Trinity Industries wins appeal on highway guardrail system

by Talk Business & Politics staff ([email protected]) 364 views 

A transportation equipment company shouldn’t lose the $682 million it was expected to pay after winning an appeal in a case regarding a guardrail system it had redesigned without disclosing the changes.

The stock price of Trinity Industries was expected to rise 10% after winning the federal appeal, said Michael Baudendistel, transportation analyst for Stifel.

Trinity initially filed a lawsuit against a competitor that had started making a similar guardrail system, but in discovery, the competitor found out Trinity didn’t disclose the change it had made in the system and filed a False Claims Act lawsuit against the company. In October 2014, a jury took the competitor’s side, and in June 2015, the U.S. District Court for the Eastern District in Marshall, Texas, ruled Trinity must pay $682 million. On Sept. 29, the U.S. Court of Appeals for the Fifth Circuit reversed the ruling.

“We believe consensus expectations were that Trinity had a modest chance of successful appeal, and as such, we expect the stock to trade up sharply on the news,” Baudendistel said. “On the other hand, we believed the stock would be down more modestly, 5% or more, if the appellate court were to uphold the prior judgement.”

Trinity, which is the largest railcar manufacturer and one of the largest railcar leasing companies, started making the ET-Plus highway guardrail end terminal system in 2000. It was approved by the Federal Highway Safety Administration (FHWA), and in 2005, was redesigned, and the width of its guide channels was changed to about 4 inches, from 5 inches. Afterward, the new product was crash tested and approved by the FHWA, but the change wasn’t reported, according to Baudendistel. Trinity had argued the change was immaterial.