This excerpt taken from the CNH 20-F filed Mar 3, 2009.
We are party to various legal proceedings in the ordinary course of our business, including matters relating to product liability (including asbestos-related liability), product performance, warranty, environmental, retail and wholesale credit, disputes with dealers and suppliers and service providers, patent and trademark matters, and employment matters. The most significant of these matters are described in Note 14: Commitments and Contingencies of our consolidated financial statements for the year ended December 31, 2008.
We evaluate such matters and contingent liabilities arising from such matters and establish financial reserves to address these contingent liabilities. Although we believe our reserves are adequate based upon existing information, the ultimate outcome of the legal matters pending against us or our subsidiaries is uncertain, and although such legal matters are not expected individually to have a material adverse effect on us, such legal matters could have, in the aggregate, a material adverse effect on our consolidated financial condition, cash flows or results of operations.
This excerpt taken from the CNH 20-F filed Mar 5, 2008.
We are party to various legal proceedings in the ordinary course of our business, including matters relating to product liability (including asbestos-related liability), warranty, environmental, retail credit, disputes with dealers and suppliers and service providers, patent and trademark matters, and employment matters. The most significant of these matters are described below.
We estimate such potential claims and contingent liabilities and establish reserves to address these contingent liabilities. Although we believe our reserves are adequate based upon existing information, the ultimate outcome of the legal matters pending against us or our subsidiaries is uncertain, and although such lawsuits are not expected individually to have a material adverse effect on us, such lawsuits could have, in the aggregate, a material adverse effect on our consolidated financial condition, cash flows or results of operations.
Yolton: In December 2002 six individuals acting on behalf of a purported class filed a lawsuit, Gladys Yolton, et al. v. El Paso Tennessee Pipeline Co., and Case Corporation (Yolton), styled as a class action, in the Federal District Court for the Eastern District of Michigan against El Paso Tennessee Pipeline Co. (formerly Tenneco Inc., El Paso) and Case, LLC (now known as CNH America). The lawsuit alleged breach of contract and violations of various provisions of the Employee Retirement Income Security Act and Labor Management Relations Act arising due to alleged changes in health insurance benefits provided to employees of the Tenneco Inc. agriculture and construction equipment business who retired before selected assets of that business were transferred to Case in June 1994. El Paso administers the health insurance programs for these employees. An agreement had been reached with the UAW capping the premium amounts that El Paso would be required to pay. Any amount above the cap limit would be the responsibility of the retirees. In 1998, in exchange for a release of all further liability for above-cap costs, Case contributed $27.8 million to a Voluntary Employees Beneficiary Association (VEBA) to help defray retirees above-cap costs.
The lawsuit arose after El Paso notified the retired employees that the VEBA funds were exhausted and the employees thereafter would be required to pay the premiums above the cap amounts. The plaintiffs also filed a motion for preliminary injunction in March 2003, asking the district court to order El Paso and/or Case to pay the above-cap amounts. On March 9, 2004, based on an alter ego theory, the district court held that Case was liable and ordered that Case pay the above-cap health insurance benefits. Case filed a motion for reconsideration and a motion for stay, both of which the district court denied on June 3, 2004. Case and El Paso appealed to the Sixth Circuit Court of Appeals, but the Sixth Circuit affirmed the district courts decision. El Paso and Case each filed a petition for a writ of certiorari seeking review by the U.S. Supreme Court. On November 6, 2006 the U.S.
Supreme Court denied El Pasos and Cases petitions and the matter was returned to the district court. After extensive discovery, El Paso and the plaintiffs filed summary judgment motions. Case filed a summary judgment motion on the alter ego and VEBA release issues. Oral argument on these motions took place November 20, 2007. The district court has not yet rendered an opinion. If the district court grants the various summary judgment motions, trial may not be necessary. If the district court denies some or all of the motions, a trial may be needed to resolve certain factual issues.
In conjunction with the above litigation, Case filed a summary judgment motion with the District Court asking the court to enforce the terms of a Reorganization Agreement, which Case contended obligated El Paso to defend Case and indemnify it for all expenses and losses arising from this lawsuit. The Court granted that motion and the decision has been upheld on appeal by the Sixth Circuit Court of Appeals. Based on Cases rights to indemnification under the Reorganization Agreement now being final, Case and El Paso reached a settlement, whereby El Paso fully repaid Case the amounts previously paid to the retirees and committed to pay Cases costs in litigating the alter ego issue and the VEBA release issue going forward.
