Truck and engine maker Navistar International has agreed to settle a number of pending class action lawsuits in the United States. The class actions, which were previously consolidated in the U.S. District Court for the Northern District of Illinois, alleged that certain Navistar MaxxForce Advanced EGR (exhaust gas recirculation) engines were defective and that Navistar failed to disclose or correct the alleged defect.
The settlement agreement, reported on a Form 8-K filed with the Securities and Exchange Commission on May 29 and subject to approval by the respective court, calls for Navistar to:
- Establish a $135 million settlement fund, consisting of a cash fund and a rebate fund
- Contribute $85 million to the cash fund, which will be used to pay all settlement fees and expenses, service awards, attorneys’ fees and costs, and cash payments to members of the settlement class
- Commit to make available rebates with a face value totalling $50 million to the rebate fund.
The settlement will release Navistar and its affiliates from all claims and potential claims arising from or related to the allegations in the class actions, according to the company, except for claims for personal injury or damage to third-party property.
Asked by HDT to comment, Lyndi McMillan, Navistar’s director of business communications, explained that the company is taking a charge of $159 million in the second quarter "to address the costs associated with current period liabilities and future potential settlements of certain litigation related to Model Year 2011-2014 Class 8 trucks sold in the U.S. with the company’s 11L and 13L EGR-only engines, including U.S. class action lawsuits.
“This amount also includes additional funds for certain other engine lawsuits that are not included in the settlement agreement,” she continued, adding that the settlement agreement remains subject to approval by the court.
“Navistar expects that this preliminary step toward the settlement of these U.S. class action lawsuits will accelerate our efforts to move past the MaxxForce 11L and 13L EGR engines in the U.S.”
Jonathan Selbin of Lieff Cabraser Heimann & Bernstein, partner and co-lead counsel for the plaintiffs, commented in a May 29 news release that, “After years of hard-fought litigation, we believe this settlement represents an outstanding result for class members. In particular, we are proud of the choices it provides class members." They can choose a "no questions asked" cash payment of up to $2,500 per truck, or $10,000 rebate off the best negotiated price of purchase of a new truck, he explained, or can recover proven actual out-of-pocket damages of up to $15,000 per truck.
“We are also pleased Navistar stepped up to take care of its customers,” the attorney added.
The gist of the long-running class actions against Navistar regarding its EGR-only engines, according to a white paper posted by the Cohen Milstein law firm, is that Navistar and certain of its officers and directors, beginning in November 2010, allegedly made false representations regarding Navistar’s engine technology and its compliance with 2010 EPA emission rules.
“Plaintiffs contended that as a result of Navistar’s alleged missteps concerning emissions compliance and its false and misleading statements concerning the company’s ability to achieve compliant technology by certain EPA deadlines, Navistar allegedly faced legal, technological, and liquidity issues, which threatened its business,” the white paper states. “Plaintiffs also claimed that to conceal such facts from Navistar’s investors and customers, the company repeatedly falsely represented that it had EPA-compliant EGR engines ready to be certified and that would imminently be released to the market.”
In July 2012, Navistar announced that it was ceasing production of all 15L MaxxForce Class 8 heavy-duty diesel engines, and abandoning the use of its EGR-only technology on all its other Class 8 engines, instead moving to the selective catalytic reduction technology that other diesel engine makers used to meet the EPA 2010 emissions requirements.