Navistar reaches two large settlements with U.S. government

Navistar has reached a settlement with the U.S. government in two separate cases: one involving diesel emissions and another dealing with a military contract.

On May 25, the United States government, at the request of the Environmental Protection Agency, and Navistar signaled to a federal judge that they are closer to a settlement for engines that were noncompliant with emissions laws. Two days later, the truck manufacturer struck a deal with the U.S. government on behalf of the United States Marine Corps. In that case, the government accuses Navistar overcharging it for military vehicles.

Navistar emissions lawsuit

Initially file in July 2015, the government’s lawsuit against Navistar alleges that the manufacturer’s diesel engines violated the Clean Air Act. Specifically, those engines allegedly were not covered by certificates of conformity required by federal law.

In 2001, the EPA implemented stricter emission standards for heavy-duty diesel engines. All diesel engines were to comply with those standards no later than model year 2020. Under the Clean Air Act, manufacturers of new engines cannot sell engines without a certificate of conformity from the EPA. Those certificates are good for one model year.

However, there is an exemption. In 2005, the EPA passed a regulations that allow diesel engine manufacturers to ship engines to vehicle manufacturing customers without first attaching the exhaust aftertreatment devices needed for certification, provided such request is approved by the EPA. Called the “delegated assembly exemption,” the regulation shifts the burden of obtaining a certificate of conformity from the engine manufacturer to the vehicle manufacturer by requiring the latter to install the aftertreatment devices before a vehicle is sold.

Regulatory changes to the delegated assembly exemption in 2009 applied to model year 2010 engines and later. Navistar used exemptions set for model year 2009 engines that it began manufacturing and assembling in 2009. However, revised exemption rules determines the model year based on when the process is completed, not begun.

In Navistar’s case, the engines began the manufacturing process in 2009 but ended in 2010. Nevertheless, Navistar continued to apply model year 2009 exemption rules rather than model year 2010.

Consequently, Navistar sold noncompliant engines that falsely used the delegated assembly exemption.

In its amended complaint, the U.S. government is seeking up to $37,500 for each violation. After years of litigation, the case was set to go to trial in July. However, on May 25, both parties agreed to pause the case as they prepare settlement documents. Navistar, EPA and Department of Justice officials need to approve the settlement before it is officially submitted. As of publication, the terms of the settlement are not publicly available.

Navistar vs. Marine Corps

In an unrelated lawsuit initially filed in September 2013, the United States Marine Corps accused Navistar of selling the military mine-resistant, ambush-protected vehicles for operations in Iraq and Afghanistan at an inflated price.

Navistar was awarded the contract to manufacture the military vehicles in 2007. In 2010, the contract was updated to include installation of an upgraded independent suspension system.

According to the amended complaint, the government accuses Navistar of knowing giving it “forged and highly misleading documents to the government for purposes of inducing the government to award (Navistar) a multibillion-dollar contract and various subsequent contract actions.”

Specifically, Navistar is being accused of forging invoices that reflect inflated prices of military vehicles components in the commercial market. However, the government claims that many products included in the invoice had no commercial sales history. Other products that did have a previous commercial sales history were presented to the government at a price as much as double the commercial prices.

The government accuses Navistar of taking advantage of the Federal Acquisition Regulations, which sets rules for government procurement. Essentially, the government bidding system is partly reliant on the honor system. Considering many contracts, especially those involving the military, are time sensitive, the bidding process is streamlined. Part of that process is expecting contractors to be honest about sales history so that the government can simply apply factors to each bid to find the best one.

According to a news release issued by the plaintiffs’ attorneys, Sanford Heisler Sharp, “Navistar took advantage of this system and of the government’s need for MRAP vehicles in Iraq and Afghanistan to engage in a pervasive and long-running scheme to charge the government wildly inflated prices.”

The government estimates that it has suffered more than $1 billion in damages as a result of the alleged scheme.

On Thursday, Navistar and the U.S. government reached a settlement to end the case. According to the settlement, Navistar will pay the government $50 million, half of which will go to restitution. The government also will have access to unprivileged company documents related to the allegation. Navistar can still be held liable for potential criminal charges. Furthermore, individuals may also be held liable for the alleged scheme.

In a statement sent to Stars and Stripes, Navistar said the allegations are “mistaken and misplaced,” claiming its “pricing was fair, reasonable and competitive.”

“There is nothing more important than the safety and capabilities of those serving our country and our allies, and we take tremendous pride in the vehicles we manufacture and sustain,” Navistar said.  LL

Other Navistar lawsuits:

• Ohio appeals court upholds $1M verdict in Navistar MaxxForce lawsuit.
• MaxxForce engines cost Navistar another $500,000 in Nebraska lawsuit.
• $135M Navistar MaxxForce lawsuit settlement gets federal court approval.