34. Litigation and Compensation Claims
Continental AG and its subsidiaries are involved in lawsuits and regulatory investigations and proceedings worldwide. Such lawsuits, investigations and proceedings could also be initiated or claims asserted in other ways in the future.
In particular, Continental is constantly subject to product liability lawsuits and other proceedings in which the company could be accused of the alleged infringement of its duty of care, violations against warranty obligations or defects of material or workmanship, as well as to claims from alleged breaches of contract or product recalls and government fines. The pending claims include lawsuits in the U.S.A. for property damage, personal injury, and death caused by alleged defects in our products. Claims for material and immaterial damages, and in some cases punitive damages, are being asserted. The outcome of individual proceedings, which are generally decided by a jury in a court of first instance, cannot be predicted with certainty. No assurance can be given that Continental will not incur substantial expenses as a result of the final judgments or settlements in some of these cases, or that these amounts will not exceed any provisions set up for these claims. Some subsidiaries in the U.S.A. are exposed to relatively limited claims for damages from purported health injuries allegedly caused by products containing asbestos. The total costs for dealing with all such claims and proceedings have amounted to less than €50 million per year since 2006.
Proceedings relating to ContiTech AG
The proceedings regarding rescission and nullification by Phoenix AG shareholders brought against the resolutions adopted at the Shareholders’ Meeting of the company held on December 28, 2004, for approval of a management and profit and loss pooling agreement and the merger agreement with ContiTech AG and for confirmatory resolutions by the Annual Shareholders’ Meeting of Phoenix AG on May 19, 2005, have been substantively concluded since 2009. On September 16, 2011, the Hamburg Regional Court (Landgericht) ruled on the judicial review proceedings on the appropriateness of compensation and settlement under the management and profit and loss pooling agreement and the conversion ratio established in the merger agreement, ordering ContiTech AG to make additional payments. Continental is still of the opinion that the 2004 valuation of Phoenix AG and ContiTech AG was appropriate and that the compensation and settlement under the management and profit and loss transfer agreement as well as the conversion ratio in the merger agreement were established correctly. Appeals have therefore been filed. However, an increase in the amounts paid to the minority shareholders after the end of these proceedings cannot be ruled out.
The actions of rescission and nullification by shareholders of ContiTech AG against resolutions adopted at the Annual Shareholders’ Meeting of the company on August 22, 2007, regarding the approval of the conclusion of a management and profit transfer agreement between this company as the controlled company and ContiTech-Universe Verwaltungs-GmbH as the controlling company and regarding the squeeze-out of minority shareholders were concluded in 2009 by a dismissal which is final. Partial settlement agreements were entered in the records of the Hanover Regional Court (Landgericht) on May 2 and July 12, 2012, in the judicial review proceedings regarding the appropriateness of the settlement and compensation payment under the management and profit and loss pooling agreement and the settlement for the squeeze-out. Under these settlements, a payment of €3.50 plus interest per share on top of the exit compensation under the management and profit and loss pooling agreement was agreed, as was – merely declaratory – a higher compensatory payment under the management and profit and loss pooling agreement on account of the squeeze-out. On October 17, 2012, the Hanover Regional Court awarded additional payments of the same amount. Individual petitioners have filed appeals against these rulings with the Celle Higher Regional Court (Oberlandesgericht). These are still pending.
In 2007, the European Commission and the U.S. Department of Justice (DOJ) initiated their investigations into antitrust behavior in the marine hose market. The European Commission found Continental AG, ContiTech AG and Dunlop Oil & Marine Limited (DOM) liable – among other companies – for infringements of antitrust law. The proceedings of the European Commission and the DOJ, and of the authorities in other countries (Brazil, Japan, Australia, South Korea and Canada) against DOM for violations of their respective national antitrust law have since all been concluded and, like the case in Canada, will not be pursued further. DOM is still facing claims for damages from third parties due to the infringement of antitrust law as a result of the marine hose cartel. Class actions in the U.S.A. were settled. A claim brought before the British High Court was also settled. However, further claims are still possible in the U.K. and other countries (e.g. Japan, South Korea, Australia and Brazil).
