The Toyota Settlement: Bipartisan Extortion by Big Government and Class-Action Lawyers

The Toyota Settlement: Bipartisan Extortion by Big Government and Class-Action Lawyers

There’s something rotten in the $1.1 billion settlement Toyota reached in a federal court yesterday to settle claims about unintended acceleration in its cars. The massive payout does not address an actual problem: the lawsuit blames problems with Toyota’s throttle-control electronics, which the government already exonerated

Instead, the settlement looks like the fruits of political extortion by trial lawyers and the Obama administration.

Recall that in 2010, Secretary of Transportation Ray LaHood led a national witchhunt against Toyota, alleging that its cars were unsafe and that the throttle-control system was to blame. The government led the public to believe that Toyotas could accelerate out of control, citing a string of high-profile crashes. The problem: it just wasn’t true. As the government later admitted, driver error was to blame in most of the accidents.

Toyota recalled millions of cars anyway, having found minor problems with its floor mats and acceleration pedals. But the damage to Toyota’s reputation was already done, with Democrats piling on, calling Toyota “killing machines” and fanning public hysteria. The mainstream media piled on: ABC News’ Brian Ross even faked footage of a Toyota suddenly accelerating, giving the false impression it had happened while driving the car.

It was perhaps no coincidence that the Obama administration had recently taken over General Motors in a highly unusual bailout. Instead of taking GM through normal bankruptcy and restructuring, the government poured billions of taxpayer dollars into it, set aside primary creditors to protect unions’ pensions, and then took the company to bankruptcy. Amidst controversy, Obama was desperate for a GM success story.

So when LaHood blasted Toyota, it was not just as a regulator, but as a competitor. Effectively, the Obama administration used its bully pulpit to bully Toyota, then the #1 auto manufacturer in the world, into billions of dollars in losses (compounded now by the settlement). Soon thereafter, GM regained the #1 spot in auto sales as Toyota continued to suffer (the earthquake and tsunami in Japan in 2011 also took their toll).

Yet the case against Toyota was a hoax. So why would Toyota pay up? 

The company may have realized that hefty settlements are simply the new cost of doing business in today’s America. Last year, Bank of America agreed to pay $2.43 billion to settle a class-action lawsuit related to its takeover of Merrill Lynch. Investors alleged that the bank had hidden huge losses related to the acquisition, made in the fall of 2008.

Yet Bank of America had been practically forced into the merger by the government. Bush administration Treasury Secretary Hank Paulson and Federal Reserve head Ben Bernanke allegedly pushed the bank’s CEO to complete the merger in December 2008. An investigation by Republican legislators concluded that Paulson and Bernanke “put a gun to the head of Bank of America’s CEO and Board of Directors” to make the deal.

The lawsuits that followed were Bank of America’s reward for complying with the federal government’s wishes–just as Toyota was thanked for a recall tangential to the sudden-acceleration “problem” with a massive lawsuit. In both cases, politicians applied the pressure and class-action lawyers reaped the rewards. 

This is a bipartisan racket, a legal form of extortion at the expense of consumers, jobs and economic growth.