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Sun, Nov 04, 2007

Appeals Court Rules Lycoming Committed Fraud In Crankshaft Case

Court Set Aside Previous $96 Million Damage Award

The Fourteenth Court of Appeals in Houston, TX handed down a decision this week in an aviation fraud case involving Lycoming engines division, upholding key components of the jury's verdict while setting aside the damages award because the damages were not recoverable by Texas law.

In 2005, a jury in Grimes County, TX found the Lycoming engines division of Providence, RI-based Textron liable for fraud, and ordered the company to pay approximately $96 million to Navasota, TX-based Interstate Southwest Ltd., according to the company.

Later Lycoming launched a countersuit in its home state of Pennsylvania, asking indemnity of $173 million.

In its decision, the court upheld the jury's finding the crankshaft failures were caused solely by a defect in Lycoming's design, and also held that the contract provision under which Lycoming sought indemnity was unenforceable.

"The important thing to remember is that we defeated Lycoming's $173 million claim, and that's still true," says Marty Rose of Rose Walker, L.L.P., lead counsel for Interstate Southwest. "And it's still true that the jury found Lycoming committed fraud."

Between 2000 and 2002, there were 24 failures and 12 deaths in Cessnas, Pipers and other airplanes equipped with Lycoming engines. Interstate Southwest supplied Lycoming with the crankshaft forgings for those engines.

Lycoming blamed Interstate for the failures, but testing by Interstate's legal team showed the trouble was a defect in Lycoming's own design for the crankshafts.

The 2005 jury also found Lycoming committed fraud on Interstate, and awarded Interstate nearly $10 million in actual damages and another $86 million in exemplary damages. The trial court later entered judgment for the full $96 million which the recent decision ruled un-recoverable.

The courtroom victory by the appellate court effectively nullified Lycoming's $173 million counterclaim.



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