FUJHY Subaru Corporation (PK)

By Peg Brickley 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 17, 2017).

A bankruptcy judge issued a temporary stay shielding car makers from many lawsuits over defective air bags made by Takata Corp.

With one notable exception, Judge Brendan Shannon blocked for 90 days litigation against Honda Motor Co., Toyota Motor Corp., Subaru Corp. and other automobile manufacturers sued along with Takata over air bags that proved dangerous, sometimes fatal, in operation.

The stay doesn't affect the recall of Takata air bags, which is the largest in U.S. history. The judge cited the need to make sure the recall continues.

Takata's U.S. units have been automatically shielded from lawsuits since they filed for chapter 11 bankruptcy protection in June. The ruling Wednesday extends that shield to car makers, who are alleged to share responsibility with Takata for personal injuries or deaths caused by the defective air bags. They get a reprieve until Nov. 15.

Toyota declined to comment on the decision. Other car makers that will benefit from it, at least for a time, didn't immediately respond to a request to comment on the ruling, which was delivered orally.

The exception to the stay is a federal lawsuit in Florida over losses related to the largest automotive recall in U.S. history. Five of seven car makers caught up in that consolidated class action have already settled most damage claims against them in the Florida case, which relates to consumer losses, such as the need to rent cars while Takata air bags were replaced.

The Florida lawsuit brings together scores of individual lawsuits and is well advanced, Judge Shannon said, with trial set to go forward in the spring of 2018. He refused to block continued action against the car makers in that case.

State actions brought by authorities in New Mexico, Hawaii and the U.S. Virgin Islands will be stayed for 90 days, despite arguments that officials are acting to protect the public safety.

Because of weather conditions in those areas, Takata-made components are considered potentially more dangerous than in other areas, court papers say. Takata inflaters have been shown to set off explosions that send shrapnel flying inside vehicles, sometimes to lethal effect.

Ruling in the U.S. Bankruptcy Court in Wilmington, Del., Judge Shannon granted Takata half the time it requested on behalf of the car makers that are its largest customers, and the source of financial support for Takata's bankruptcy turnaround effort.

Judge Shannon said Takata and the car makers need breathing room to conduct negotiations over how to manage the company's assets to cover damage claims.

Takata had requested six months' relief from litigation for the car makers, saying it will be drawn into continued litigation against them, distracting its executives and engineers from the reorganization process.

Judge Shannon granted only a 90-day reprieve, saying he expects the Takata U.S. units will have their bankruptcy reorganization plan in shape by the time the stay expires. Takata has yet to complete its planned sale to Key Safety Systems, and hasn't negotiated a chapter 11 plan that will set out how the money from that sale, $1.6 billion, will be distributed among creditors.

Lawyers for the official committee representing consumers who sued, and lawyers who brought the suits, warned at a hearing last week that a litigation injunction could put too much bargaining power in the hands of car makers. In some cases, plaintiffs said there is evidence that certain vehicle manufacturers were aware of the dangers of Takata air bags, and installed them anyway.

Car makers deny the allegations that they are independently responsible for the economic tumult, injuries and deaths blamed on the air bags.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

August 17, 2017 02:47 ET (06:47 GMT)

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