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From Products Liability Law Daily, February 28, 2017

Takata sentenced to pay $1B in criminal penalties for wire fraud in airbag inflator scheme

By Colleen Kave, J.D.

After pleading guilty to one count of wire fraud, Takata Corporation was sentenced to pay a total of $1 billion in criminal penalties based on the company’s conduct in relation to sales of defective airbag inflators, according to a February 27, 2017, U.S. Department of Justice news release. Officials from the Justice Department’s Criminal Division, the FBI, the U.S. Department of Transportation Office of Inspector General, and U.S. Attorney Barbara McQuade of the Eastern District of Michigan announced the guilty plea and sentence, emphasizing their hope that the penalty will send a message to suppliers of consumer safety products that they must put safety ahead of profits and will reassure consumers that the FBI and its federal law enforcement partners will aggressively pursue corporations and their employees when they violate federal laws.

According to admissions made during the course of the guilty plea, from 2000 through and including 2015, Takata carried out a scheme to defraud its customers and auto manufacturers by providing false and manipulated airbag inflator test data that made the performance of the company’s airbag inflators appear better than it actually was. Even after the inflators began to experience repeated problems in the field—including ruptures causing injuries and deaths—Takata executives continued to withhold the true and accurate inflator test information and data from their customers.

U.S. District Judge George Caram Steeh of the Eastern District of Michigan accepted Takata’s guilty plea and, in accordance with the terms of the plea agreement, sentenced Takata to pay the $1 billion criminal penalty, which includes $975 million in restitution, a $25 million fine, and three years’ probation. Two restitution funds will be established and managed by a special master: a $125 million fund for those individuals who have sustained physical injuries associated with Takata’s airbags and who have not already reached a settlement with the company, and a $850 million fund for airbag recall and replacement costs incurred by those auto manufacturers who were victims of Takata’s fraud scheme. The company will also implement rigorous internal controls, retain an independent compliance monitor for a term of three years, and cooperate fully with the department’s ongoing investigation, including its investigation of individuals.

Related civil MDL. Plaintiffs involved in a multidistrict litigation pending in a federal district court in Florida against several auto manufacturers, including Honda, Ford, Toyota, Nissan, and BMW, arising from the automakers’ use of Takata airbag inflators, filed a status report in advance of a February 28, 2017 hearing, in which they address Takata’s plea agreement. According to the plaintiffs, the automotive defendants overstated the significance of the plea agreement to the MDL in their own recent status report, and the guilty plea does not serve to undercut the plaintiffs’ economic loss claims against the automakers. The plea agreement, claim the plaintiffs, says nothing about the extent of the automakers’ knowledge regarding the safety of Takata’s airbag inflators, primarily because the criminal investigation focused on the company’s communication of manipulated or misleading test results. The plaintiffs allege that the automakers were aware of the risks inherent in filling a metal canister with ammonium nitrate, had knowledge of many airbag ruptures, both during testing and in the field, and continued to equip their vehicles with Takata’s airbag inflators because they were focused on the low price, abundant supply, and their ability to generate billions of dollars in revenue.

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