A Maryland pension fund, reeling from a ruling last year that wiped out much of its case, is trying to certify a renewed class of thousands of Toyota shareholders who allege the automaker made false and misleading statements regarding what it knew about sudden acceleration defects in its vehicles.
U.S. District Judge Dale Fischer dismissed much of the case on July 7, 2011, ruling that shareholders of Toyota’s common stock, which is traded primarily on the Tokyo Stock Exchange, could not pursue their claims in U.S. courts. Fischer cited Morrison v. National Australia Bank, in which the U.S. Supreme Court ruled that investors who purchase a foreign company’s stock on a foreign exchange lack standing to sue in U.S. courts. She allowed the plaintiffs to amend their claims, however.
In a motion filed on Feb. 17, an attorney for the Maryland State Retirement and Pension System, the lead plaintiff, argued for certification of a class of people who held American depository shares, which are traded on the New York Stock Exchange.
Toyota’s attorney filed papers on June 7 opposing that motion on the ground that the market for those shares was not “efficient” — in other words, that the price reflected all the information available about Toyota at the time. The fund’s attorney, Blair Nicholas, a partner in the San Diego office of Bernstein Litowitz Berger & Grossman, was expected to file a reply to Toyota’s filing, and a hearing on class certification was scheduled for Oct. 15.
Nicholas declined to comment. Toyota spokeswoman Celeste Migliore issued a formal statement: “Toyota believes that plaintiffs have failed to meet their burden to justify class certification. In their attempt to meet a required element for class certification, plaintiffs rely on the fraud-on-the-market presumption and so must prove that the Toyota American depositary shares at issue traded in an efficient market. We believe they have failed to do so.”
The consolidated proceeding originally was brought on behalf of investors who alleged that the price of their shares dropped after Toyota recalled more than 10 million vehicles due to defects associated with sudden acceleration.
The complaint — naming Toyota, two of its U.S. subsidiaries and seven directors and officers — alleged that Toyota’s value was artificially inflated because it had issued false and misleading statements during conference calls with investors, in filings with the U.S. Securities and Exchange Commission and in interviews with the press. The case originally was brought on behalf of a class of holders of American depository shares under the U.S. Securities Exchange Act of 1934, plus a class of shareholders who bought common stock under Japan’s Financial Instruments and Exchange Act.
In her dismissal order last year, Fischer also rejected claims associated with more than half of the 33 allegedly misleading and false statements outlined in the complaint, concluding that the plaintiffs had failed to prove that Toyota’s executives intentionally misled investors about the company’s legal and regulatory compliance. She dismissed additional claims related to financial disclosures. But she refused to dismiss claims arising from seven statements that might indicate that Toyota knew the scope of the vehicles’ problems.
On Dec. 9, Toyota attorney Stuart Baskin, a partner at New York’s Shearman & Sterling, moved for judgment as to three denials by Toyota spokesman Bill Kwong in various news articles of the existence of defects in the Tacoma. Fischer rejected that motion on Feb. 21.
Meanwhile, the fund moved for certification on behalf of a revised class of people who held American depository shares from April 7, 2008, to Feb. 2, 2010. In support of that motion, Nicholas insisted the market for those shares was efficient. Toyota’s common stock and American depository shares, he wrote, “are owned extensively by large, institutional investors and the Company is covered by dozens of securities analysts and virtually every news outlet. In short, the market for Toyota securities is the paradigm of market efficiency.”
Baskin, Toyota’s attorney, insisted that the American depository shares market suffered numerous “anomalies” that rendered it inefficient. Among them was that those shares represented a small fraction of Toyota’s total outstanding shares and that the market for them has had trouble absorbing large trades, making it prone to “pricing disturbances.”
Amanda Bronstad writes for The National Law Journal, a Daily Report affiliate.