Automakers Pit Against Air Bag Victims Due To Takata’s Bankruptcy

The major worry for car companies caught in the fallout is playing out in a Delaware bankruptcy courtroom with respect to the bankruptcy case of Tataka Corp, say legal experts, even though the global recall of Takata Corp’s defective air bags widened last week and the number of confirmed deaths rose.

Giving the people injured by the air bags a powerful voice in the proceedings was their appointment to their own official committee in the Japanese company’s U.S. bankruptcy earlier this month. Injuries happened because the air bags degrade over time and can inflate with excessive force.

And pitted against Honda Motor Co, Toyota Motor Corp, and other automakers will be this unusual committee, which includes people whose cars lost value due to the recall.

Kevin Dean, a Motley Rice attorney who represents injured drivers on the committee said that the car companies have been trying to use the bankruptcy to limit their liability for installing the faulty air bags.

Takata must provide it with funds which can be used to investigate the automakers’ liability or to challenge financial assumptions because the committee has official status. Plaintiffs’ lawyers would typically have to pay for that themselves without a committee.

“If I were a plaintiffs’ lawyer, this would be a golden goose for me,” said John Pottow, a professor at the University of Michigan Law School, of the appointment of the special committee.

There were no comments from Takata, Honda, Toyota and General Motors Co.

Only one official creditors committee is typically present in bankruptcies. According to bankruptcy attorneys who are not involved in the case, a committee made up of suppliers and vendors, who are likely more interested in the future of the business than compensation disputes, will accompany the committee of injured drivers in the Takata case.

The U.S. Trustee’s Office, the arm of the U.S. Department of Justice that acts as a bankruptcy watchdog, appointed both committees.

Since 2009, tied to Takata’s air bags are seventeen fatalities, including one confirmed last week, and at least 180 injuries.

The result of a widened global recall of the airbags is expected to ultimately cover 69 million cars and 125 million inflators by the regulators and this recall was widened by the National Highway Traffic Safety Administration of the United States last week.

By setting aside $125 million to compensate consumers and $850 million in restitution for automakers, Takata entered a settlement with the U.S. Department of Justice in January.

With a plan to sell its non-air bag operations for $1.6 billion to Key Safety Systems, which is owned by China’s Ningbo Joyson Electronic Corp., Takata filed for bankruptcy in June in Japan and the United States after facing up to $50 billion in liability. For the 125 million recalled inflators, its air bag business would continue to make replacements.

In order to compensate future injuries stemming from the air bags, it will create a fund, Takata said in its Chapter 11 filings.

Contributions from insurers and other potentially liable parties, who in return get shielded from ongoing litigation, are gathered by companies that wind up bankrupt due to faulty products and also often set up such funds.

(Adapted from Reuters)

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