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Takata bankruptcy: What will happen with consumer lawsuits?

2017-06-28 08:04

UNDER FIRE: Airbag company Takata pleaded guilty in January and set aside a sum of money as part of their plea for plaintiffs. But, will it be enough? Image: AP / Shizuo Kambayashi

Washington - The bankruptcy of Japanese auto parts giant Takata may frustrate the legal challenges by victims harmed by the company's exploding airbags, which were part of the largest auto safety recall ever.

The United States has been by far the hardest hit by the scandal over the defective airbags, which in some cases exploded with deadly force and are tied to 11 deaths on US soil out of the 16 recorded worldwide.

Of the 100 million airbags involved in the recall, some 70 million were sold in the United States.

25 US plaintiffs

So it is not surprising to see such a large amount of litigation against Takata in US courts. The Japanese company, which announced the bankruptcy on Sunday, plead guilty to fraud in January.

It is also in the United States that the bankruptcy by the world's number two airbag maker - whose assets will be bought up by US-based Key Safety Systems - creates the most uncertainty.

"Takata chose a cowardly way to escape its responsibilities. They'll eventually get held accountable but it's going to be a significant delay," said Kevin Dean, a lawyer representing 25 plaintiffs in the United States.

For those injured and the families of those killed, the major question is what happens to their legal cases while a bankruptcy court sorts through competing claims from Takata creditors.

READ: Family sues Honda, Takata over airbag defect

For now, Takata has set aside $125-million to compensate the victims and pledged again on Monday to honour that commitment, which it made in January as part of its guilty plea.

But this could fall far short of the total liabilities, estimated at more than $1 billion.

"We will continue fighting for our clients and prosecuting claims against ... Takata, to make sure all affected consumers receive the recourse they deserve," Peter Prieto, a lead attorney for the plaintiffs, told AFP in an email.

Suing a dead company

But Michael Duffy, an attorney who specializes in catastrophic personal injuries, said this was unlikely.

"There won't be enough money to cover the costs," he said.

The price of shares in the company, which has debts of nearly $9 billion, will not suffer. KSS has snapped them up for $1.5 billion.

But finances are not the only issue. The bankruptcy process will leave Takata completely reorganized, complicating the work of the attorneys.

"It will impact my ability to represent the claimants," said Dean.

In addition, he said he will not be able to contact witnesses while the cases were on hold, so "There's a risk related to the preservation of evidence."

With Takata shielded by bankruptcy law, the burden could fall on automakers themselves, who stand accused of knowingly installing defective airbags.

Car makers already are facing the massive task of replacing all the potentially defective airbags still on the road, at their own cost, which Takata must supply. This process, overseen by the National Highway Traffic Safety Administration, appears not to be threatened by the bankruptcy.

"We've worked hard to act quickly, proactively and responsibly in addressing the Takata airbag recall for all impacted customers, and we will continue to do so," Toyota USA told AFP.

According to NHTSA, Takata has promised the agency to meet its obligations under the recall.

But the bankruptcy could mean the major automakers will find the airbag producer will not reimburse them for their costs, despite an $875 million fund created by Takata in January.

Takata's largest client, Honda, already has signaled it does not expect to recover its considerable expenses.

There are other possible liabilities pending as well. In May, several major automakers, including Toyota and BMW, had to pay out $553 million in the United States to compensate consumers whose cars had been outfitted with Takata airbags.

Read more on:    takata  |  nhtsa  |  airbags  |  bankruptcy  |  court case

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