ITEM 3. Legal Proceedings
The information in Item 3 included in the Original Filing has not been updated
for information or events occurring after the date of the Original Filing and
has not been updated to reflect the passage of time since the date of the
Original Filing.
OVERVIEW
Various legal actions, governmental investigations and proceedings and claims
are pending or may be instituted or asserted in the future against us and our
subsidiaries, including, but not limited to, those arising out of the following:
alleged defects in our products; governmental regulations covering safety,
emissions and fuel economy; financial services; employment-related matters;
dealer, supplier, and other contractual relationships; intellectual property
rights; product warranties; environmental matters; shareholder and investor
matters; and financial reporting matters. Some of the pending legal actions are,
or purport to be, class actions. Some of the foregoing matters involve or may
involve compensatory, punitive or antitrust or other multiplied damage claims in
very large amounts, or demands for recall campaigns, environmental remediation
programs, sanctions or other relief that, if granted, would require very large
expenditures. We regularly evaluate the expected outcome of product liability
litigation and other litigation matters. We have accrued expenses for probable
losses on product liability matters, in the aggregate, based on an analysis of
historical litigation payouts and trends. We have also accrued expenses for
other litigation where losses are deemed probable and reasonably estimable.
These accruals are reflected in our financial statements.
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ITEM 3. Legal Proceedings (continued)
Following is a discussion of our significant pending legal proceedings:
PRODUCT LIABILITY MATTERS
Asbestos Matters. Asbestos was used in brakes, clutches and other automotive
components dating from the early 1900s. Along with other vehicle manufacturers,
we have been the target of asbestos litigation and, as a result, we are a
defendant in various actions for injuries claimed to have resulted from alleged
contact with certain Ford parts and other products containing asbestos.
Plaintiffs in these personal injury cases allege various health problems as a
result of asbestos exposure, either from component parts found in older
vehicles, insulation or other asbestos products in our facilities, or asbestos
aboard our former maritime fleet. The majority of these cases have been filed in
state courts.
Most of the asbestos litigation we face involves mechanics or other individuals
who have worked on the brakes of our vehicles over the years. In most of the
asbestos litigation we are not the sole defendant. We believe we are being more
aggressively targeted in asbestos suits because many previously targeted
companies have filed for bankruptcy. We are prepared to defend these
asbestos-related cases and, with respect to the cases alleging exposure from our
brakes, believe that the scientific evidence confirms our long-standing position
that mechanics and others are not at an increased risk of asbestos-related
disease as a result of exposure to the type of asbestos formerly used in the
brakes on our vehicles.
The extent of our financial exposure to asbestos litigation remains very
difficult to estimate. The majority of our asbestos cases do not specify a
dollar amount for damages, and in many of the other cases the dollar amount
specified is the jurisdictional minimum. The vast majority of these cases
involve multiple defendants, with the number in some cases exceeding one
hundred. Many of these cases also involve multiple plaintiffs, and we are often
unable to tell from the pleadings which of the plaintiffs are making claims
against us (as opposed to other defendants). Our annual payout and related
defense costs in asbestos cases had been increasing between 1999 and 2003. In
2005, these costs were about the same as in 2003 and 2004; however, they may
become substantial in the future.
The United States Congress continues to consider proposals to reform asbestos
litigation. The leading proposal would create a trust fund from which eligible
asbestos claimants would be compensated and would preclude, during the life of
the trust, litigation in the United States based on exposure to asbestos. The
trust fund would be funded by asbestos defendants (including us) and the
insurance industry. These funds would be used to pay eligible claimants (i.e.,
those who satisfy specific medical criteria and can adequately demonstrate
occupational exposure to asbestos) according to a specified schedule. If
legislation is enacted creating such a trust fund, we would likely be required
to make substantial contributions to the fund over a specified period of time,
resulting in our incurring a charge in the amount of the present value of such
anticipated contributions in the period in which the legislation becomes
effective. We cannot predict whether or in what form the legislation will be
enacted or the costs associated with such enactment.
ENVIRONMENTAL MATTERS
General. We have received notices under various federal and state environmental
laws that we (along with others) may be a potentially responsible party for the
costs associated with remediating numerous hazardous substance storage,
recycling or disposal sites in many states and, in some instances, for natural
resource damages. We also may have been a generator of hazardous substances at a
number of other sites. The amount of any such costs or damages for which we may
be held responsible could be substantial. The contingent losses that we expect
to incur in connection with many of these sites have been accrued and those
losses are reflected in our financial statements in accordance with generally
accepted accounting principles. However, for many sites, the remediation costs
and other damages for which we ultimately may be responsible are not reasonably
estimable because of uncertainties with respect to factors such as our
connection to the site or to materials there, the involvement of other
potentially responsible parties, the application of laws and other standards or
regulations, site conditions, and the nature and scope of investigations,
studies, and remediation to be undertaken (including the technologies to be
required and the extent, duration, and success of remediation). As a result, we
are unable to determine or reasonably estimate the amount of costs or other
damages for which we are potentially responsible in connection with these sites,
although that total could be substantial.
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ITEM 3. Legal Proceedings (continued)
St. Louis Assembly Plant Enforcement Action. In 2005, the Department of Justice
("DOJ") advised us that the EPA had referred to it for civil enforcement a
matter regarding refrigerants used in several types of process equipment at our
St. Louis Assembly Plant. The referral is based on the EPA's belief that the
plant did not comply with all of the Clean Air Act's recordkeeping, testing, and
repair requirements related to process equipment with regulated refrigerants. We
are fully cooperating with the DOJ to resolve this matter, and continue to
negotiate a resolution.
