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Superior Court Judge Michael Dunston Tells Takata To Set $8 Million Aside For The Territory

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CHARLOTTE AMALIE — A Superior Court judge on Saturday ordered Takata Corp. to set aside $8 million to cover civil penalties and the cost to drivers who have to replace the potentially fatal air bags, a day before the company’s U.S. business filed for Chapter 11 protection.

Superior Court Judge Michael Dunston signed off on the Virgin Island government’s bid for a speedy ruling on its request for a preliminary injunction, noting that financial markets had frozen Takata stock from trading, and multiple news outlets were reporting that Takata’s bankruptcy was imminent.

“Numerous attempts by the attorney general of the Virgin Islands to reach counsel for the defendants on June 24, 2017, by email and telephone have gone unanswered, forcing the court to act ex parte,” the judge wrote in a supplemental filing.

In the event of Takata’s bankruptcy, the judge said that there was a “clear likelihood and danger” that the people of the territory wouldn’t be protected by the multi-district litigation over the air bags, or the recall by the National Highway Traffic Safety Administration, the largest in United States history.

Dunston said that the company should put into escrow about $4 million for civil penalties related to violations of the Virgin Islands’ Criminally Influenced and Corrupt Organizations Act (CICO), $1 million for consumer outreach and about $3 million to recoup out-of-pocket expenses incurred by consumers over the air bags.

There are just under 12,000 affected cars with 18,140 recalled air bags — which allegedly have a tendency to explode, especially in humid conditions — and the rate of repair for affected vehicles is significantly lower than the national repair rate, according to the judge.

Virgin Islands Attorney General Claude Walker said in a statement on Monday that the territory’s suit was filed a year ago, and that at least one air bag explosion had occurred on St. Croix.

Takata’s U.S. subsidiary filed for bankruptcy late Sunday, and its parent company followed suit in Tokyo on Monday morning.

Takata reached a deal to sell most of its assets to Sterling Heights, Michigan-based auto parts supplier Key Safety Systems Inc. for $1.6 billion.

At a hearing Monday morning, Deputy Attorney General Carol Thomas-Jacobs asked the court to order Takata to deposit the funds, despite an automatic stay that came into effect when the company filed for bankruptcy, according to the statement.

Dunston said that whether his order survives the stay is up to the bankruptcy court, according to the statement

“Takata’s bankruptcy filing should not impact [Virgin Island’s Department of Justice’s] prosecution of its case against Takata on behalf of consumers, because an exception to the rule automatically staying cases against bankrupt entities permits government police powers actions to proceed,” Walker said in the statement. “Otherwise, bankruptcy court would become a safe haven for corporations seeking relief from law enforcement.”

Takata began considering restructuring earlier this year following the massive global recalls over its widely used vehicle air bag inflators, which have been linked to at least 11 deaths. The cheap but volatile ammonium nitrate that inflates the bags can misfire and set off chemicals and shards at passengers and drivers.

“Much of the litigation will be stayed while Takata works through the Chapter 11 proceedings,” a Takata spokesman said. “The bankruptcy will help determine how the litigation is ultimately resolved.”

Takata said earlier this year that it would plead guilty and pay $1 billion to end a U.S. Department of Justice investigation into the company’s potentially deadly air bag inflators.

A little more than a year ago, NHTSA levied a $200 million fine on Takata — its largest ever — in a deal that saw the company admit that it failed to tell the agency about the defect despite knowing about it and withholding important information.

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The Author

John McCarthy

John McCarthy

John McCarthy is primarily known for his investigative reporting on the U.S. Virgin Islands. A series of reports beginning in the 1990's revealed that there was everything from coliform bacteria to Cryptosporidium in locally-bottled St. Croix drinking water, according to a then-unpublished University of the Virgin Islands sampling. Another report, following Hurricane Hugo in 1989, cited a Federal Emergency Management Agency (FEMA) confidential overview that said that over 40 percent of the U.S. Virgin Islands public lives below the poverty line. The Virgin Islands Free Press is the only Caribbean news source to regularly incorporate the findings of U.S. Freedom of Information Act requests. John's articles have appeared in the BVI Beacon, St. Croix Avis, San Juan Star and Virgin Islands Daily News. He is the former news director of WSVI-TV Channel 8 on St. Croix.

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