Truck maker Navistar has moved nearer the end of the road in a legal fight over whether it had misled investors about its chances to build a new truck engine both in line with federal emissions requirements and superior to those made by competitors, as a group of shareholders have asked a federal judge to sign off on a $9.1 million settlement deal.
On Sept. 28, attorneys for the shareholders filed documents in Chicago federal court in support of its assertions that the deal, which could provide more than $2 million for plaintiffs’ attorneys, is fair to both Navistar and the potentially “hundreds or thousands” of shareholders who could receive a cut of the settlement.
The shareholders were represented in the litigation by attorneys with the firm of Cohen Milstein Sellers & Toll, with offices in Chicago and Washington, D.C.
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The case had landed in Chicago federal court in 2013, shortly after the stock price for the west suburban Lisle-based company had plunged in the wake of news it would be shifting gears in the race to develop a new truck engine designed to meet more stringent engine emissions standards promulgated by the U.S. Environmental Protection Agency.
For years, according to the lawsuit, Navistar had promised investors it would roll out a new truck engine, referred to as the “Advanced Exhaust Gas Recirculation (EGR)” model, which the lawsuit said would have represented “an engineering milestone.”
The assertions, the complaint said, pushed Navistar’s stock price to as much as $70 per share in 2011.
However, the company in 2012 then backtracked, formally announcing its efforts to build the Advanced EGR engine had failed, and it would adopt the same technology used by its competitors to ensure its trucks met the emissions requirements. The news came after the company had announced losses in the preceding quarter.
The complaint alleged the news caused Navistar’s stock price to sink, inflicting losses on shareholders.
The putative class action lawsuit was then filed in federal court by a group of pension funds, demanding Navistar be made to pay the shareholders back. In later court documents, the plaintiffs pegged shareholders’ total losses at $82 million to $133 million.
However, in July 2015, U.S. District Judge Sara L. Ellis dismissed allegations based on all but two of the alleged misleading statements attributed to Navistar and its executives.
Settlement negotiations later followed, and in May 2016, the court granted preliminary approval to the $9.1 million settlement agreement between the pension funds and Navistar.
In late September, the plaintiffs asked the court to grant final approval to the settlement agreement, and, in a separate motion, asked the judge to also allow plaintiffs’ attorneys to collect 22 percent of the settlement amount – or about $2 million – in fees.
The plaintiffs said none of the plaintiff class members notified of the settlement have objected to the settlement, as of Sept. 28. The deadline for objections is set for Oct 7.
And the plaintiffs said the settlement was the best they could hope for, given the current weakness of their case, in light of the judge’s dismissal of many of their allegations. They noted the plaintiffs faced the risk of “total dismissal” if they continued to press the case, as well as “zero damages,” particularly if the case were to advance to trial.
“Defendants would argue … Navistar was a pioneering company, pursuing the development of technology that had not yet been proven but was realistically achievable and in the best interests of the Company,” the plaintiffs wrote in a memorandum in support of final approval of the settlement.
They also said the current state of the litigation would make it difficult for them to prove the “stock price was inflated.”
In light of such challenges, they said the $9.1 million settlement, with $2 million for plaintiffs attorneys, represented the best possible outcome for class members and the best chance to avoid further costly litigation for both sides.
Navistar is represented in the action by the firm of Latham & Watkins, of Chicago.