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Stuart Gasner Provides Insight on Settlement Trends

Corporate Counsel

Toyota paid more than $1 billion to settle the economic damages MDL on sudden acceleration. So why do some observers say the company won?

On the day after Christmas 2012, Toyota Motor North America announced that it had agreed to settle a giant class action over the sudden, unintended acceleration of some of its vehicles. It was the kind of announcement that was guaranteed to draw attention. The value of the settlement in the multidistrict litigation in Santa Ana, Calif., was $1.6 billion.

The odd thing about it was the competing reactions. Some people saw it as a Christmas present to the plaintiffs, who had walloped the company in a matter that only covered the economic damages car owners had suffered after a series of recalls and a lot of bad publicity. The settlement left intact hundreds of lawsuits filed by customers who claimed they'd suffered personal injuries after their cars accelerated out of control.

Yet other observers thought that it was the car manufacturer on the receiving end of the big gift. Toyota was suddenly in a position to portray itself as magnanimously looking out for the welfare of its customers, and "doing the right thing." And through its top in-house lawyer, Christopher Reynolds, the company wasted no time in doing just that.

"This agreement marks a significant step forward for our company, one that will enable us to put more of our energy, time and resources into Toyota's central focus: making the best vehicles we can for our customers and doing everything we can to meet their needs," said Reynolds, the chief legal officer of the North American division and the general counsel of Toyota Motor Sales, U.S.A., in the press release announcing the settlement.

Yet, in his last comment, Reynolds sounded less than thrilled. "This was a difficult decision," he acknowledged, "especially since reliable scientific evidence and multiple independent evaluations have confirmed the safety of Toyota's electronic throttle control systems. However, we concluded that turning the page on this legacy legal issue through the positive steps we are taking is in the best interests of the company, our employees, our dealers and, most of all, our customers."

But some of those customers felt very much left out. The settlement provides owners of newer cars a brake override system (BOS), which the company says can help them control accelerating cars. But those who own older vehicles aren't eligible for the BOS, which is essentially a software fix that is too sophisticated for the computers in older models. Instead, they receive a payment of $125.

Another benefit is now the subject of an appeal that's been lodged with the U.S. Court of Appeals for the Ninth Circuit. About $30 million has been earmarked for a safety and education fund that focuses largely on driver education. Critics like Clarence Ditlow, executive director of the nonprofit Center for Auto Safety, say this benefit won't help consumers, since the real problem, he believes, is in the electronics. And it simply reinforces Toyota's defense that drivers' mistakes are often the cause of sudden acceleration.

Another critic, Sean Kane of Safety Research & Strategies Inc., complains that Toyota is the big winner because, to the company, the amount of money is "nothing," and "Toyota gets to move on." In effect, he adds, "they got the plaintiffs to say that they don't have a good case." Yet he believes that consumers continue to face unintended acceleration in Toyota cars. And the settlement "doesn't resolve it."

So, who is right? Stuart Gasner, a partner at Keker & Van Nest, notes that it's often said that a good settlement is one where both sides come away unhappy. Some of that, he says, can be attributed to the "settlement machine," which "is set up for exaggeration on both sides." Plaintiffs make sky-high demands, and defendants come back with lowball offers [see "The Litigation Settlement Machine"].

"Victory in litigation is often defined by the individual expectations of the parties," he notes.

Gasner was not involved in the Toyota settlement, and his own experience in settling cases hasn't included class actions. But the seeming paradox of a company paying more than $1 billion despite findings by the National Highway Traffic Safety Administration (NHTSA) that seemed to clear its cars' electronics bothered him. "There is something troubling about that," he says.

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Stuart Gasner centers his practice in the areas of white collar criminal and securities defense, intellectual property litigation and complex corporate disputes.