Toyota Will Pay $180 Million over Clean Air Act Violations, Report

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Toyota Will Pay $180 Million over Clean Air Act Violations, Report
Toyota Will Pay $180 Million over Clean Air Act Violations, Report

The United States has filed and simultaneously settled a civil lawsuit against Toyota Motor Corporation, Toyota Motor North America Inc., Toyota Motor Sales USA and Toyota Motor Engineering & Manufacturing North America for systematic, longstanding violations of Clean Air Act emission-related defect reporting requirements, which require manufacturers to report potential defects and recalls affecting vehicle components designed to control emissions.

In connection with the settlement, the United States has filed a consent decree, agreed to by Toyota, that resolves the government’s complaint through Toyota’s payment of a $180 million civil penalty and the imposition of injunctive relief. The $180-million penalty is the largest civil penalty for violation of EPA’s emission-reporting requirements. The consent decree remains subject to a period of public comment and court approval.

The complaint filed in Manhattan federal court alleges that from approximately 2005 until at least late 2015, Toyota systematically violated Clean Air Act automobile defect reporting requirements designed to protect public health and the environment from harmful air pollutants.

Clean Air Act regulations require manufacturers to notify EPA by filing an Emissions Defect Information Report (EDIR) when 25 or more vehicles or engines in a given model year have the same defect in an emission control part or an element of design installed in order to comply with emission standards and other EPA regulations.

The regulations also require vehicle manufacturers to file a Voluntary Emissions Recall Report (VERR) with EPA when they perform a recall to correct defects in emission-related parts, and to update EPA on the progress of such recalls through Quarterly Reports.

These mandatory reporting requirements are essential to the Clean Air Act’s purpose of protecting human health and the environment from harmful air pollutants: They encourage manufacturers to investigate and address voluntarily defects that may result in excess emissions of harmful air pollutants, and provide EPA with important information about emission-related defects for use in its oversight of manufacturers.

For 10 years, Toyota routinely failed to comply with these reporting requirements. During that time, Toyota materially delayed filing an estimated 78 EDIRs, filing many only when disclosing non-compliance to EPA in 2015, at which point some were as much as eight years late. These EDIRs related to millions of vehicles with the potential to exhibit emission-related defects. Toyota also failed to file 20 VERRs and more than 200 quarterly reports.

During the period of noncompliance, Toyota managers and staff in Japan knew that Toyota was no longer attempting to determine whether it was aware of 25 instances of the same emission-related defect in a model year—the threshold requirement for filing an EDIR. Rather than follow this legally required standard, Toyota unilaterally decided to file EDIRs principally when Toyota was independently required to file distinct reports with California regulators under a less strict standard—a standard that EPA had rejected as too lenient when Toyota had previously proposed to rely on it for federal reporting.

Repeatedly, Toyota managers and staff in Japan identified the discrepancy between Toyota’s procedures and the language of the federal requirements but failed to bring Toyota into compliance. Toyota’s American unit, responsible for submitting the reports to EPA, was aware of red flags indicating Toyota’s noncompliance, but did not address the problem. As Toyota’s key US-based employee wrote in one email: “As long as EPA is not asking about EDIR[s] then I do not want to change.”

As a result of its conduct, Toyota deprived EPA of timely information regarding emission-related defects and recalls and avoided the early focus on emission defects contemplated by the regulations. Toyota’s conduct likely resulted in delayed or avoided recalls, with Toyota obtaining a significant economic benefit, pushing costs onto consumers, and lengthening the time that unrepaired vehicles with emission-related defects remained on the road.

Toyota admits, acknowledges, and accepts responsibility for what is included in the consent decree.

Representations to EPA

In March and May 2002, at EPA’s request, Toyota and EPA representatives met to discuss Toyota’s internal process for identifying whether 25 instances of a specific emission-related defect exist in vehicles or engines of the same model year, requiring an EDIR filing.

At a first meeting in March 2002, Toyota described its EDIR process in which Toyota would investigate whether it had 25 defects only upon receiving 25 “product reports” from its dealers, but would supplement that review by filing an EDIR upon receiving warranty claims for an emission-related part in 4% of Toyota’s California fleet (a threshold requiring a separate filing to state authorities under California law).

At the meeting, EPA rejected this EDIR process as not timely considering warranty claims, despite the incorporation of the 4% California trigger. Toyota’s notes of the meeting indicate that EPA program staff advised Toyota that if it came back with a revised proposal that the program staff were convinced would satisfy the regulations, then EPA’s enforcement arm would not need to get involved. Toyota then revised its process, noting internally that it “will be stricter than” California law.

At a May 2002 meeting with EPA, Toyota presented its revised process. Under that process, Toyota would commence an investigation to determine whether an EDIR filing was required when it had received warranty claims for an emission-related part for 1 percent of relevant vehicles nationwide; when it received 500 such warranty claims regardless of the percentage; or when it received twenty-five similar early warning reports.

Toyota noted internally that EPA seemed pleased with this approach, which EPA had described as “more stringent than California.” In 2003, 2004, and 2005, as part of an annual review, Toyota submitted its May 2002 process in writing to EPA as an overview of its EDIR reporting program.

Toyota’s Conduct from Approximately 2005 to 2015. Without notifying EPA, in approximately 2005, Toyota stopped following the May 2002 EDIR process. In approximately 2005, Toyota began filing EDIRs primarily when filing the California reports triggered by the 4% threshold. Toyota also filed EDIRs in a small number of instances when it was otherwise filing VERRs with EPA.

From approximately 2005 to 2015, Toyota stopped making any independent determination of whether 25 defects existed requiring an EDIR filing. Multiple times during this period, Toyota staff charged with preparing EDIRs identified that the plain language of the EDIR regulations called for filing an EDIR upon the identification of 25 defects, but that Toyota was not doing so. These staff did not cause Toyota to change its practice.

As a result of this conduct, Toyota filed at least 69 EDIRs materially late. Thirty-nine of these were filed materially late in the ordinary course of Toyota’s business. In late 2015, Toyota self-disclosed another 30 that had not been filed at all. Some EDIRs were ultimately filed as many as eight years after they were due.

Beyond EDIRs, Toyota also failed during this period to file 20 VERRs required for emission-related recall campaigns that it conducted and failed to file more than two hundred Quarterly Reports related to such campaigns. Between 2005 and 2015, Toyota failed to provide its employees with adequate training, resources, or oversight to ensure that Toyota complied with its reporting obligations to EPA. As a result of Toyota’s conduct, EPA did not timely receive mandated information regarding emission-related defects and recalls.

Pursuant to the consent decree, Toyota will pay a civil penalty of $180 million. The consent decree also requires Toyota to follow certain compliance and reporting practices designed to ensure timely investigation of emission-related defects and timely filing of EDIRs, VERRs, and quarterly reports with EPA. The consent decree imposes training, internal communication, and oversight requirements. Toyota will be subject to judicial oversight under this consent decree for at least three years, with additional reporting requirements to EPA for four and a half years.

Notice of this proposed consent decree will be published in the Federal Register and the public will have the opportunity to submit comments on the consent decree for a period of at least 30 days before it is submitted for the court’s approval.

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