ACT: Three of our subsidiaries, New Holland Limited, New Holland Holding Limited and CNH (U.K.) Limited (together CNH U.K.), are claimants in group litigation against the Inland Revenue of the United Kingdom (Revenue) arising out of unfairness in the advance corporation tax (ACT) regime operated by the Revenue between 1974 and 1999. In December 2002, the issues relevant to CNH U.K. came before Mr. Justice Park in the High Court of Justice in England in a test case brought by Pirelli S.p.A and certain affiliates (Pirelli). He found against the Revenue and decided that Pirelli was entitled to compensation for wrongly paying ACT. The Revenue appealed, and the Court of Appeal (three Judges) agreed unanimously with the decision of Justice Park in the High Court and ruled again in favor of Pirelli. Again the Revenue appealed, and the final hearing on the issues took place in the House of Lords before five Judges during the fourth quarter of 2005. In February 2006, the House of Lords ruled that it had been wrong for Pirelli (and other claimants such as CNH U.K.) to pay ACT, but in calculating the compensation payable to the U.K. claimants, treaty credits that had been paid to the claimants parent companies on receipt of the dividends in question must be netted against any claim for an ACT refund. In the lower courts the Judges had ruled against netting off. During the pendency of the appeal to the House of Lords, the Revenue had been persuaded to pay compensation to claimants (including CNH U.K.) on a conditional basis. CNH U.K. had received approximately £10.2 million ($20.0 million) for interest and other costs. This was in addition to surplus ACT of approximately £9.1 million ($17.9 million) that had previously been repaid to CNH U.K., again on a conditional basis. The condition of receipt by CNH U.K. was that, if the final liability of the Revenue (if any) is determined by the House of Lords to be less than the sums already paid to CNH U.K., then a sum equivalent to the overpayment should be repaid (plus interest at 1% over base rate from the date of payment/receipt). The House of Lords did not make a determination of the amounts, if any, which must be repaid to the Revenue by each individual claimant but have referred the case back to the High Court. A hearing took place in February 2007 and a judgment was delivered on March 23, 2007. The hearing and judgment only partially dealt with the issues relevant to determine retention of the amounts paid to CNH U.K. The judgment also rejected the new argument put forward by the claimants for additional compensation. The judgment was appealed to the Court of Appeal in January 2008. That appeal was dismissed in a judgment delivered in February 2008. We believe Pirelli is considering petitioning the House of Lords for permission to appeal.
Depending upon the final resolution of the Pirelli test case, CNH U.K. may be required to return to Revenue all or some portion of the approximately £10.2 million ($20.5 million) and the £9.1 million ($18.3 million) that had been previously received. Neither repayment would impact our results of operations; however, the £9.1 million ($18.3 million) of surplus ACT would be re-established as a tax asset on the consolidated balance sheet. This asset would be available to use against taxation liability on future profits of the U.K. companies. In the event that we determined that future U.K. profits would not be generated in order to use the asset, then a valuation reserve would be recorded against the asset and would impact our results of operations accordingly. CNH U.K. intends to continue to vigorously pursue its remedies with regard to this litigation.
Oil for Food: In February 2006, Fiat received a subpoena from the SEC Division of Enforcement with respect to a formal investigation entitled In the Matter of Certain Participants in the Oil for Food Program. This subpoena requested documents relating to certain Fiat-related entities (including certain subsidiaries of CNH) with respect to matters relating to the United Nations Oil-for-Food Program with Iraq (the OFF Program). A substantial number of companies, including certain CNH entities, were mentioned in the Report of the Independent Inquiry Committee into the United Nations Oil-for-Food Programme issued in October 2005 (the Report). The Report alleged that these companies engaged in transactions under the OFF Program that involved inappropriate payments. There are two CNH entities named in the Report: CNH Italia and Case France (now known as CNH France S.A.). These two companies have provided documents and other information to the SEC which have, to some extent, been shared by the SEC with the United States Department of Justice (DOJ).
In December 2006, Fiat and CNH jointly began settlement discussions with the SEC and DOJ. The SEC initially communicated that in order to settle the allegations it would require disgorgement of profits relating to the applicable contracts, interest on such amounts, and the imposition of a civil fine. The DOJ has initially communicated that in order to settle the allegations it would require the imposition of a criminal fine. CNH intends to continue such discussions with the SEC and DOJ and, while we do not expect a settlement of this matter to have a material financial impact on us, an acceptable negotiated settlement of such allegations cannot be assured.
PGN: On September 21, 2007, we submitted a response in a consolidated arbitration proceeding (the Arbitration) pending in London before the ICC International Court of Arbitration. The Arbitration arose under a Services Agreement between CNH and PGN Logistics Ltd (PGN), pursuant to which PGN provided specified logistics services for certain of our subsidiaries in Europe. The dispute arose following CNHs termination of the Services Agreement in January 2005 and involves CNHs right to terminate (based upon alleged breach of contract and illegal activities) as well as invoices under the Services Agreement that were disputed by CNH and unpaid. The Tribunal in the Arbitration issued a partial decision on liability issues, finding, among other things, that CNH was not permitted to terminate the Services Agreement and that PGN was entitled in principle to recover amounts properly owed to it at the time of termination as well as additional damages that PGN may establish it has suffered for lost profits.
The hearing on damages was held on October 8-9, 2007. Prior to the damages hearing, CNH paid to PGN approximately £27.4 million ($55 million) which represented payment of claims which the Tribunal held CNH was responsible for and with respect to which CNH did not have an objection as to amount. At the damages hearing PGN advanced a variety of theories purporting to substantiate damages for lost profits and other items. On February 4, 2008, the Tribunal issued its damages award. Pursuant to the award, the Tribunal, among other things, required CNH to pay certain invoices, compensate PGN for lost future profits under the Services Agreement and bear a portion of the costs incurred in connection with the dispute and the Arbitration. While certain calculations remain to be made, CNH estimates that the aggregate amount to be paid under the damages award will not exceed $35 million. The Tribunal dismissed all of PGNs claims other than those included in the damages award.