Orange County sues Toyota. Can automaker get a fair trial?

A prosecutor in Orange Country, Calif., filed a law suit against Toyota Friday to force the company to halt sales of "defective" vehicles. Foreign companies have a losing legacy in US courts.

AP Photo/The Journal News, Carucha L. Meuse
A Toyota 2005 Prius sits behind the police station in Harrison, N.Y., after it was involved in an accident March 9. The driver escaped serious injury but told police that the car accelerated on its own. A prosecutor in Orange Country, Calif., is planning to sue Toyota to force the company to stop selling "defective" vehicles.

Add one more lawsuit to the burgeoning legal woes of Toyota Motors.

Orange County, Calif., is suing the automaker to prohibit it from "continuing to endanger the public through the sale of defective vehicles and deceptive business practices."

Toyota already faces a federal criminal investigation, an inquiry by the Securities and Exchange Commission, and at least 89 class-action suits.
Faced with all that, can the Japanese company get a fair trial in US courts?

History says no. American justice doesn't appear so impartial when dealing with foreign companies.

"A foreign firm ... tends to lose more often in US courts than comparable US firms," says Utpal Bhattacharya, a finance professor at Indiana University in Bloomington, Ind., and coauthor of a 2006 study on the subject.

US companies and foreign firms had their cases dismissed at about the same rate; the two settled cases out of court at about the same rate, according to Mr. Bhattacharya's study, which looked at 2,361 public US corporate defendants and 715 foreign corporate defendants in federal court cases from 1995 to 2000.

But when cases went to trial, foreign firms lost their cases more often than US companies did, even after accounting for all kinds of factors, like company size, where its stock was listed, and so on.

The study doesn't prove that foreign companies get a worse deal in US courts, he adds. It may be that, since it's more difficult to collect from foreign firms, people don't bring cases against them unless they have a good chance of winning. But the study can't rule out that US firms have a home-court advantage.

"These trial lawyers, they use every angle that they can," Bhattacharya says. They argue: "This is a foreign firm. If they lose, it's only the foreign employees who are hurt."

One advantage in Toyota's case is that it employs so many American workers that judges and juries might not buy that argument, he adds.

The stakes are high: The class-action suits alone could cost Toyota $3 billion or more, according to estimates by the Associated Press.

On March 25, a federal panel of judges will meet to decide whether to consolidate the cases into a single one.

If the case does go forward and Toyota decides not to settle out of court, it should push for a jury trial. Bhattacharya's study found that judges, not juries, were more apt to rule against the foreign company.

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