Toyota Recall Investors Lawsuit Settles for $25.5 Million

Toyota Motor Corp. (NYSE: TM) recently agreed to settle a securities lawsuit brought by U.S. investors for $25.5 million. The shareholders alleged that Toyota failed to disclose information on safety and quality of its products that were subject to the unintended Toyota acceleration recall in 2010.

The Toyota investor settlement was filed on November 13 in the U.S. District Court for the California Central District in Los Angeles and is pending approval from U.S. District Judge Dale Fischer. The Toyota acceleration settlement will resolve a lengthy lawsuit that Toyota has battled since the Japanese car manufacturer came under fire for manufacturing thousands of vehicles that accelerated on their own two years ago.

Although the company has agreed to settle the Toyota investors lawsuit, the company is adamant that they did not commit any wrongdoing. Company spokespersons said that the company decided to settle only because it would avoid further prolonging the legal battle and allow the company to move forward without having to worry about the uncertainty and costs inherent in securities litigation.

The first plaintiffs in the Toyota investors lawsuit originally filed in February 2010 after Toyota recalled up to 10 million Toyota and Lexus automobiles. The recall cost the company approximately $5 billion.

Amidst the recall investigations by securities providers like the Maryland State Retirement and Pension System lead to allegations that Toyota had fraudulently misrepresented the safety of its vehicles to conceal the safety problems.

The litigation had been headed towards a certification of class of investors. The motion had been fully briefed at the time of settlement.

Although the plaintiffs had hoped to broaden the class to include purchasers of common stock to sue under Japanese Securities law, this approach did not work out in their favor. The court held in July 2011 that only investors who purchased Toyota’s American Depository Shares were eligible for this cause of action. Purchasers of common stock were not allowed to sue as the same class under Japan’s Financial Instruments and Exchange Act.

Although the $25.5 million Toyota settlement is nothing to scoff at, if the Toyota securities class action lawsuit had proceeded to trial the stakes would have been much higher for Toyota. The Maryland pension fund estimated that the total net damages investors could have potentially obtained at trial were $124 million.

The shareholder’s lawyers are requesting an approval for an award of attorneys fees from the Toyota investor lawsuit settlement at 12%, plus expenses, which total $5.06 million. Lead counsel for plaintiffs are Bernstein, Litowitz, Berger, & Grossman.

Generally, publicly traded corporations have a duty to provide accurate information to shareholders or potential shareholders. Companies like Toyota face civil or criminal liability for engaging in deceptive practices or other serious misconduct to benefit the company in the securities market. Understating liabilities is a major source of litigation, along with artificially inflating earnings reports.