Last week the Department of Justice announced a deal with Toyota in which the Japanese automaker would fork over $1.2 billion and place itself under supervision for allegedly not being forthcoming enough with information at the height of the 2009-2010 panic over claims of unintended acceleration in its cars. The acceleration claims themselves had turned out to be almost entirely bogus, and were refuted in a report from the federal government’s own expert agency, NHTSA. Instead, the prosecution relied on a single count of wire fraud: Toyota had supposedly given regulators, Congress and the public an erroneously positive view of its safety efforts. It should therefore have to “forfeit” a huge sum supposedly related to the volume of business it did over a relevant period.
I’ve got an opinion piece in Monday’s Wall Street Journal (unpaywalled Cato version here, related Cato post here) about this whole appalling affair, which should frighten other businesses that might face draconian charges in future not just for compliance infractions, but more broadly for defending their products in the court of public opinion. Meanwhile, the Justice Department’s grandstanding and demagogic press release goes to some lengths to leave the impression “that unintended acceleration is some mysterious phenomenon of auto design unrelated to flooring the accelerator.” Someone here is irresponsibly misleading the motoring public and withholding vital safety information, but it’s not Toyota.
A few related links: NHTSA unintended acceleration report, Car & Driver’s coverage, and my 2010 opinion piece. And Holman Jenkins at the WSJ (paywalled) compares the still-unfolding story of ignition problems at GM, also discussed by Paul Barrett at Business Week.
10 Comments
It will be interesting to see what penalty GM suffers for its real safety hazard that it ignored and actually killed dozen(s) of people.
When the DOJ fines Toyota for $1.2 B…who gets the money?
This is styled a “forfeiture” and goes to the government.
Not to be unsympathetic to Toyota, but a deferred prosecution agreement is the standard corporate “plea bargain” that results from the vast majority of the government’s investigations. Toyota was bullied, no doubt, as are all criminal defendants, but it was not forced to agree to the deal anymore than any target is forced into a plea deal.
Toyota could have told the govt to get lost and try the case. Unlike most, Toyota had the wherewithal to defend itself. But like most large corporations, it made a financial decision to take the deal and pay the negotiated $1.2 billion. This is the standard advice corporations get from their white collar criminal defense counsel at Biglaw firms, all of whom are qualified by their experience as federal prosecutors, and who almost invariably advice corporations to cut the deal and not fight.
But Toyota is a big corporation, and knows the game. It could have fought. Instead, it chose to cop a deal. At least it had the financial ability to make a choice.
” Toyota was bullied, no doubt, as are all criminal defendants, but it was not forced to agree to the deal anymore than any target is forced into a plea deal.”
In other words, Toyota was forced to agree to the deal.
Not at all. Every target is “bullied” in the sense that the government has substantially greater leverage. Not every target cops a plea. Some fight. Some of those win. Some lose. But don’t conflate the difficulty of being a target or defendant with being “forced.”
Toyota made a business decision, which was a far easier one that non-corporate defendants face when looking at substantial prison time. While Toyota may not be as powerful as the United States government, it’s far more powerful than any individual defendant who tells the government to screw itself and goes to trial. So no, they were by no means “forced” to do anything.
I think I may be misunderstanding the system if shg is correct. My understanding was that had Toyota taken this to trial, they would be on the hook for all the costs of the defense, the cost of executive time in being deposed, the cost providing experts to testify, and many other costs. This ignores the costs of the bad publicity and the possible adverse result of a trial. None of these would be recoverable. As would be the costs of the shareholder suits if it ended up costing more than the settlement costs.
So they had the options of paying a lot and hoping they won or paying more and not having the risk.
It wa simply insurance. In that stellar tradition of the Sopranos’ insurance agency.
No, you understand it correctly. Where you appear to be confused is that you think it’s unique to Toyota, or perhaps corporations. It’s the same situation faced by every criminal target or defendant, guilty, innocent or somewhere in between. That is our system. That’s what is meant by a business decision.
The only way it ends is when the government is challenged rather than paid off, like the Sopranos’ insurance. As long as corporations keep making the same business decision, the government will keep targeting corporate defendants and happily take their money.
It’s certainly risky and expensive to fight, but there is also a chance to win and take the government down a few pegs. It’s just expensive to cop a plea, and there is no chance to win. Pick your poison.
[…] Justice Department’s aggressive use of criminal law against the Japanese automaker (earlier here). Also check out Canadian columnist Terence Corcoran’s view: “Intended media […]
SHG,
My point is that, as a business, the ONLY duty the corporation has is to maximize shareholder return. If settling has a lower expected cost(including the possible cost of future cases AGAINST THE SAME CORPORATION and the decreased likelihood of attracting talent when it is known that they are willing to risk having them jailed ) then the have a fiscal responsibility to its shareholders to settle.
IN fact, not settling would likely leave them open to additional costs from shareholder suits. Even if the Corp eventually won, the dive the trial would create in the stock price would trigger the shareholder suits.
I guess I really was just pointing out the the system was rigged from the start and the Corp really only has a lose/lose proposition available to it.