Column: Toyota's Hino avoided a monitor in DOJ emissions case. Will it trend?

The opinions expressed here are those of the author, a columnist for Reuters.

By Jenna Greene

Jan 21 (Reuters) - Sometimes what’s missing from a settlement can be as notable as what it contains.

Consider the deal struck by Toyota Motor Corp subsidiary Hino Motors last week with the U.S. Justice Department to settle criminal and civil charges for falsifying emissions data for diesel truck engines.

There was a hefty penalty, to be sure: $1.6 billion. And a press release in which a veritable parade of federal and state officials piled on censure, calling the company’s decade-long misconduct brazen, fraudulent and egregious.

But for all the castigation, I’m struck by what the plea agreement didn’t do: Subject Hino, which did not respond to a request for comment, to oversight by an independent corporate compliance monitor (though it’s still required to implement internal reforms).

It’s a bigger win for Hino than it might sound, and one that may hold lessons for other corporate defendants.

Such outcomes could become more common over the next four years. During President Donald Trump’s first administration, DOJ leaders scaled back the use of corporate monitors (sometimes derided as "company babysitters") in criminal resolutions. Defense lawyers tell me they anticipate a similar fall-off now – a move that their clients are likely to welcome.

For one thing, the third-party outsiders (often prominent former prosecutors) tapped in the wake of misconduct to oversee corporate remediation efforts tend to be expensive. The tab for three years of oversight can run $30 million to $50 million or more, according to an article by law firm Crowell & Moring.

Beyond the cost, monitors “are intrusive,” Cary Coglianese, a professor at the University of Pennsylvania Carey Law School and director of the Penn Program on Regulation, told me. “Sometimes it’s already perceived as invasive to have a government regulator looking at what a company is doing,” he said. “Having a corporate monitor there is only amplifying that.”

On paper, Hino in some ways would seem to be a prime candidate for a monitorship. According to the DOJ, the company falsified emissions data from 2010 to 2022 for 105,000 heavy-duty diesel truck engines to make it appear that they met Clean Air Act standards, resulting in “vast amounts of excess air pollution.”

Such wrongdoing ticks multiple boxes on DOJ’s current criteria for appointing a monitor. The misconduct was long-lasting and involved multiple employees and supervisors, while top executives allegedly failed to heed warnings or take corrective actions. Charges against the company included conspiring to deceive U.S. regulators, customs officials and customers about the engines, as well as wire fraud and smuggling.

A DOJ spokesperson declined comment.

On the other hand, prosecutors credited Hino for “exemplary cooperation,” noting that the company’s helpfulness “significantly improved after engaging new U.S. counsel.”

Hino was represented by a team from Covington & Burling that included Lanny Breuer, Noam Kutler, Mark Finucane, Jennifer Saperstein and Leah Saris, according to the plea agreement. Firm lawyers declined to comment for this column.

Court records do not indicate the firm that Covington replaced.

Prosecutors also noted Hino’s voluntary “implementation of remedial measures, including organizational, structural, and leadership changes,” and that the company fired, disciplined or reassigned multiple employees involved in the scheme.

Hino in a press release said that it appointed an outside director who is an expert in cross-border legal and compliance matters, as well as creating chief compliance officer and deputy chief compliance officer positions, among other reforms.

“That’s a strategy – to try to pre-empt a monitor,” said Sullivan & Cromwell co-chair Robert Giuffra, or at least to limit the scope of the oversight. Giuffra, who was not involved in the Hino matter, added, “The bigger the case, the greater the pressure for a monitor.”

Giuffra was lead counsel to Volkswagen, which faced similar allegations of cheating on diesel emissions test, though on a larger scale. When VW settled criminal and civil charges with DOJ in 2017, the deal included a minimum of three years of supervision by a compliance monitor. (Former Deputy Attorney General Larry Thompson, who did not respond to a request for comment, got the job.)

Fiat Chrysler was also required to hire a compliance auditor as part of its civil settlement over diesel emissions involving about 100,000 Ram 1500 and Jeep Grand Cherokees in 2019.

When the DOJ requires a monitor, it’s not supposed to be “punitive,” Julie Myers Wood, CEO of investigations, compliance and monitoring firm Guidepost Solutions, told me. Rather, it’s based “first and foremost on the government’s view of the state of the company’s current compliance program and conduct,” she said. “Have they remediated what went wrong?”

In the past year, prosecutors required monitors in settlements with companies including TD Bank and Magellan Diagnostics.

Boeing was also set to get a monitor as part of its plea deal related to 737 Max crashes. In December, a federal judge in Texas rejected the 111-page settlement, objecting to a single line about selecting a monitor in keeping with DOJ’s “commitment to diversity and inclusion.”

According to the court docket, the parties are currently meeting and conferring about revising the settlement and are due to update the court no later than Feb. 16.

Considering that Trump in his first day in office curtailed diversity, equity and inclusion initiatives within the federal government, perhaps it won’t be hard to mollify the judge on that count.

(Reporting by Jenna Greene)

((jenna.greene@thomsonreuters.com;))