Woodhaven Stamping Plant Letter of Violation. In 2005, the Michigan Department
of Environmental Quality ("DEQ") issued a letter of violation to Ford's
Woodhaven Stamping Plant alleging that the facility had failed to properly
report emissions from boilers and space heaters, and that the facility had
failed to apply for a Title V permit as required by Michigan law. We are fully
cooperating with the DEQ to resolve this matter, and continue to negotiate a
resolution.
Edison Assembly Plant Concrete Disposal. During demolition of our Edison
Assembly Plant, we discovered very low levels of contaminants in the concrete
slab. The concrete was crushed and reused as fill material at several different
off-site locations. The New Jersey Department of Environmental Protection
("DEP") now asserts that some of these locations may not have been authorized to
receive the waste. We are fully cooperating with the DEP to resolve this matter,
and continue to negotiate a resolution.
CLASS ACTIONS
The following are actions filed against us on behalf of individual plaintiffs
and all others similarly situated (i.e., purported class actions). In light of
the fact that very few of the purported class actions filed against us in the
past have ever been certified by the courts as class actions, the actions listed
below are limited to those (i) that have been certified as a class action by a
court of competent jurisdiction (and any additional purported class actions that
raise allegations substantially similar to a certified case), and (ii) that, if
resolved unfavorably to the Company, would likely involve a significant cost.
Explorer Class Actions. A state court in Illinois certified a statewide class of
purchasers and lessees of 1991-2001 Ford Explorers equipped with Firestone ATX
or Wilderness tires who have not experienced any problems with either the tires
or the vehicles (Rowan v. Ford Motor Company). The complaint alleges that
Explorers are unstable and that the Firestone tires are defective. Plaintiffs
claim that the value of the vehicles was diminished because of the alleged
defects and seek unspecified actual and compensatory damages and other relief.
Trial is anticipated in late 2006 or 2007.
A state court in California certified a statewide class of purchasers and
lessees of 1990-2000 Ford Explorers (Gray v. Ford Motor Company and four
coordinated cases). The complaint alleges that Explorers are unstable and that
Ford concealed information about them. Plaintiffs seek relief similar to that
sought in Rowan. Trial is scheduled for late 2006.
There are also 16 purported statewide class actions pending in several states,
raising allegations similar to those raised in Rowan and in Gray, and seeking
similar relief. Bridgestone-Firestone, Inc. ("Firestone") was a co-defendant in
most of these cases, but settled all claims against it in these cases. The only
remaining claims in these cases are based on the Explorer's alleged rollover
propensity.
Paint Class Actions. A state court in Madison County, Illinois certified a
nationwide class of owners of 1989-96 model year vehicles that have experienced
paint peeling. Plaintiffs contend that their vehicles' paint is defective in
that there was a substantial risk of topcoat or clearcoat delamination, and that
Ford failed to disclose that risk. Plaintiffs seek unspecified compensatory
damages (in an amount to cover the cost of repainting their vehicles and to
compensate for alleged diminution in value), punitive damages, attorneys' fees
and interest. Trial is scheduled for late 2006.
Crown Victoria Police Interceptor Class Actions. State courts in Illinois and
Louisiana certified statewide classes of state and local governments that
purchased or leased Crown Victoria Police Interceptors. The complaints allege
that the vehicles are defective in that fires can occur when the vehicles are
struck in the rear at high speed, and seek modifications to the fuel systems and
other relief, including punitive damages. Trial in the Illinois case during 2004
(St. Clair County v Ford Motor Company) resulted in a defense verdict on all
counts submitted to the jury, from which plaintiffs have appealed; three counts
remain pending for decision by the trial judge. Our appeal from the class
certification order in Louisiana is pending. A class certification order granted
in Florida in 2004 was reversed on appeal in April 2005.
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ITEM 3. Legal Proceedings (continued)
There are also 12 purported statewide class actions pending in several states
which claim to represent state and local governments that purchased or leased
Crown Victoria Police Interceptors, as well as six purported class actions
relating to non-police Crown Victoria vehicles. These suits raise allegations
similar to those raised in St. Clair County, and seek similar relief.
Hydroboost Truck Brake Class Action. A state court in Oklahoma certified a
nationwide class of all purchasers of 1999-2002 F-250, F-350, F-450, and F-550
Ford Super Duty Trucks and 2002 Excursions with hydroboost hydraulic braking
systems. The complaint alleges that these trucks are unsafe because they suffer
diminished power assist to the steering when the driver is simultaneously
braking and steering. The complaint alleges breach of warranty and fraud, and
seeks the cost of retrofitting the trucks to eliminate the alleged danger,
compensation for diminished resale value, and other amounts. NHTSA investigated
a similar issue and closed the investigation, finding that "diminished steering
assist while braking is present" in these trucks, but that the "associated
injury and property damage incidents are so rare that they do not present a risk
to vehicle safety." Trial is scheduled for 2007.
OTHER MATTERS
SEC Pension and Post-Employment Benefit Accounting Inquiry. On October 14, 2004,
the Division of Enforcement of the Securities and Exchange Commission ("SEC")
notified us that it was conducting an inquiry into the methodology used to
account for pensions and other post-employment benefits. We are one of several
companies to receive a request for information as part of this inquiry. We are
cooperating with the SEC in providing the information requested.