Navistar, Inc. v. Dutchmaid Logistics, Inc.

• Decision Date: 22 April 2021
• Docket Number: No. 2020 CA 00003,2020 CA 00003
• Court: Ohio Court of Appeals
• Parties: NAVISTAR, INC., Defendant-Appellant v. DUTCHMAID LOGISTICS, INC., Plaintiff-Appellee

171 N.E.3d 851

NAVISTAR, INC., Defendant-Appellant

v.DUTCHMAID LOGISTICS, INC., Plaintiff-Appellee

No. 2020 CA 00003

Court of Appeals of Ohio, Fifth District, Licking County.

DATE OF JUDGMENT ENTRY: April 22, 2021

ROMAN MARTINEZ, SHANNON GRAMMEL, Latham & Watkins, LLP, 555 Eleventh Street, NW, Suite #1000, Washington, DC 20004-1304, KEVIN M. JAKOPCHEK, Latham & Watkins, LLP, 330 N. Wabash, Suite #2800, Chicago, IL 60622, For Defendant-Appellant.

MARK KITRICK, SEAN HARRIS, Kitrick, Lewis & Harris Co., LPA, 515 East Main Street, Suite #515, Columbus, OH 43215-5398, CLAY MILLER, LAWRENCE R. LASSITER, Miller Weisbrod, LLP, 12750 Merit Drive, Suite #1100, Dallas, TX 75251, For Plaintiff-Appellee.

JESSICA Z. BARGER, NATASHA N. TAYLOR, Wright Close & Barger, LLP, One Riverway, Suite #2200, Houston, TX 77056, For Defendant-Appellant.

TIMOTHY C. AMMER, LINDSAY M. UPTON, Montgomery Jonson, LLP, 600 Vine Street, Suite #2650, Cincinnati, OH 45202, For Defendant-Appellant.

JUDGES: Hon. Craig R. Baldwin, P.J., Hon. William B. Hoffman, J., Hon. Earle E. Wise, Jr., J.

OPINION

Hoffman, J. {¶1} Defendant-appellant Navistar, Inc. ("Navistar") appeals the July 29, 2019 Final Judgment entered by the Licking County Court of Common Pleas, memorializing the jury's verdict in favor of plaintiff-appellee Dutchmaid Logistics, Inc. ("Dutchmaid") on Dutchmaid's fraud claim and the jury's award of compensatory and punitive damages.

STATEMENT OF THE FACTS AND CASE

{¶2} Dutchmaid is a logistics company and the owner and operator of a commercial trucking fleet which is engaged in the business of hauling dry and refrigerated commodities across 48 states. Navistar manufacturers heavy-duty commercial trucks and diesel engines. Prior to 2008, Dutchmaid primarily operated CAT and Cummins-powered trucks. Between 2008, and 2009, Dutchmaid purchased nine Navistar trucks equipped with Navistar's first generation MaxxForce engines ("MaxxForce 1 trucks") and six Navistar trucks equipped with Cummins engines.

{¶3} The MaxxForce 1 trucks began experiencing significant mechanical issues after being driven approximately 100,000 miles. After the MaxxForce 1 trucks reached the 125,000 mile mark, the mechanical issues increased substantially, most often due to the failure of the Exhaust Gas Recirculation ("EGR") cooler. The EGR cooler is part of the EGR system which pumps engine exhaust back into the engine in order to lower emissions. All of Dutchmaid's MaxxForce 1 trucks lost their EGR coolers. Due to the ongoing issues, Dutchmaid moved the MaxxForce 1 trucks to its local fleet which hauled shorter distances. Dutchmaid also contemplated retiring the MaxxForce 1 trucks earlier than the company normally retires the trucks in its fleet.

{¶4} In late 2010, Dutchmaid began the process of purchasing additional trucks for its fleet. Navistar's sales representative, John Lasson, and his team met with Sam Burrer, Dutchmaid's General Manager, to discuss the purchase of Navistar's second generation MaxxForce trucks ("MaxxForce 2 trucks"), which were designed to meet the EPA's 2010 lower emissions standards. Burrer informed Lasson Navistar would have to convince Dutchmaid the issues it had experienced with the MaxxForce 1 trucks were resolved and corrected before Dutchmaid would consider purchasing MaxxForce powered trucks again.

{¶5} After extensive discussions, visits to Navistar's manufacturing plant, and repeated assurances of the reliability of and the testing conducted on the MaxxForce 2 trucks, Dutchmaid purchased twenty MaxxForce 2 trucks between 2011, and 2012. Over the three years during which Dutchmaid owned and operated the MaxxForce 2 trucks, the vehicles were in the shop for warranted repairs on more than 100 separate occasions. The problems necessitating the repairs included EGR system failures.

{¶6} On February 11, 2015, Dutchmaid filed a complaint against Navistar, asserting, inter alia, claims of breach of express warranty and fraud by nondisclosure.

{¶7} At trial, Burrer testified regarding Dutchmaid's ongoing issues with the MaxxForce 1 trucks, the need to purchase new trucks, and how and why Dutchmaid ultimately decided to purchase the MaxxForce 2 trucks. Burrer explained, in 2010, the EPA established new standards for emissions and Dutchmaid had to purchase new trucks for its fleet. In January, 2011, Dutchmaid began to run three test trucks: a Freightliner truck with a Cummins engine, a Freightliner truck with a Detroit Diesel engine, and a MaxxForce 2 truck. Dutchmaid wanted to be assured Navistar had conducted sufficient field testing on the MaxxForce 2 trucks. Burrer noted, "[W]e want to see lots of trucks with lots of miles and in real-world environments." Trial Transcript, Vol. III at p. 747. Burrer added running one test truck would not tell him enough about reliability.

{¶8} The Freightliner trucks were equipped with the newly developed Selective Catalytic Reduction ("SCR") system to meet the EPA's lower emission standards. Navistar continued to rely solely on the EGR system. During discussions with Freightliner, Burrer learned the EGR-only emissions system used in the MaxxForce 2 trucks pumped even more hot exhaust gases through the engines, resulting in excessive heat which could lead to EGR cooler cracking. Burrer expressed his concerns about this potential problem to Lasson, asking, "[W]hat are you guys doing to convince me that you've got this problem resolved, that it's going to be good from here forward?" Tr. at 749-750.

{¶9} Although the MaxxForce 2 test truck satisfied Dutchmaid's questions about fuel economy, the overall reliability of the MaxxForce 2 trucks remained a major concern for Dutchmaid. Between January and June, 2011, Lasson and his team visited Dutchmaid and Burrer at least a half-dozen times and, each time, Burrer raised concerns about reliability of the MaxxForce 2 trucks. Burrer "always talked to them about testing," explaining: "To me, that's the most important thing you can to do. And – and I mean field testing. For me, I think that's most critical. Some guys may disagree with it, but I think field testing is absolutely critical in that they run a lot of miles and they have two to three years, at least, of testing." Tr. at 754. Navistar repeatedly told Dutchmaid and Burrer it had field tested multiple trucks over the course of two to three years and some of the trucks had achieved 200-300 thousand test miles.

{¶10} At every meeting, Burrer also asked Navistar if the issues with the EGR coolers had been resolved. Each time, Navistar informed Burrer the EGR system had been reengineered, redesigned, and, as a result, the EGR cooler was more robust. Navistar indicated the EGR cooler would last the life of the truck's engine and the engine would be reliable for over a million miles. Anthony Greszler, Dutchmaid's expert witness, testified the standard engine life for trucks of this kind is 1.2 million miles.

{¶11} Burrer traveled to Navistar's Alabama manufacturing plant. Navistar engineers gave Burrer a tour of the plant, showed him a disassembled engine, and engaged in discussions with him regarding the testing conducted on and improvements made to the MaxxForce 2 engines. Navistar's repeated assurance the EGR system issues had been resolved was the main factor which convinced Dutchmaid to purchase the MaxxForce 2 trucks. Tr. Vol. IV at 1089. According to Burrer, Dutchmaid would not have purchased the trucks if Navistar had disclosed the information it had. Id. at 1092-1093.

{¶12} Burrer described the problems Dutchmaid had with the new MaxxForce 2 trucks. The MaxxForce 2 trucks were down for repairs 1,288 days during the time Dutchmaid operated the vehicles. This downtime resulted in lost profits of $298,271. In 2013, the MaxxForce 2 trucks achieved, on average, 13,000 less miles per truck than Dutchmaid's non-MaxxForce engine powered trucks. In 2014, the MaxxForce 2 trucks achieved, on average, 19,000 less miles per truck. After only 3 ½ years, Dutchmaid traded the MaxxForce 2 trucks out early because of the disruption to the company's operations. Based upon industry resale data, Dutchmaid's early and unexpected disposal of the Maxxforce 2 trucks resulted in a loss of $35,825/truck.

{¶13} Gerald Billinghurst, a sales representative for Truck Sales & Service¹ , arranged Burrer's visit to the Navistar factory and traveled to Alabama with him. Billinghurst was well aware of the problems Dutchmaid was having with the MaxxForce 1 trucks. Billinghurst explained the biggest issue Dutchmaid had with the MaxxForce 1 trucks was reliability and the purpose of the trip to Alabama was for Burrer to gain confidence in the MaxxForce 2 engines. Over the course of the business relationship between Dutchmaid and Truck Sales & Services, Burrer and at least two other Dutchmaid employees expressed to Billinghurst their displeasure with the performance of the MaxxForce 1 trucks and the ongoing issues with the EGR coolers. Billinghurst was also aware Dutchmaid had concerns about buying new trucks equipped with MaxxForce 2 engines. He was present at a number of meetings with Burrer and different Navistar representatives. During the visit to Navistar's Alabama factory, Billinghurst heard Navistar representatives tell Burrer the issues Dutchmaid experienced with the EGR cooler and EGR system had been resolved.

{¶14} Billinghurst testified regarding his personal experience with the breakdowns of the MaxxForce 1 trucks. He described the downtime as "Not good. And to the point of terrible in some instances because they were down for two weeks to a month, in some instances." Tr. Vol. IV at 1128. Billinghurst recalled the trucks spent "a lot of time" in their shop. Truck Sales & Service "worked guys overtime to keep this fleet going because of the issues that were out there that we knew about." Id. Billinghurst added, "There was a part shortage because of the demand for ... certain parts that were breaking." Id. Truck Sales & Service also experienced issues...