JACKSON, Tenn., Aug. 14, 2017 /PRNewswire/ -- On Thursday, August 10, a jury in Jackson, TN found that Navistar Inc. committed fraud and violated the Tennessee Consumer Practice Act in connection with the sale of 243 Navistar International Prostars with Maxxforce engines. The jury awarded damages to the trucking company that purchased the trucks—Milan Supply Chain Solutions (Milan) —in the amount of $10,800,000 of actual damages and $20,000,000 in punitive damages.
Milan brought suit against Navistar alleging that Navistar misled them in the sale of the Navistar International heavy duty trucks and engines and failed to disclose that the Maxxforce 13 liter engine was launched with serious known defects in the engine and its components.
Milan also alleged that Navistar, while touting the quality of its testing program, knew that the testing had serious flaws, was incomplete at launch and put the trucks into customers' hands knowing that the customers would end up becoming the de facto test fleet for Navistar's new 2010 year model engine.
Milan purchased the Maxxforce powered Prostars in 2011 and 2012. The Maxxforce engine was Navistar's ill-fated Advanced Exhaust Gas Recirculation ("EGR") engine that was sold between 2010 and 2012. When Navistar could not obtain EPA approval for the Maxxforce engine after the expiration of its emissions credits, Navistar switched emission-control technologies using the same technology (Selective Catalytic Reduction- "SCR") as the entire rest of the heavy duty engine industry.
Navistar's decision to use Advanced EGR versus SCR led to numerous quality problems with the engine that resulted in hundreds of millions of dollars of warranty costs to Navistar and tremendous losses on the resale market for trucking companies like Milan.
During the trial, numerous executives testified either live or by deposition. Former Senior Vice-President of North American Sales Jim Hebe testified that Navistar "did not test s#@t", explaining that Navistar failed to follow industry standards and never tested the final version of the engine before selling it to customers.
In an email from Navistar's current Senior Vice-President of Engineering Dennis Mooney to the current CEO Troy Clarke, the former Vice-President of Quality Tom Cellitti (who was in charge of testing the Maxxforce engine) was quoted as stating over and over again prior to the launch to customers "we have no field testing" because the company only tested engineering development trucks rather than validation trucks.
In the same email, Mr. Mooney admitted that the customers ended up uncovering problems that Navistar would have uncovered with the Maxxforce had it followed the industry standard for design and testing.
It was also noted during trial that this was Navistar's first attempt at designing a Heavy Duty engine emissions system on its own. In another email exchange between Mr. Mooney and Mr. Clarke, Mooney admits the management had told the Board of Directors in 2013 "physics of the EGR strategy is (sic) not sound." None of these things were ever revealed to the public prior to trial.
The jury also heard evidence that Navistar knew when it launched the engine that critical engine components had serious quality problems and a shortened life span. Navistar knew one key component of the Advanced EGR engine (the EGR cooler) — that would cost customers like Milan huge problems and the company hundreds of millions of dollars in warranty claims—had a life span of less than 20% of the design requirement based upon testing done before the sale of the engines to the public. None of what the company knew about these problems was ever disclosed to customers who purchased the Maxxforce engine between 2010 and 2012.
Jack Allen, the former Chief Operating Officer and President of Truck Operations, was called by Navistar to testify at trial. Mr. Allen stated that in his opinion it was "normal business practice" for companies to not disclose to customers in advance of a sale about known defects in the products or to disclose to customers that they were buying a product that had not been fully validated or tested by the manufacturer.
"The jury seemed shocked to hear this testimony about the corporate culture and philosophy of Navistar from one of the company's top executives," stated Clay Miller of the Dallas law firm Miller Weisbrod, lead trial attorney for Milan. "It appeared the jury's punitive damage verdict was a message to Navistar that it is not acceptable for the company to cover up important defects in the engines and the engines' testing program in order to make a sale."
Over 60,000 of these engines were sold to unsuspecting trucking companies, added Miller.
Data published by the Used Truck Association demonstrates the Prostar with the Maxxforce engine has suffered a serious loss in resale value over each and every month since at least January of 2013. Milan presented the jury with evidence that it had lost over $35,000 per truck on trade-in values over the last several years—the basis of $8,200,000 of the jury's award for compensatory damages.
Miller noted that Navistar never made any serious effort to resolve the Milan case prior to trial.
"We at Milan are very pleased with the jury's verdict in our case against Navistar. We sincerely thank the citizens of Madison County who sat on the jury and listened carefully to the evidence over the past two weeks. We made every attempt to collaborate with Navistar to resolve these very legitimate engine issues, but rather than trying to sit down and work out a settlement, Navistar's current executive team instructed its lawyers to carry out a contentious litigation strategy against our company. The current executive team at Navistar continues to blame their past management for the Maxxforce engine. We need Navistar to stand behind their product and step forward to address the damages caused by these engines, and we hope the jury's verdict will lead to a change in Navistar's tactics," stated Kevin Charlebois, CEO of Milan Supply Chain Solutions, Inc.
"We have had the same experience with Navistar in our case," stated James "Bo" Keith, President of Nashville, Tennessee-based First Express, Inc., whose company is also involved in similar litigation against Navistar. "Rather than trying to resolve the matter, Navistar's present-day management has had its lawyers engage in scorched earth litigation against First Express. In my opinion, this shows that even today Navistar will not stand behind their product and step forward to compensate companies for very real losses. In my view, the lack of ownership from Navistar should raise a red flag to any company considering a current purchase of a Navistar product."
Milan was represented at trial by Clay Miller and Warren Armstrong of the Dallas law firm Miller Weisbrod and Adam Nelson of the Jackson, TN law firm of Rainey Kizer Reviere & Bell.
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SOURCE Miller Weisbrod LLP