insider trading profit on Elam and Wyeth shares netted SAC $276 million. Some of this will be clawed back from Martoma and others.  The Toyota class action law firms will have transferred a comparable amount of wealth to themselves for nothing more than making allegations that have been adjudged to have no basis in reality, according to our own government agencies.

I've been doing a lot of reading on regulatory complexity and its costs, and I am currently reading "Simple Rules for a Complex World, by Richard A. Epstein of the University of Chicago, where he is a Distinguished Service Professor of Law.  He writes,
"More instructive, perhaps, between 1972 and 1987, the number of Washington lawyers increased fourfold from 11,000 to 45,000. The clear implication is that internal composition of lawyers' work is changing as well, away from commercial transactions (which produce wealth) to politics (which transfers and diminishes wealth simultaneously). 

No comments: