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United States v. Navistar International Corporation

United States District Court, N.D. Illinois, Eastern Division

March 1, 2017

United States of America, Plaintiff,
v.
Navistar International Corp., and Navistar, Inc., Defendants.

          MEMORANDUM OPINION AND ORDER

          Manish S. Shah United States District Judge

         The United States of America, at the request of the Environmental Protection Agency, brought this case against Navistar, Inc., and Navistar International Corporation alleging violations of the Clean Air Act. The government alleges that defendants introduced on-highway engines into commerce without first obtaining a Certificate of Conformity for those engines. The government has moved for summary judgment, arguing that the language of the EPA regulations clearly establishes liability when applied to the undisputed facts of this case. Both defendants argue, in response, that the language of the EPA regulations does not clearly address the central legal question in this case. Navistar International argues in a cross-motion for summary judgment that it is merely a passive holding company that does not conduct the sort of business covered by the Clean Air Act.

         I. Background

         Navistar International is a company with offices in Lisle, Illinois. The company has two operating entities, Navistar, Inc., the manufacturing wing of the business, and Navistar Financial Corporation. Navistar, Inc., manufactures and distributes a heavy-duty diesel engine.[1] The government's suit accuses defendants of selling 7, 749 engines in violation of the Clean Air Act. The act requires that a manufacturer of on-highway engines apply for and obtain a Certificate of Conformity for those engines before entering them into commerce. See 42 U.S.C. § 7522. Navistar obtained a certificate for engines produced in Model Year 2009 but did not obtain a certificate for Model Year 2010 engines.

         Navistar initiated the production of the 7, 749 heavy-duty diesel engines at issue here, called the “Subject Engines” by the parties, in 2009. But the company did not fully assemble the Subject Engines until 2010. Navistar argues that the Subject Engines were “produced” in 2009 because the company installed a component called a crankshaft into the engine block before December 31, 2009. If indeed Navistar is correct that the applicable EPA regulations consider an engine “produced” when the crankshaft is in the engine block, the Subject Engines would be covered by the Model Year 2009 certificate, and defendants would avoid CAA liability.

         The government does not dispute that the crankshaft was in the engine block before the end of 2009, but it argues that more is required for an engine to be considered “produced” under the CAA. Under the government's interpretation of the regulations, an engine is only considered “produced” once the manufacturer has completed all manufacturing and assembling processes such that the engine becomes “saleable.” Because it is undisputed that these processes were not completed on the Subject Engines before December 31, 2009, the United States concluded that the Subject Engines were not covered by the 2009 certificate.

         In November 2010, the EPA sent to Navistar International and any of its affiliates a request for information pursuant to Section 208 of the Clean Air Act. Navistar's response revealed that the Subject Engines' “Crank Install” date was in 2009, but their “E Build Date” was in 2010. It is undisputed that Navistar sold or offered for sale the Subject Engines into commerce.

         The facts are disputed as to whether Navistar International is merely a passive holding company of Navistar or something more. Navistar International has submitted the affidavits of two Navistar employees who state that International passively holds the stock of Navistar, Inc. They state that International has only one employee and has no manufacturing facilities or operations. They state that as a holding company, Navistar International has not engaged in any design, manufacture, assembly, or sale of the engines at issue in this litigation.

         The government cites a variety of documents in which Navistar International held itself out as more than a mere holding company. A “Fact Book” released by either Navistar International or Navistar, Inc., in 2015 stated that “Navistar International Corporation (NYSE: NAV) is an international manufacturer of International® brand commercial and military trucks, proprietary diesel engines, IC BusTM brand school and commercial buses, as well as a provider of service parts for trucks and diesel engines.” The 2015 Fact Book said that International has 13, 200 active employees and manufacturing facilities in 4 countries. It stated, “We manufacture and distribute Class 4 through 8 trucks and buses, ” and, “we design and manufacture proprietary diesel engines . . .” A 2011 Fact Book similarly represented International as a manufacturer.

         In Navistar International's 2009 SEC filing, the company described itself as “the nation's largest combined commercial truck, school bus and mid-range diesel engine producer.” In press releases, International identified itself as a manufacturer.

         The government moves for summary judgment on liability, Navistar International moves for summary judgment, and the defendants move to strike a section of the government's reply brief and to supplement the record.

         II. Legal Standard

         Summary judgment should be granted when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). A genuine issue of triable fact exists only if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Pugh v. City of Attica, Ind., 259 F.3d 619, 625 (7th Cir. 2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

         When considering the government's motion for summary judgment, I view the facts in the light most favorable to the defendants, and when considering International's cross-motion, I view the facts in the light most favorable to the government. See First State Bank of Monticello v. Ohio Cas. Ins. Co., 555 F.3d 564, 567 (7th Cir. 2009).

         III. Discussion

         Title II of the Clean Air Act requires the EPA to set out standards regulating the emission of air pollutants from any class of new motor engines. 42 U.S.C. § 7521(a)(1). The EPA regulates air pollutants which “may reasonably be anticipated to endanger public health or welfare.” Id. The government's theory of liability arises under § 203(a) of the act, which requires an engine manufacturer to obtain a Certificate of Conformity that verifies that an engine complies with the EPA's air pollutant regulations. To establish a violation of § 203(a), the government must prove that (1) the defendant is a “manufacturer of new motor vehicle engines, ” (2) the defendant distributed in commerce, sold, offered for sale, introduced or delivered for introduction into commerce the engines or caused one of those acts to occur, and (3) the engines were not covered by a certificate. See 42 U.S.C. § 7522.

         Navistar challenges whether the United States can show the third element of § 203(a), arguing that all of the Subject Engines were covered by a Model Year 2009 certificate. Navistar International challenges whether any of the three elements apply to it, arguing it is merely a passive holding company that neither manufactures nor distributes engines.

         A. The Government's Motion for Summary Judgment

         The question of Navistar's liability turns entirely on the question of whether an engine that was not fully assembled by the end of 2009 could still be covered by a 2009 certificate. Navistar never obtained a Model Year 2010 certificate for the Subject Engines. The accompanying regulations to the EPA's air pollutant program state that “[E]ngines produced after December 31 of the calendar year for which the ...


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