In May 2005, the Brazilian antitrust authorities opened investigations against Continental’s Brazilian subsidiary Continental Brasil Indústria Automotiva (CBIA), Brazil, following a complaint by a third party of alleged anti-competitive behavior in the area of the commercialization of tachographs. On August 18, 2010, the Brazilian competition authorities determined an “invitation to cartel” and imposed a fine of BRL 12 million (around €4.5 million) on CBIA, which was then reduced to BRL 10.8 million. CBIA refutes the accusation. However, an appeal filed against this ruling with the competent court was unsuccessful in the first instance and is now pending at the next higher court. In addition, third parties may claim damages from CBIA resulting from the infringement of Brazilian antitrust law.
On October 2, 2006, the South African antitrust authorities received a complaint from a third party accusing several South African tire manufacturers of alleged antitrust behavior, including Continental Tyre South Africa (Pty.) Limited (CTSA), a company that is 74% owned by Continental. On August 31, 2010, the South African antitrust authorities came to the conclusion that CTSA and other companies had violated South African antitrust law and referred the matter to the competent Competition Tribunal for a decision. CTSA denies all allegations of infringements of South African antitrust law. However, the tribunal could impose a fine of up to 10% of CTSA’s sales. In addition, third parties may claim damages from CTSA resulting from the infringement of South African competition law.
On October 5, 2007, the antitrust authorities for the Basque Country, Spain, received a complaint from a third party against Continental Automotive Spain, S.A. (CAS) due to alleged anticompetitive behavior in tachograph business. After investigation by the antitrust authorities, the Basque antitrust court sentenced CAS to a fine of €700,000 on January 20, 2010. On appeal by CAS, the Basque High Court reduced the fine to €150,000 on December 20, 2011. A third party has claimed damages.
On February 24, 2010, the European Commission conducted searches at several companies that manufacture wiring harnesses for automotive purposes, including S-Y Systems Technologies Europe GmbH (S-Y), Regensburg, Germany (see also Note 37). The European Commission announced that it has indications that the companies in question have violated EU antitrust law. Insofar as the European Commission determines that S-Y or Continental can be accused of antitrust behavior, it could impose a fine based on the severity and the duration of the violations not to exceed 10% of the previous year’s sales of the participating company. Even if the European Commission determines that only S-Y exhibited antitrust behavior, it cannot be ruled out that the parent companies may be included in the fine due to joint and several liability.
On October 24, 2012, Continental Automotive Systems US, Inc., Auburn Hills, Michigan, U.S.A., received a subpoena from the U.S. DOJ to submit certain documents in connection with the suspected involvement in violations of U.S. antitrust law in instrument cluster business. On October 25, 2012, the South Korean antitrust authorities searched Continental Automotive Korea Ltd., Seongnam-si, South Korea, in connection with the suspected involvement in violations of South Korean antitrust law in instrument cluster business. It remains to be seen whether and in what amount the South Korean antitrust authorities or the DOJ will impose fines against Continental Automotive Korea Ltd., Continental Automotive Systems US, Inc., or other companies in the corporation. Should the South Korean antitrust authorities find that Continental Automotive Korea Ltd. has violated antitrust law, they could impose a fine of up to 10% of the relevant sales in South Korea against the company. The DOJ can impose a maximum fine of U.S. $100 million unless this amount is exceeded by double the company’s profits or the losses suffered by customers of the cartel. Claims for damages by alleged victims would remain unaffected by any fines imposed.
A large number of employees at Continental France SNC, Sarreguemines, France, have filed claims at industrial tribunals in Compiègne and Soissons, France, against this corporation company and, in some cases, against Continental AG as well. The plaintiffs seek damages in connection with the cessation of passenger tire production at the plant in Clairoix, France. Continental considers these actions unfounded but cannot rule out that a court will award the plaintiffs damages.