Computer giant Toshiba flopped over in Beaumont. To the surprise of many, Toshiba, the worlds leading maker of laptop computers, settled a class action lawsuit for an astounding $1 billion. The charge: producing a flawed floppy disk controller which can cause data loss.
While the charge sounds quite serious, here is the oddity: no consumer has ever claimed any actual harm.
According to all reports, Toshiba was unaware of the problem before the lawsuit was filed and unable to duplicate it afterwards.
It takes such an extreme situation for the flaw to show itself that one wonders if real users ever experienced data loss. Besides, laptop owners rarely use their floppy drive to store data, preferring instead the more reliable modem transmission of files. And, unlike the more traditional class action lawsuits, not even the two named plaintiffs or national representatives as they are called, had to experience the problem in question.
It reminds me of the lawyer spoof from Saturday Night Live: Let us help you collect the money that you didnt even know you where entitled to.
No reported customer complaints, no proof of harm, yet five million Toshiba laptop owners will soon be lining up for their cash rebates, coupons and software fix. In all, some 1.8 million owners of Toshiba notebook computers will receive cash rebates of $210 to $445. Another 3.2 million owners will get discount coupons. The two named plaintiffs receive $25,000 each. For their part, the trial team from Beaumont will pocket a whopping $147 million.
A larger issue is what this says about the Texas legal climate, and for that matter, what it says about class-action lawsuits. As the dust settled, legal experts speculated that Toshiba was quick to settle what some considered a winnable suit because the company was unwilling to gamble on our states justice system. After all, the suit could have cost Toshiba a potentially crippling $9.5 billion had it lost at trial. And even if it had won, how much would it have cost Toshiba to defend a case with five million class members? Why bet the company when the outcome could be snake eyes?
Toshiba, meanwhile, takes a one billion-dollar charge-off, an immediate downgrading of their credit rating, and a slippage of 9% in its share price.
Not content with their $147 million booty, the Beaumont law firm of Reaud, Morgan & Quinn have plowed their winnings into four copycat suits against PC makers Hewlett-Packard, Compaq Computers, NEC Packard-Bell and e-Machines, Inc. All four suits allege flawed floppy disk controllers, all seek class action status.
There soon may be others riding this new wave of litigation. A news report suggests the lawyers are busy trying to rope in governments as plaintiffs, a la guns-tobacco and lead paint: federal investigators have attended laboratory demonstrations sponsored by plaintiffs lawyers intended to show the occurrence of the alleged defect, these people said. State and local agencies can opt to assert damage claims on their own.
Requiring public notice of the problem or a product recall would make more sense for consumers, but then again, it wouldnt produce hundreds of millions for lawyers. Rack up another class action recovery where a smidgen goes to consumers and the bulk to their attorneys.
If youve been thinking about getting a laptop, now might be a good time. If the second round of suits gain class status the price of PCs may soon be on the way up.
Cora Sue Mach is the executive vice president of Mach Industrial Group, a Houston steel fabricating company, and president of Citizens Against Lawsuit Abuse Houston.