Verdict For The Record Books: Jury Awards $850 Million in Case Tried by Ball Janik

02/01/2007

On December 15, 2006, a 12-member jury awarded the largest verdict in Oregon’s history to plaintiffs represented by Ball Janik LLP. The $850 million award won by Ball Janik’s client, Mannheim-based MAN AG, was also the largest in the United States in 2006. Ball Janik partner Rick Stone was the lead trial lawyer in the record-breaking case.

Background
MAN acquired the ERF group from the Canadian company Western Star Truck Holdings Ltd. in March 2000. Six months later, Western Star was acquired by the North American truck-making operation of DaimlerChrysler and merged into an existing subsidiary of DaimlerChrysler's wholly owned Freightliner group. The surviving corporation, Freightliner Ltd., became legally obligated to pay claims against its corporate predecessor, Western Star.

After the acquisition and merger, Freightliner Ltd. owned two successful heavy-duty truck brands. Before the merger, it owned and operated a business that developed, manufactured, and marketed the Sterling Trucks brand of heavy-duty transport trucks. After the merger, Freightliner Ltd. also became the owner and operator of the business making and selling the popular Western Star Trucks brand of heavy-duty vocational trucks.

In mid-2001, MAN discovered major financial irregularities at its new ERF subsidiaries. When MAN contacted Western Star, it learned that Freightliner Ltd. was now responsible for the ERF deal. MAN began settlement talks with the new owners as English lawyers and accountants spent months reviewing ERF financial records. Discussions intensified when ERF's former chief accounting officer confessed to a massive financial fraud against, among others, MAN.

The English Case
Ultimately, settlement discussions failed, and MAN filed a fraud claim in the London Commercial Court against Freightliner Ltd. at the end of September 2001. Freightliner Ltd. was the only defendant sued in the English case. A trial on the liability phase of the lawsuit concluded in June 2005, and a judgment of liability was handed down by the English court on October 28, 2005 finding Freightliner Ltd. "vicariously liable to MAN for all the losses directly caused to it by entering into the [ERF] transaction." Pending a determination of the final amount of damages, which is expected next year, the English court entered an interim award of £250 million (about $500 million USD), which Freightliner Ltd. conceded was the minimum amount of its liability to MAN. The final amount may be more than $800 million, which would increase the Oregon verdict to about $1.2 billion.

The initial result in London proved to be a Pyrrhic victory. Between the time that MAN first told Freightliner Ltd. about its claim and the date the English judgment was entered, everything formerly owned by Freightliner Ltd. had been transferred to other DaimlerChrysler affiliates. In short, when MAN went to collect, the Freightliner Ltd. cupboard was bare—it had no assets with which to pay the award.

MAN first suspected there might be a problem in September 2004, when Freightliner Ltd. reported in the English lawsuit that it was no longer a truck-maker; it was simply a distributor. When MAN asked Freightliner Ltd. what happened to its Sterling and Western Star truck businesses, Freightliner Ltd. said all of the assets had been transferred away for legitimate business reasons. Freightliner Ltd. 's principal justification for its actions centered on an elaborate series of what it contended were tax-saving transactions overseen every step of the way by the company's lawyers and accountants.

The Oregon Case
Attempts by MAN to learn more about these maneuverings were unsuccessful, so it filed a second lawsuit at the end of 2004, this time in the Freightliner Group's hometown—Portland, Oregon. The defendants in the Oregon case included the direct and indirect parent companies that owned Freightliner Ltd.—most notably DaimlerChrysler North America Holding Corporation and Freightliner LLC—and all affiliates that received transferred assets. The claims included alleged violations of Oregon's fraudulent transfer statutes, alter ego claims to "pierce the corporate veil" and impose liability on all of the affiliates, a claim for successor liability against the recipient of the Sterling Trucks business, and a claim for punitive damages.

The case went to trial before a jury at the end of 2006. MAN's case was built around calling the defendants' own people and reading defendants' own documents obtained during the pretrial discovery process. At the conclusion of the five-week trial, the jury worked its way through a comprehensive 81-page verdict form and found in favor of MAN on its claims of actual fraud under the Oregon fraudulent transfer statute, alter ego liability, and successor liability. The jury awarded actual damages of nearly $500 million against the defendants and punitive damages totaling $350 million against DaimlerChrysler and Freightliner. The award is joint and several against all of the defendants except the DaimlerChrysler finance entity, against which the jury found no liability.

The trial team supporting Rick included partners Bruce Cahn and Tony Summers from Ball Janik, with partners Kit Weitnauer, Bill Barron, Candace Smith and Bill Boone, and associate Jonathan Davis from Alston & Bird.

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