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Toyota's liabilities from massive recalls taking shape

Executives testify before Congress on safety issues

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Toyota's liabilities from massive recalls taking shape

WASHINGTON—Toyota Motor Corp. executives faced tough questions from Congress last week, but the impact of their testimony on the company's legal liabilities remains unclear, observers said.

Observers generally agreed that the testimony of James Lentz, the president and chief operating officer of Toyota Motor Sales U.S.A. Inc., and Akio Toyoda, Toyota Motor Corp.'s president and CEO, gave plaintiffs legal ammunition. But how much harm that ammunition will inflict on Toyota remains unclear.

In his testimony before the House Energy and Commerce Committee's Subcommittee on Oversight and Investigations, Mr. Lentz apologized for Toyota's response to customer complaints about malfunctioning accelerator pedals and other problems.

“In recent months, we have not lived up to the high standards our customers and the public have come to expect from Toyota,” he said. “Put simply, it has taken us too long to come to grips with a rare but serious set of safety issues, despite all of our good-faith efforts. The problem has also been compounded by poor communications both within our company and with regulators and consumers.”

Mr. Lentz came under rapid-fire questioning from Rep. John Dingell, D-Mich., who sought answers to a series of questions about when Toyota informed U.S. regulators of problems with accelerators and whether safety decisions were made in Japan rather than the United States. Mr. Lentz answered, “I don't know,” but said safety decisions regarding cars sold in the United States were made in Japan.

The next day, Mr. Toyoda appeared before the House Oversight and Government Reform Committee. The opening statement of the committee's chairman—Rep. Edolphus Towns, D-N.Y.—underscored the panel's skeptical view of Toyota's response to consumer complaints.

“Similarly, Toyota either ignored or minimized reports of sudden acceleration. Toyota first blamed the problem on "improper installation of floor mats.' Nevermind that many reports of sudden acceleration involved vehicles that didn't even have floor mats. Now they blame it on sticky gas pedals,” Rep. Towns said.

Mr. Toyoda struck an apologetic tone.

“In the past few months, our customers have started to feel uncertain about the safety of Toyota's vehicles, and I take full responsibility for that,” said Mr. Toyoda, who also said the company had grown too quickly. “I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced.”

Legal experts disagree on what effect the executives' comments may have on Toyota's liabilities.

“Both Lentz and Toyoda admitted they hadn't solved the problem,” said Tim Howard, who is coordinating the Attorneys Toyota Action Consortium, which is seeking class action status for suits filed against Toyota. “This hearing harmed them legally and harmed them in the public,” added Mr. Howard, who is a professor of law and policy at Northeastern University and an attorney at Howard & Associates P.A. in Tallahassee, Fla.

He added that he believes “there is a good chance there will be violations of criminal law.”

An attorney who has defended automakers had a different take.

Mr. Toyoda is “not taking full responsibility for a lack of safety; he's taking responsibility for the fact that customers feel uneasy,” said Michael Hoenig, a member of New York-based law firm Herzfeld & Rubin P.C. He said such customer uncertainty could be based on a whole variety of factors, including headlines, lawsuits filed or the fact that Congress is getting involved in the issue, among other things.

“When you have a corporation like Toyota, the president cannot know what everybody is saying or doing in the far reaches of the company,” Mr. Hoenig said. “You have to look very carefully at what he's admitting. What has he taken responsibility for? The legal process will play out case by case.”

A crisis management expert said the public's increasing technological savvy could play a role in the testimony's impact.

“I've seen this movie before,” said Gene Grabowski, a senior vp at Washington-based Levick Strategic Communications L.L.C. “Plaintiffs' attorneys were watching the testimony and every utterance from Lentz and Toyoda very carefully, and I have no doubt that they will try to introduce some of the statements that have been made into their pleadings.”

But, he added, “We live in an age where every juror is Tweeting and blogging and has a Facebook account, so they tend to put the public statements of plaintiffs and defendants in a far more forgiving context than they would have” 10 or 20 years ago.

The admissions might have little impact on the company either way, says an academic who specializes in product liability issues.

“I tend to see it as kind of a wash. It certainly hurts in the sense that it's essentially an admission of liability,” said Martin A. Kotler, professor of law at Widener University School of Law in Wilmington, Del. “But it really doesn't add much to what people already knew about what Toyota was doing. Now, it's really a question of whether they can salvage the good-will aspects of the company.”

Another expert in product liability law pointed out that ultimately, the company's liability will rest with a jury.

The statements made before Congress “are likely to be admissible because they come within the admissions exceptions to the rule against hearsay,” said Victor Schwartz, a partner in the Washington office of Shook, Hardy & Bacon L.L.P. and former chair of the federal government's Inter-Agency Task Force on Product Liability.

“You can be certain that plaintiffs' lawyers will try to make the most of them before a jury,” Mr. Schwartz said, but added, “It helps them, but it doesn't get them all the way there.”