The Transportation Department's $16.4 Million Fine Against Toyota and the Need for a Vibrant Civil Justice System

by Brian Wolfman

Today's news reports bring word that, after mulling its options for weeks, Toyota is expected to agree to pay a $16.4 million fine levied by the U.S. Department of Transportation (DOT), which charged Toyota with hiding information related to the company's recall of cars with sticking gas pedals. As the the New York Times explains, the amount of the fine is an all-time record and "the maximum amount allowed by law." That tells you something unsettling about the law. The record fine is just a bit over 7 bucks for each of the 2.3 million cars recalled because of the accelerator problem, and, in total, that's not even pocket change for a behemoth like Toyota.

In short, the fine is not remotely enough, on its own, to have any deterrent effect. Sure, the recall and the fine may have some negative effect on consumers' attitudes toward Toyota, and, sure, the SEC and the Department of Justice are still contemplating their own prosecutions. But why do you think Toyota took its time deciding whether to pay up or fight the fine in court? I'm guessing, at least in part, because of the effect paying the fine might have in pending civil litigation, which holds out the promise of deterring future bad behavior far more than the puny $16.4 million fine.

This post has assumed that Toyota engaged in wrong doing. I know only what I've read in the papers, and, certainly, Toyota is entitled to its day in court. But assuming that Toyota broke the law, as the government obviously thinks it did, putting lives at stake in the process, at least until DOT sanctions have some real bite, we need a vibrant civil justice system to punish wrong doers and deter future illegal behavior.

Comments

[Cindy]

The fines large co's pay to the govt rarely if ever affect the bottom line. Years ago KB Home was fined millions, (by HUD for predatory lending, and by the FTC for violation of a consent decree over its continued abuse of arbitration in its contracts). In the news it assured stockholders and others that it 'would not affect the bottom line.' Many builders and other co's fined for violation of lending laws, environmental laws, etc, still pay their CEO's millions annually, still have millions to spend on elections every year, etc. The fines are not always even paid in full. Last year, Beazer Homes settled a criminal mortgage fraud case w/the government for $50 million but hasn't paid, and may never pay, it all. Pulte is being investigated by two state attorney generals for predatory lending but was in the news recently that its CEO "only" made $5 million last year. Need I even say more about what's now daily news about Goldman Sachs role in mortgage fraud, investment fraud, and the economic bust? Too bad that the news ignored it when it was going on years ago. I bet Goldman will also be "fined."

Fines are treated as a fee, a cost of doing business. If they get caught and forced to pay fines once in awhile it's just a fraction of what they made by cheating, so it doesn't deter future bad behavior of that company or others who see that cheating pays.

Furthermore, Toyota and all car co's enjoy the protection of binding mandatory arbitration clauses in contracts, warranties, and even most states' Lemon Laws, with an arbitrator who usually does repeat business w/the car co's and dealers, (not with consumers). The repeat player effect means bias in favor of the industry. And, private industry run arbitration hides numerous complaints because it's not public record. Even in the one or maybe now two states (CA for sure and maybe now ME), that require reporting arbitration awards, the details are missing, enforcement is questionable, and a "win" for consumers can actually be a loss if they typically get pennies on the dollar of their actual damages.

I suspect that the consistency of complaints shows a pattern of a defect in the Toyota case. And I suspect many, many incidents are buried in private industry arbitrations where the customer has a gag order.

Corporate leaders who take part in fraud should go to jail. Some smaller business owners doing the same things, do go to jail (and should!). I believe it's the only real deterrent. We have to stop letting big co's get out of jail because they can afford to pay fines.

[Alicia Van-Weed]

i dont but i see this issue in different angle..what if it the drivers are just really reckless drivers and it only happened that this reckless drivers drive a toyota..i mean, im not on toyota's side either coz i dont know a lot about cars...but the point is, maybe we should take a closer look at things sometimes coz suing can be really expensive and can be one of the reasons why some companies got bankrupt because of this super amount for fine