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Caterpillar Faces Class Action

If a marine engine manufacturer reworks the design of an essential component of its cooling system eight times in 10 years, is this merely an exercise in “quality improvement” or does it mean the component, in this case the aftercooler, is defective?

This question is central to a class action lawsuit filed in January against marine engine giant Caterpillar on behalf of owners of 1996 and newer C-12 and 3196 engines. Included are an unspecified number of other Caterpillar turbocharged marine diesel engine models. Over the years, these units have been equipped with eight different aftercooler designs all of which, the plaintiffs say, crack, leak water and cause corrosion of internal engine parts.

Over 7,000 of the engines in question have been produced since 1996 and lawyers say damages could exceed $100 million, potentially making this one of the largest class action lawsuits involving a recreational boating product.

Turbochargers compress air to increase efficiency and power output. Aftercoolers are radiators between the turbocharger and the engine that act to reduce the temperature of the compressed air to prevent premature fuel ignition. Records show that Caterpillar developed designs for the components and contracted with at least one aftercooler manufacturer to produce them to their specifications.

The lawsuit also alleges that Caterpillar failed to live up to its warranty obligations for engines equipped with the aftercoolers and that the warranty itself fails to protect consumers who own the engines.

“This case is not just about [one boat owner], but rather about thousands of individuals who have been harmed by the actions of Caterpillar, thousands of individuals who can best be represented through the class action,” plaintiff’s attorney David H. Fink told the court.

Caterpillar denies that the aftercoolers are defective and said it intends to appeal the decision of the U.S. District judge in Michigan who certified the class action.

“We contest the allegations in this case and we have requested an appeal of the [class] certification decision,” said Anne Leanos, a spokesperson for Caterpillar. “We will continue to defend the case vigorously.”

The lawsuit was filed by BoatU.S. member and Detroit construction company owner James Jaikins, who states that a defective aftercooler on his C-12 engine caused his 2003 Riviera 48 motoryacht to break down in the Atlantic Ocean about 200 miles off Florida.

The company contends that Jaikins cannot represent owners of engines equipped with aftercooler versions different from the ones installed on his boat. One of the requirements of a class action is that the plaintiff must show his claims are typical of the claims of the entire class.

Attorneys for the boat owner counter that the aftercoolers on Jaikins’s engines are part of an ongoing effort by Caterpillar to correct an endemic flaw. In other words, Jaikins’s engine breakdowns are part of a repair continuum, rather than unique to him.

Although Caterpillar gave Jaikins one 3196 engine and two C-12 models at no cost, he contends that all three contain defective aftercoolers and he has no guarantee that failures of the same type won’t happen again.

Jaikins states that his engines are not working properly now and, even if they were, Fink says the boat owner “is tremendously out-of-pocket for a lot of other damages and issues.”

Caterpillar’s attorneys blame the failures on the boat owner, saying he overloaded his engines. In a statement to the court, they argued that Jaikins was operating his “engines at a significantly overloaded condition. And by doing that, he has been damaging the engines and causing wear on the parts.”

Attorneys for Caterpillar acknowledge in court documents that their marine engines have been fitted with eight different aftercooler designs. But, the company denies any of these have inherent defects.

Although Caterpillar changed the design of the aftercooler eight times since 1996, John A.K. Grunert, the engine maker’s attorney, told the court the changes were “merely improvements in the aftercooler[s] because Caterpillar was dissatisfied with their useful lives.” The design changes were “quality improvements,” he said.

Court documents show that the first aftercooler iteration (part 138-2571) was in production from September 1996 to May 1998. Two versions of the second aftercooler (part 161-9898-1 and part 161-9898-2) were in production from May 1998 to May 2001. The third aftercooler (part 210-5631) was in production from May 2001 to January 2002. The aftercooler currently in use (part 216-5147) has had four versions to date. This is the model installed on Jaikins’s engines.

The manufacturer of one of the aftercooler iterations disagreed with Caterpillar regarding its adequacy for its intended use, according to court documents.

