Mercedes 2002 Annual Report Download - page 88

82 |Analysis of the Financial Situation
As previously reported, on April 30, 2001, DaimlerChrysler
sold its subsidiary, DaimlerChrysler Rail Systems GmbH (also
known as Adtranz), to Bombardier, Inc. for cash consideration
of $725 million. In July 2002, Bombardier filed a request for
arbitration with the International Chamber of Commerce in
Paris, and asserted claims for sales price adjustments under
the terms of the sale and purchase agreement as well as
claims for alleged breaches of contract and misrepresenta-
tions. Bombardier seeks total damages of approximately 1960
million. The agreement limits the amount of such price adjust-
ments to 1150 million, and, to the extent legally permissible,
the amount of other claims to an additional 1150 million. We
plan to continue defending against such claims vigorously.
Like other companies in the automotive industry, Daimler-
Chrysler (primarily DaimlerChrysler Corporation) have experi-
enced a growing number of lawsuits which seek compensato-
ry 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
lawsuits 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 19,000 at the end of January
2003. In the majority of these cases, the plaintiffs do not
specify their alleged illness and provide little detail about their
alleged exposure to components in our vehicles. Some plain-
tiffs do not exhibit current illness, but seek recovery based on
potential future illness. In 2001, DaimlerChrysler and other
automobile manufacturers asked the federal bankruptcy court
in Delaware overseeing the bankruptcy proceedings of an
automotive supplier, Federal-Mogul Corporation, to consoli-
date all of the asbestos brake cases pending in state courts
throughout the US with the asbestos brake litigation involving
Federal Mogul supervised by the bankruptcy court. Daimler-
Chrysler believed that consolidation would reduce the cost
and complexity of defending these individual cases. In 2002,
the bankruptcy court decided that it did not have the authority
to consolidate these cases, and the US Court of Appeals
upheld that decision. The US Supreme Court in January 2003
denied DaimlerChrysler's request and that of other manufac-
turers to review the decision. DaimlerChrysler believes that
many of these lawsuits involve unsubstantiated illnesses
or assert only tenuous connections with components in our
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.
In September 2000, Freightliner LLC, DaimlerChrysler’s
North American commercial vehicles subsidiary, acquired
Western Star Trucks Holdings Ltd., a Canadian company
engaged in the design, assembly, and distribution of heavy
duty trucks and transit buses. Prior to its acquisition by
Freightliner, Western Star had completed the sale of ERF
(Holdings) plc, a company organized in England and Wales and
engaged in the assembly and sale of heavy duty trucks, to
MAN AG and MAN Nutzfahrzeuge AG for CAD 195 million. In
September 2002, MAN filed a claim against Freightliner Ltd.
(formerly Western Star) with the London Commercial Court for
breach of representations and warranties in the share pur-
chase agreement. The claim includes allegations that ERF’s
accounts and financial statements were misstated and seeks
to recover damages in excess of GBP 300 million. Freightliner
Ltd. intends to defend itself vigorously against such claims.
A purported class action lawsuit was filed in 2002 in the
United States District Court for the District of New Jersey
against DaimlerChrysler’s subsidiary Mercedes-Benz USA, LLC
(MBUSA), and against MBUSA’s wholly-owned subsidiary
Mercedes-Benz Manhattan, Inc. The lawsuit alleges that MBUSA
and Mercedes-Benz Manhattan participated in a price fixing
conspiracy among Mercedes-Benz dealers. A motion for class
certification is pending. MBUSA and Mercedes-Benz Manhattan
intend to defend themselves vigorously. In addition, the
Antitrust Division of the US Department of Justice, New York
Regional Office, advised MBUSA and Mercedes-Benz
Manhattan that it is conducting a criminal investigation in con-
nection with the allegations made in the lawsuit. MBUSA
and Mercedes-Benz Manhattan have been served with grand
jury subpoenas in connection with this investigation.