A federal judge on Friday approved a $1.6 billion settlement between Toyota Motor Corp. and consumers of its vehicles who alleged they suffered economic losses because of the sudden acceleration recalls.
After raising questions last month about the deal, U.S. District Judge James Selna in Santa Ana, Calif., gave his final approval during a hearing.
“This settlement is extraordinary in that every single dollar of the class funds will go to class members,” Selna said. That is not always true in class action settlements, and this case was a “complex undertaking,” he said.
“This plan is focused on getting the maximum amount to our customers,” said Toyota attorney John Hooper, a partner at Reed Smith in New York. Hooper and J. Gordon Cooney, managing partner of the Philadelphia office of Morgan Lewis & Bockius, represented Toyota in settlement discussions.
Selna, who gave his final approval after issuing a tentative order late Thursday, also approved $200 million in fees and $27 million in expenses for 31 plaintiffs’ firms. The payouts amount to 12.3 percent of the settlement value.
During Friday’s hearing, lawyers described a revised plan that would give more cash to class members—especially those who actually submitted claims. In June, Selna raised concerns about what would happen to an estimated $350 million that could be leftover after distributions were made to class members. The excess funds became an issue because so few class members submitted claims in the case.
The low participation rate in the claims process came up several times on Friday. According to Steve Berman of Seattle’s Hagens Berman Sobol Shapiro, a member of the plaintiffs’ steering committee, an estimated 22.5 million people received class notices of the settlement, but only 500,000 made claims.
Berman said he was surprised at the low turnout, particularly since some Toyota owners could recover as much as $10,000. The matter necessitated weekly discussions with the claims administrator and two amendments to the settlement. Following Friday’s hearing, he said the attorneys planned to reach out to large fleet operators and hoped to see 1 million claims by the July 29 deadline.
But he said he would ask five law schools, including Yale Law School and Harvard Law School, to accept money for a fellowship to research low participation rates in class action settlements.
The Toyota deal aims to resolve claims by consumers that their cars lost value following the highly publicized recalls of nearly 10 million vehicles for floor mat and accelerator pedal defects associated with sudden acceleration. In particular, the settlement covers class members who own or lease 16 models of Toyota, including the Camry and the Corolla, nine Lexus models and three Scion models. The model years range from 1998 to 2010.
Selna granted preliminary approval of the deal on December 28.
In June, Selna found the settlement to be “fair, adequate and reasonable” but held off approving it due to concerns about how anticipated excess cash would be allocated.
At issue were two cash funds worth $250 million each. One fund would be earmarked for class members whose vehicles lost value due to the recalls, while the other would pay class members whose vehicles are ineligible for installation of a brake override system.
The original settlement had earmarked excess cash from those funds to pay administration costs associated with the deal. It also would have added cash to a $30 million fund to research automotive safety. The revised deal, submitted on July 12, continued to allocate $25 million to administration costs, with Selna’s approval, but eliminated the research fund as a recipient of any excess cash.
Objectors had complained the project was inappropriate because it focused on driver safety, not sudden acceleration defects. Selna rejected those concerns last month. The new deal contains the $30 million research fund.
Another change encourages participation in the settlement by boosting recoveries to consumers who make claims. Under the revised settlement, they are eligible to recover 100 percent of their losses; previously, they might have recovered as little as 30 percent, depending on the state in which they live.
“Those who took the effort to claim get 100 percent,” Berman said. He estimated claimants in the lost-value fund would receive between $125 to $10,000 a piece, and those in the brake-override fund $125 each.
For those who do not make claims, the new deal will compensate them at between 30 to 100 percent, depending on their state, but will issue checks directly to them. If those consumers don’t cash the checks, another check will be sent followed by a reminder notice. Any un-cashed checks will go to through an escheatment process.
Three lawyers representing objectors during Friday’s hearing raised concerns for consumers who were left out of the settlement, such as those whose vehicles had floor mat defects.
“This is disregarding a significant portion of the class who are the only ones with a defective product in the claims,” said Ben Barnow of Barnow and Associates in Chicago, who represents three objectors. He estimated nearly 5 million had been left out of the settlement, which releases all claims relating to floor mats. Barlow is seeking $8.25 million in fees.
Berman called Barlow’s complaint “sour grapes.” Cooney said the floor mat problems were addressed through the recalls.
Selna agreed, overruling the objections.
A previous objection involved the potential release of claims in companion litigation over anti-lock braking system defects in Priuses. In that case, also pending in Santa Ana, U.S. District Judge Cormac Carney approved a stipulation resolving that matter on June 17. Carney heard arguments on July 15 for certification the class in that case.
The $1.6 billion settlement, reached after a year and a half of discussions, came more than three years after hundreds of lawsuits were filed on behalf of consumers following Toyota’s recalls. The negotiations took place before Patrick Juneau, who also is administrator of the claims in the Deepwater Horizon oil spill case in New Orleans.
“These settlement negotiations were like a boxing match,” Frank Pitre of Cotchett Pitre & McCarthy in Burlingame, Calif., a member of the plaintiffs’ steering committee, said Friday. “It isn’t perfect. No settlement is. But it is the best settlement considering all the claims.”
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