In a memo the aftercooler manufacturer sent to Caterpillar that was filed with the court, they said they were “not convinced that this new aftercooler is going to work,” Fink told the court. There were multiple concerns. Reading from the document, he told the court, “The change to the containment unit [i.e., the aftercooler’s shell] may have a negative effect with respect to vibration and would induce stress.” The document refers to “inadequate evaluation” and states, “In addition, we are concerned with the evidence we have seen that indicates the tubes on some of the failed units were not receiving sufficient water during operation,” Fink told the court.

Countered Grunert, “The truth is that those first three iterations of aftercoolers did not have the durability or robustness that Caterpillar liked.

“There were more of them failing at an earlier time than Caterpillar liked,” Grunert told the court, “and so Caterpillar wanted to improve them, but they were not defective across the board.”

The Caterpillar aftercooler problem has been “dock talk” for years and a hot topic on Web sites like boatdiesel.com. Jaikins and dozens of other boat owners — including 21 who reported similar failures to BoatU.S. — say that the aftercoolers cause engines to lose power, overheat, emit clouds of heavy soot and, in Jaikins’ case, spray hot engine oil inside the boat.

“The whole engine is a catastrophic bomb,” Jaikins claims.

In addition to the C-12 and 3196 models named in the lawsuit, BoatU.S. records include reports of aftercooler and related failures from owners of 1996 and newer Caterpillar 3116, 3126 and 3208 engines.

Boat owners also say the devices cannot withstand the vibration that occurs when these particular Caterpillar engines are operating. Some, including Jaikins, say the vibration is strong enough to cause engine mounting bolts to shear.

BoatU.S. records show that Caterpillar’s response to consumer complaints ranged from blaming breakdowns on owner misuse or inadequate maintenance to providing replacement engines at reduced or no cost.

Meanwhile, according to court documents, the company has handled at least 4,400 warranty claims related to aftercoolers on an estimated 4,600 model 3196 engines built since 1996. Another Caterpillar document describes “concern that failure rate is near 80% to 90% on about 4,000 engines” and recommends, “Rework entire field population.”

Caterpillar argues the high number of warranty claims is a result of Caterpillar asking dealers to invite owners to bring their yachts in for inspection “even if they weren’t having problems.”

What the plaintiffs call a “secret warranty” campaign, Caterpillar calls a “product support program.”

When questioned by the judge, however, Grunert said that letters were never sent directly to owners.

“Caterpillar routinely issues letters to the dealers because it’s only the dealer who knows who the owners are,” Grunert said. “Caterpillar’s contracts with its dealers require them to disseminate these types of letters.”

BoatU.S. obtained copies of one service bulletin and a “product support” letter sent to Caterpillar dealers describing necessary repairs to correct aftercooler problems. It does not include instructions for dealers to actively contact engine owners.

Federal laws require boat manufacturers to make a “reasonable effort” to maintain records of first owners, but there is no requirement to track subsequent owners. Initiating a safety defect recall campaign involving a diesel engine would require proof that the power plant contains a defect that creates a “substantial risk of personal injury,” which is generally defined as a defect that occurs without warning and causes traumatic injury, property damage or fatality.

Documents related to the class action show that no other lawsuits have been filed against Caterpillar. The company has, however, reached “pre-suit” settlements in 13 instances to head off court cases. At least nine of these settlements were secret or confidential. Settlements where the records are open include engine replacements costing boat owners anywhere from $12,000 to $25,000 per engine. The engines retail for $50,000 to $60,000 each.

Owners of 1996 and newer Caterpillar 3196 and C-12 engines, or other models equipped with the specified aftercoolers, are automatically included in the class action. That means that the owners will share equally in whatever settlement might be reached if the case goes to trial.

Participation in the class action means that plaintiffs are not permitted to file individual lawsuits if they are dissatisfied with the outcome of the case. Engine owners who do not want to participate must opt out of the class in writing.

For more information about the lawsuit, engine owners can contact plaintiffs’ attorney H. Nathan Fink, Fink & Moss PC, 40900 Woodward Ave., Ste. 111, Bloomfield Hills, MI 48304, telephone 248-642-5400.

Caterpillar owners who have had problems with their engines should report their experiences to the BoatU.S. Consumer Protection Bureau, consumerprotection@boatus.com.

(c) Copyright BoatU.S. Magazine, May 2007

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