A New York judge reduced a $193 million verdict against a subsidiary of Pentair Inc.
The judge overturned $135 million of the original amount that a jury had awarded to Celebrity Cruises. The judge also agreed with the defendant’s request for a new trial in regard to the remaining $47.6 million.
“We are gratified that our concerns about the jury verdict have been addressed by the court,” said Randall J. Hogan, Pentair chairman/CEO, in a statement.
The lawsuit followed a 1994 outbreak of Legionnaires’ disease that occurred on a cruise ship. Several passengers fell ill from the bacterium, and one person died.
The Centers for Disease Control and Prevention said that the Legionnella pneumophila bacteria was bred in a defective spa pump produced by Essef Corp., now owned by Sanford, N.C.-based Pentair Water Pool and Spa. According to the CDC, the filter didn’t backwash correctly, allowing the bacteria to breed and actually be protected from sanitized water. When Celebrity got the news, it had to terminate a trip midway, anchoring in Bermuda and making alternate arrangements to send the passengers back to New York.
Celebrity Cruises, now owned by Royal Caribbean Cruises Ltd. of Miami, sued Essef Corp., for damages. A key aspect of Celebrity’s case involved its claim that the extensive press coverage the incident received stigmatized the company, thus hurting profits and even causing the firm to lose value when it was sold in 1997.
Last year, a jury awarded Celebrity $193 million. The breakdown was $10.4 million for out-of-pocket expenses, $47.6 million for lost profits and $135 million in lost enterprise value — the reduction in price that Celebrity claimed it suffered. The judgment was the seventh largest in the nation in 2006, according to Bloomberg, a financial news outlet.
Pentair contested all of the awards except the out-of-pocket expenses. The manufacturer’s argument rested largely on the reliability of Celebrity’s expert witness, who predicted how much the cruise line would have made, and sold for, if not for the outbreak. Pentair also said that Celebrity did not sufficiently prove losses after 1995. It pointed out that the original Celebrity stockholders, who would have suffered the loss in profits and enterprise value, were not even named on the lawsuit.
The judge reversed the jury’s lost enterprise value decision and will allow a new trial on the lost-profits portion of the penalty. “Indeed, Celebrity’s officers and employees failed to link any specific lost bookings to the Legionnaires’ incident,” U.S. Magistrate Judge James Francis said.
The series of lawsuits began before Essef was acquired, and were significantly prolonged when the bulk of research conducted by Celebrity’s attorneys was destroyed in the Sept. 11, 2001, World Trade Center attacks.