After recalling more than eight million vehicles worldwide due to sudden unintended acceleration, Toyota Motor Corporation is now facing a host of lawsuits from the company’s shareholders and individuals impacted by the recalls. In at least three class-action lawsuits, shareholders are suing over the dramatic drop in Toyota’s stock price, arguing that company executives gave investors and the public false assurances that the sudden acceleration issue was easily fixable and intentionally misrepresented the depth of the problems. Moreover, shareholders contend, Toyota executives knew for almost a decade that faulty throttle controls caused the cars to swerve out of control, but that the executives breached their duty to disclose truthful information and covered up the defective design through press releases, conference calls, and interviews with stock analysts. This deception resulted in a false reputation of safety and artificially inflated Toyota’s stock price.
As of early March 2010, Toyota’s stock price fell nearly 16 percent, from its price of $90 on January 21, 2010. Although the stock rebounded in mid-March to nearly $80, the price decrease caused shareholders to potentially lose millions of dollars. Additionally, Toyota’s total U.S. market capitalization fell 13 percent to $136 billion after the sticky pedal recall in January 2010.
The lawsuits come as Toyota desperately works to regain public confidence in the wake of one of the nation’s largest auto recalls. If Toyota is found liable, it could face billions of dollars in damages. Toyota does however, have case precedent to argue from. In 2001, Ford Motor Company won its product liability lawsuit against investors who alleged that the company deliberately misled the public about the safety of its Explorer vehicle prior to a massive tire recall. A federal judge held that Ford could not reasonably foresee the impact of the recall when it made the public statements. Toyota shareholders likely face an up hill battle to hold Toyota liable for its disclosures concerning defective cars.