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A federal judge has dismissed a large portion of the shareholder litigation against Toyota Motor Corp., concluding that U.S. courts lack jurisdiction to hear claims brought under Japanese securities laws. U.S. District Judge Dale Fischer, hearing the litigation in Los Angeles, ruled on July 7 that although she holds supplemental jurisdiction over the Japanese law claims, they would improperly “substantially predominate” the case if allowed to go forward. “The vast majority of the members of the currently pleaded class are common stock holders who purchased their stock on foreign exchanges and, therefore, have only a Japanese law claim,” she wrote. She cited the U.S. Supreme Court’s decision last year in Morrison v. National Australia Bank, holding that under U.S. securities law, investors who purchase a foreign company’s stock on a foreign exchange lack standing to sue in U.S. courts. The ruling was a blow to plaintiffs, who added the Japanese law claims after the Morrison decision came down. Toyota had argued that the Japanese law claims, if included, would have expanded the size of the class by 3,400% and add more than 3 billion shares to the dispute. “We are pleased that the Court has granted Toyota’s motion to dismiss most of the claims in the federal securities case,” Toyota spokeswoman Celeste Migliore said in a prepared statement. “Importantly, the court rejected Plaintiffs’ attempted end-run around a recent U.S. Supreme Court decision to pursue a claim under Japanese law on behalf of investors who purchased securities on foreign exchanges. The court’s ruling results in dismissal of the overwhelming majority of the case.” The consolidated proceeding was brought on behalf of investors who allege the price of their shares dropped after Toyota recalled more than 10 million vehicles due to defects associated with sudden, unintended acceleration. The action asserted claims on behalf of shareholders of American depository shares — Toyota shares sold on the New York Stock Exchange — under the U.S. Securities Exchange Act of 1934, and for a class of shareholders who bought common stock under Japan’s Financial Instruments and Exchange Act. “We respect the judge’s decision, but we as lead plaintiffs are prepared to move forward and still plan to recover significant damages in this case,” said David Paulson, spokesman for the Maryland Attorney General’s office, which is representing the Maryland State Retirement and Pension System, lead plaintiff in the case. The complaint alleges that Toyota issued false and misleading statements during conference calls with investors, filings with the U.S. Securities and Exchange Commission and in interviews with the press — all of which artificially inflated its share value. The class covers investors who owned shares from May 10, 2005, through Feb. 2, 2010. The suit names Toyota, its subsidiaries Toyota North America Inc. and Toyota Motor Sales USA Inc., and several officers and directors. Beside the Japanese claims, Fischer dismissed claims associated with 19 of the 33 allegedly misleading and false statements outlined in the complaint, saying that the plaintiffs had failed to prove that Toyota’s executives intentionally misled investors about its legal and regulatory compliance. She dismissed claims related to six additional statements pertaining to financial disclosures. But she allowed plaintiffs to amend those claims by July 28. “Although the Court has given plaintiffs the opportunity to amend their complaint with respect to the claims under U.S. law only, we believe that any such attempt will result in allegations that remain unsupported by both the facts and law,” Toyota’s Migliore said. Not all Fischer’s rulings were for Toyota. She allowed claims to go forward involving seven statements that indicated Toyota’s knowledge of the scope of the mechanical problem, including an e-mail from Irving Miller, group vice president of environmental and public affairs at Toyota Motor Sales USA, saying: “I hate to break this to you but WE HAVE a tendency for MECHANICAL failure in accelerator pedals of certain manufacturer [sic] on certain models. We are not protecting our customers by keeping this quiet. The time to hide this one is over. We need to come clean….” Fischer cast doubt that Toyota’s top executives were unaware of a potentially escalating problem with its vehicles, particularly given the news media and regulatory scrutiny. “The defects at issue were simply too significant for it to be plausible that top Toyota management was not aware of possible ramifications of the problem by the time the statements at issue were made,” she wrote. “Toyota did not claim to be uncertain; it affirmatively pointed the finger at floor mat placement and driver error. Therefore, it was — at the very least — deliberately reckless to mislead investors into believing that Toyota had definitively identified the source of the unintended acceleration problem.” As for the individual defendants, Fischer identified three individuals who lacked enough control over others to be held liable for their allegedly false and misleading statements: Miller; Toyota Executive Vice President Mitsuo Kinoshita; and Robert Daly, senior vice president of Toyota Motor Sales USA. But she declined to dismiss claims against Daly and Miller. Her other dismissals effectively dropped claims against three other individual defendants: Toyota Chairman Fujio Cho; Toyota Vice Chairman Katsuaki Watanabe; and James Lentz, president and chief operating officer of Toyota USA. Amanda Bronstad can be contacted at [email protected].

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