Toyota Owners Can’t Use California Law in Economic Loss Suit

Toyota Motor Corp. vehicle owners outside California can’t pursue under that state’s laws their claims that unintended acceleration problems lowered the value of their cars, a judge ruled.

Toyota owners say the company drove down the value of their vehicles by failing to disclose or fix defects related to sudden acceleration. Their lawyers asked U.S. District Judge James V. Selna in Santa Ana, California, to allow them to pursue their claims under California law, which gives plaintiffs a better chance than most states of recovering damages.

Toyota asked the judge to find that car owners can’t use California law on suits brought in other states. About 70 percent of the economic-loss cases were filed outside the state. Using California’s law would permit claims to go forward that would be barred by laws in other states, Selna said.

“Application of California law to a nationwide class, at least in some instances, would drastically expand the scope of relief available to plaintiffs (to the detriment of Toyota),” Selna said in yesterday’s ruling. “Application of California law would likely have the effect of reviving a number of claims that would otherwise be time barred.”

Selna had said in court papers filed May 13 that he was likely to rule in the vehicle owners’ favor. He issued the final ruling yesterday.

California Difference

Using California law helps plaintiffs in the other states pursue claims that might otherwise be dismissed, said Michael I. Krauss, law professor at George Mason University School of Law in Arlington, Virginia.

“The damage they’re claiming is not that they’re driving a dangerous car, but that people will think they’re driving a dangerous car,” he said. “The overwhelming majority of states don’t allow recovery if the only damage is economic damage.”

“We’re gratified the court has recognized that allowing a few handpicked plaintiffs to set the course for customers throughout the United States through this kind of procedural engineering would go against established law, diminish Toyota’s substantive rights and undermine the purposes of these multidistrict proceedings,” Celeste Migliore, a spokeswoman for the Toyota City, Japan-based automaker, said in an e-mailed statement.

Most Cases

“Importantly, approximately 70 percent of the economic- loss cases in this litigation were originally filed outside of California, and many of those states would not allow the claims brought by customers whose vehicles have never manifested a defect,” she said.

Steve W. Berman, a lead lawyer for the vehicle owners, said he was “quite surprised” by the ruling. It won’t be a “huge issue” for the plaintiffs, he said.

“We will prove a defect exists that Toyota hid and if we have to do it state by state, so be it,” Berman said.

Toyota, the world’s largest automaker, recalled millions of U.S. vehicles, starting in 2009, after claims of defects and incidents involving sudden unintended acceleration. The recalls set off a wave of litigation, including hundreds of economic loss suits and claims by individuals or their families alleging injuries and deaths.

Most of the federal lawsuits were combined before Selna, in a multidistrict litigation, or MDL, for evidence gathering and pretrial rulings. In an MDL, while one judge oversees the litigation, individual claims are generally governed by the state law where a lawsuit was brought, Krauss, the law professor, said.

‘Highly Uncommon’

“The basic rule is if somebody buys his Toyota in Iowa and suffers damages in Iowa, they have to use Iowa law.” Allowing the use of one state’s law to cover claims brought in others, is “highly uncommon,” he said.

A number of states, including Alabama, North Dakota, Ohio and Pennsylvania, “would preclude or highly likely preclude some or all of the claims asserted by plaintiffs whose products have manifested no defect,” Selna said in his 22-page ruling.

Allowing the plaintiffs to pursue the claims under California law “would undermine the purposes of the present MDL,” because it wouldn’t “take into account the requirement that cases retain their separate and distinct identities” so they can be returned to their home states for trial, he said.

“Just as the court should not permit filing in the present forum by a singular plaintiff to dictate the choice of substantive law, the court cannot permit the selection of the moving plaintiffs here to dictate the conclusion regarding which state’s substantive law should apply,” he said.

Defect, Value

Selna denied Toyota’s motion to dismiss most claims on May 13, finding lawyers for vehicle owners had properly pleaded loss or injury.

“Taking these allegations as true, as the court must at the pleading stage, they establish an economic loss,” Selna wrote. “A vehicle with a defect is worth less than one without a defect.’

Toyota’s series of recalls began in September 2009 with an announcement that 3.8 million vehicles were being recalled because of a defect that may cause floor mats to jam the accelerator pedal. In January 2010, the company recalled 2.3 million vehicles to fix sticking gas pedals.

The carmaker said in February that it was recalling another 2.17 million vehicles in the U.S. for carpet and floor-mat flaws that could jam gas pedals.

Many of the lawsuits claim that loose floor mats and sticky pedals don’t explain all episodes of sudden acceleration and that the electronic throttle system in Toyota vehicles is to blame. Toyota has disputed any flaws in its electronic throttle control system.

NASA Test

In February, NASA, the U.S. space agency, and the National Highway Traffic Safety Administration said their probe of possible electronic defects found no causes for unintended acceleration other than sticking accelerator pedals and floor mats that jammed the pedals.

The cases are combined as In re Toyota Motor Corp. (7203) Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).

To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net; Bill Callahan in San Diego at callahan@san.rr.com

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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