Mercedes 2004 Annual Report Download - page 155

plaintiffs. The allegations are that the employee had furnished to
the customer a number of letters on DCAuP letterhead which falsely
asserted that the customer had purchased and paid for buses
which purported to be identified by either commission numbers
or chassis numbers. Many of the buses proved to be fictitious.
The letters were produced by the customer to the financier as
part of the customer’s proof of its title to the identified buses in
order to procure funding. The claims are yet to be finally quantified.
DaimlerChrysler is vigorously defending both claims.
DaimlerChrysler AG in its capacity as successor of Daimler-Benz
AG is a party to a valuation proceeding (Spruchstellenverfahren)
relating to a subordination and profit transfer agreement that
existed between Daimler-Benz AG and the former AEG AG
(“AEG”). In 1988, former AEG shareholders filed a petition to the
regional court in Frankfurt claiming that the consideration and
compensation stipulated in the agreement was inadequate. In
1994, a court-appointed valuation expert concluded that the con-
sideration provided for in the agreement was adequate. Following
a Federal Constitutional Court decision in an unrelated case, the
Frankfurt court in 1999 instructed the expert to employ a market
value approach in its valuation analysis rather than the capital-
ized earnings value approach previously used. The court also
instructed the expert in 2004 to take into account additional find-
ings of the Federal Supreme Court elaborating further on the
valuation issue addressed by the Federal Constitutional Court. In
September 2004, the expert delivered the requested valuation
opinion. If the new opinion were to be followed by the Frankfurt
court, the valuation ratio would increase significantly in favour of
the AEG shareholders. DaimlerChrysler believes the original
consideration and compensation to be adequate and the second
valuation opinion to be unwarranted. DaimlerChrysler intends
to defend itself vigorously against the claims in this proceeding.
As previously reported, various legal proceedings are pending
against DaimlerChrysler or its subsidiaries alleging defects in var-
ious components (including occupant restraint systems, seats,
brake systems, tires, ball joints, engines and fuel systems) in sev-
eral different vehicle models or allege design defects relating to
vehicle stability (rollover propensity), pedal misapplication (sud-
den acceleration), brake transmission shift interlock, or crash-
worthiness. Some of these proceedings are filed as class action
lawsuits that seek repair or replacement of the vehicles or com-
pensation for their alleged reduction in value, while others seek
recovery for personal injuries. Adverse decisions in one or more
proceedings could require DaimlerChrysler or its subsidiaries
to pay partially substantial compensatory and punitive damages,
or undertake service actions, recall campaigns or other costly
actions.
Three purported class action lawsuits are pending in various U.S.
courts that allege that the paint applied to 1982–1997 model
year Chrysler, Plymouth, Jeep®and Dodge vehicles delaminates,
peels or chips as the result of defective paint, paint primer, or
application processes. Plaintiffs seek compensatory and punitive
damages, costs of repair or replacement, attorneys’ fees and
costs. Seven other previously reported class action lawsuits
regarding paint delamination have been dismissed.
In November 2004, a jury awarded $3.75 million in compensato-
ry damages and $98 million in punitive damages against Daimler-
Chrysler Corporation in Flax v. DaimlerChrysler Corporation,
a case filed in Davidson County Circuit Court in the state of
Tennessee. The complaint alleged that the seat back in a 1998
Dodge Grand Caravan was defective and collapsed when the
Caravan was struck by another vehicle resulting in the death of
an occupant. DaimlerChrysler Corporation has filed motions
challenging the verdict and the damage awards. DaimlerChrysler
Corporation is defending approximately 25 other complaints
involving vehicle seat back strength, including the appeal of a
judgment against DaimlerChrysler Corporation in November
2003 for $3.75 million in compensatory damages and $50 million
in punitive damages in Douglas v. DaimlerChrysler Corporation,
a case filed in Superior Court in Maricopa County, Arizona.
DaimlerChrysler believes it has strong grounds for appealing
these verdicts and having the punitive damage awards stricken.
Like other companies in the automotive industry, DaimlerChrysler
(primarily DaimlerChrysler Corporation) have experienced a grow-
ing number of lawsuits which seek compensatory and punitive
damages for illnesses alleged to have resulted from direct and
indirect exposure to asbestos used in some vehicle components
(principally brake pads). Typically, these suits name many other
corporate defendants and may also include claims of exposure to
a variety of non-automotive asbestos products. A single lawsuit
may include claims by multiple plaintiffs alleging illness in the
form of asbestosis, mesothelioma or other cancer or illness. The
number of claims in these lawsuits increased from approximately
14,000 at the end of 2001 to approximately 29,000 at the end of
2004. In the majority of these cases, plaintiffs do not specify
their alleged illness and provide little detail about their alleged
exposure to components in DaimlerChrysler’s vehicles. Some
plaintiffs do not exhibit current illness, but seek recovery based on
potential future illness. DaimlerChrysler believes that many of these
lawsuits involve unsubstantiated illnesses or assert only tenuous
connections with components in its vehicles, and that there is
credible scientific evidence to support the dismissal of many of
these claims. Although DaimlerChrysler’s expenditures to date
in connection with such claims have not been material to its
financial condition, it is possible that the number of these lawsuits
will continue to grow, especially those alleging life-threatening
illness, and that the company could incur significant costs in the
future in resolving these lawsuits.
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