Will Toyota Be Number One in Criminal Violations Under the TREAD Act?

Toyota’s announcement that it is the subject of a federal criminal probe in the relay rod recalls begs a question: Will it be the first automaker to be criminally prosecuted under the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act?

Today, the automaker released – via a statement to the Tokyo Stock Exchange – the news that a federal grand jury in New York had subpoenaed the company on June 29 for documents regarding relay rod failures.

Toyota said:  “The company and our subsidiaries will cooperate with the investigation with sincerity.”

So far, Toyota is the only one saying much of anything. Attorney John Kristensen, who represents the family of an Idaho man who died in a 2007 crash related to a relay rod-failure, and who alerted the National Highway Traffic Safety Administration to Toyota’s delay in recalling the defective components, says he can’t comment on any grand jury proceedings. The agency says that Secretary Ray LaHood had nothing to do with the subpoena to Toyota and referred all questions to the U.S. Attorney’s office.

But the dots connect rather nicely.

In May, the agency opened a Timeliness Query (at Kristensen’s request) into Recall 05V389 to replace defective steering relay rods in Toyota pickups and 4Runners, based on a one-year leg between a U.S. and Japanese recall for the same component in a sister vehicle sold overseas.

In October 2004, the automaker disclosed to NHTSA that it had recalled Hilux and Hilux Surf vehicles sold in Japan for defective relay rods – but not its U.S. counterparts, Toyota 4Runner, the Toyota Truck and Toyota T100. The rods had a tendency to snap, leaving the driver with no steering controls. But Toyota blamed it on driving conditions unique to the Japanese market:

“TMC has received field information from the Japanese market, but no similar information from the U.S. market has been received. In addition to the different steering linkage design between the right hand drive and the left hand drive vehicles, TMC believes that the unique operation conditions in Japan, such as frequent standing full lock turns, such as for narrow parking spaces and close quarters maneuvering, greatly affects the occurrence of this problem.”

(The Hilux recall was a scandal in Japan; with police referring three Toyota executives for criminal prosecution. Top managers avoided jail time. Instead, the Japanese government publicly criticized Toyota and ordered the company to reform its recall practices.)

On September 6, 2005, Toyota finally recalled the defective steering relay rods on 977,839 1989-1995 Toyota pick ups and 4Runners in the U.S. The repair rate was so low, Toyota took the unusual step of issuing an owner re-notification, but it came too late for 18-year-old Michael “Levi” Stewart of Idaho, who died in a September 2007, after the relay rod on his 1991 Toyota pickup fractured. The Stewart family received a recall notice two months later.

Kristensen, an attorney with The O’Reilly||Collins Law Firm, found, in the course of litigation, that Toyota’s claim in October 2004 that it had no reports of relay rod failures in the U.S. was false. Toyota had actually received at least 44 reports in the U.S. since as early as 2000, including crashes involving rollovers and injuries.

“We think that it’s fairly obvious,” Kristensen said. “The documents and the evidence speak for themselves. We’ve had numerous people testify that they lost their steering 2004, prior to the recall in the United States. And Toyota has known since 1992, 1993 that they were having problems in the U.S. with relay rods.”

“Just as a curious lawyer, I’m wondering if this prosecution is under 49 U.S.C. 30170. That’s the real question.”

Currently, Toyota is trying to quash Kristensen’s subpoena to depose one of the three company execs recommended for prosecution in Japan.

“It now it appears we know why,” he says.

Section 30170(a)(1) of the TREAD Act establishes criminal liability for a “person who violates section 1001 of title 18 with respect to the reporting requirements of [49 U.S.C.] section 30166, with the specific intention of misleading the Secretary with respect to motor vehicle or motor vehicle equipment safety related defects that have caused death or serious bodily injury to an individual. . . .”

The rule set a pretty high bar for criminal prosecution, requiring the guilty party to have “knowingly and willfully” concealed facts or made false statements. The “safe harbor” provision lets the auto executive off the hook, if, at the time of the violation, such person does not know that the violation would result in an accident causing death or serious bodily injury; and (2) the person corrects any improper reports or failure to report within a reasonable time. The Final Rule adopted in July 2001 designated 30 days as the “reasonable” time period for a reporter to come forward and correct any false reports.

NHTSA itself opined: “We believe that there will be very few criminal prosecutions under section 30170, given its elements.”

The loopholes made advocates like Joan Claybrook, president emeritus of Public Citizen, cranky in the extreme. In her June 2004 testimony before the Senate Committee on Competition, Foreign Commerce and infrastructure, she complained:

“In short, while the section increases the rarely-applied maximum penalty for a violation of federal law concerning reports made to the government, at the same time it completely undercuts this new authority by prohibiting application of criminal penalties if the person who lied eventually recants. Because prosecutors always retain the ability to grant immunity, and to place case-specific limits on that immunity for witnesses or participants to secure testimony, the broad language of the “safe harbor” provision creates a much larger window for illegal activity than existed under current law. In addition, this law requires a request from the DOT to the Justice Department prior to prosecution, a highly unusual potential pitfall for enforcement of any criminal liability.”

So, did LaHood request the DOJ to make the case? Toyota’s already earned the ignominious distinction of paying the largest NHTSA fine ever, for its delay in recalling millions of vehicles with sticky pedals. Could Toyota, the world’s Ichiban automaker, claim another first?