(Bloomberg) – Takata Corp. pleaded guilty to one count of wire fraud for misleading automakers about the safety of its exploding air bags, which have been linked to at least 17 deaths worldwide.
The Tokyo-based company entered its formal plea in Detroit federal court Monday, six weeks after reaching a $1 billion deal with the U.S. Justice Department. The Takata products have been the subject of the biggest product recall in history, expected to cover more than 100 million air bags.
Takata admitted to hiding the deadly risks of its exploding air bags for about 15 years in its plea agreement with the U.S. The company also has agreed to pay a $25 million fine, plus $125 million in compensation for accident victims and another $850 million to reimburse automakers for recall costs.
U.S. District Judge George Caram Steeh, accepted the guilty plea, rejecting a request by people injured by defective air bags to delay accepting the criminal plea agreement. The agreement is full of inaccurate or "mischaracterized'' assertions, which may be used as a shield by automakers to avoid paying accident victims, lawyers Kevin Dean and Craig Hilborn said in court papers filed earlier Monday. They had asked Steeh to delay approval of the plea until after he has reviewed a pre-sentencing report and any victim-impact statements.
The objections are "legitimate but not sufficient" to overturn the agreement, Steeh said.
Takata will be subject to an independent compliance monitor while on probation for three years.
'Fair outcome'
"This agreement represents the best opportunity we have to maximize the eventual recovery for the victims,'' Steeh said. Calling the company's crime an avoidable offense, the judge said "destruction of a corporation would probably be a fair outcome,'' but would deprive victims of compensation.
Takata will be subject to an independent compliance monitor while on probation for three years. Under the agreement, Takata has to pay the $25 million criminal fine and the $125 million for victims within 30 days of entry of the plea. The $850 million to automakers has to be paid in full within five days after closing of the anticipated sale of the company, according to court papers.
The criminal settlement was seen as removing a major obstacle to Takata's sale, which the company needs to continue operations and complete the recalls. The settlement fully resolved the Justice Department investigation into Takata and all of its subsidiaries, the company said last month.
Potential buyers include Autoliv Inc. and Key Safety Systems Inc. The eventual acquirer would have to ensure a stable supply of replacement parts even as uncertainties surround its exposure to future liabilities, including the costs for replacing the air bags.
Jared Levy, a Takata spokesman, declined comment on Monday's hearing, pointing to the company's statement when the plea agreement was announced last month.
Deep 'regrets'
"Takata deeply regrets the circumstances that have led to this situation and remains fully committed to being part of the solution,'' Shigehisa Takada, the company's chief executive officer and chairman, said then.
The inflator devices at issue, which can send shards of metal at drivers and passengers when they malfunction, have been the subject of the biggest product recall in history, expected to cover more than 100 million air bags.
"For over a decade, Takata lied to its customers about the safety and reliability of its ammonium nitrate-based air bag inflators," Acting Assistant Attorney General Kenneth A. Blanco said in a statement "Takata abused the trust of both its customers and the public by allowing air bag inflators to be put in vehicles knowing that the inflators did not meet the required specifications.''
Takata admitted in its plea agreement with the U.S. to hiding the deadly risks of its exploding air bags for about 15 years.
The U.S. has also charged three former Takata executives for their alleged roles in hiding the risk since 2000. The three — Hideo Nakajima, Tsuneo Chikaraishi and Shinichi Tanaka — are Japanese citizens who worked at Takata until about 2015, according to court papers.
The explosions have been blamed on the base ingredient of Takata's inflator propellant, ammonium nitrate, which is almost as explosive as the chemical in dynamite. It can degrade over time depending on exposure to moisture or high temperatures. At least 11 deaths and 180 injuries in the U.S. have been linked to the faulty bags, according to the National Highway Traffic Safety Administration.
Stalled recalls
Takata has been sued by dozens of drivers and passengers in the U.S. claiming shrapnel injuries caused by the bags. The lawsuits allege that the company knew the air bags could fail, hid negative test results and stalled recalls.
The company is also facing complaints by injured plaintiffs who allege that the propellant can cause excessive-force deployments, often in low-speed collisions, without releasing shrapnel. Injuries and deaths claimed in those accidents aren't included in the NHTSA total. Most of the shrapnel cases have been settled, according to court filings reviewed by Bloomberg News.
Most of the injury and death lawsuits are combined before a Miami federal judge, who is also handling car owners' claims for economic losses related to the defects and recalls. Lead lawyers for the combined suits claimed Monday that Honda Motor Co., Toyota Motor Corp. and other automakers bought Takata air bags for years despite knowing they could rupture and injure people.
The carmakers "were well aware of the risks'' but were "focused on the low price'' of Takata's products, according to documents produced in lawsuits over the air bags, the lawyers said in a status report on the litigation. After one rupture in 2009, the lawyers said, an unidentified automaker defendant described the event as "one in which a passenger protection device was transformed into a killing weapon.''
The criminal case is U.S. v. Takata Corp., 16-cr-20810, U.S. District Court, Eastern District of Michigan (Detroit). The civil suits are combined in In re: Takata Airbag Product Liability Litigation, 15-md-02599, U.S. District Court, Southern District of Florida (Miami).
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