Krauss Comments on Toyota Economic Loss Suit

Professor Michael Krauss commented on a federal judge's ruling that Toyota owners outside California cannot pursue under that state's laws claims that their vehicle values decreased because of Toyota's failure to disclose or fix vehicle defects related to sudden acceleration.

Krauss explained that using California law could help plaintiffs in other states pursue claims that might be dismissed in their home states.

"The damage they're claiming is not that they are driving a dangerous car, but that people will think they're driving a dangerous car," Krauss said. "The overwhelming majority of states don't allow recovery if the only damage is economic damage."

Most of the federal cases were combined in a multidistrict litigation (MDL) for evidence gathering and pretrial rulings. Krauss pointed out that individual claims are generally governed by the state law in the place where a lawsuit is brought.

"The basic rule is that if somebody buys his Toyota in Iowa and suffers damages in Iowa, they have to use Iowa law." It would be "highly uncommon," Krauss says, to allow the use of one state's laws to cover claims brought in others.

Toyota Owners Can't Use California Law in Economic Loss Suit, Bloomberg Newsweek, June 9, 2011. By Margaret Cronin Fisk and Bill Callahan.

"Toyota owners say the company drove down the value of their vehicles by failing to disclose or fix defects related to sudden acceleration. Their lawyers asked U.S. District Judge James V. Selna in Santa Ana, California, to allow them to pursue their claims under California law, which gives plaintiffs a better chance than most states of recovering damages.

"Toyota asked the judge to find that car owners can’t use California law on suits brought in other states. About 70 percent of the economic-loss cases were filed outside the state. Using California’s law would permit claims to go forward that would be barred by laws in other states, Selna said.

"'Application of California law to a nationwide class, at least in some instances, would drastically expand the scope of relief available to plaintiffs (to the detriment of Toyota),' Selna said in yesterday’s ruling. 'Application of California law would likely have the effect of reviving a number of claims that would otherwise be time barred.'"

Read related article in the Wall Street Journal