U.S. Begins Suit Against Navistar

Navistar International Corp. sold off its money-losing Wisconsin Steel subsidiary to avoid paying multimillion-dollar pension benefits to workers, the government’s pension insurance agency contended Thursday as the trial began in its suit against Navistar.

The Pension Benefit Guaranty Corp. asked a federal judge to award it $140 million from Navistar to cover the unpaid benefits plus interest.

The long-awaited trial is considered an important test case to determine whether--and to what extent--a company can be forced to honor pension-plan obligations to workers.

Navistar faces two lawsuits resulting from the ill-fated 1977 sale of Wisconsin Steel to Envirodyne Inc., a Los Angeles-based engineering company with no previous steel-making experience.

The South Side Chicago steel mill went bankrupt eight years ago, putting 3,500 employees out of work and leaving the PBGC with the tab for unpaid benefits.

Company Confident

In an interview before presenting opening trial arguments Thursday, Navistar attorney Donald G. Kempf said the company welcomed its day in court.

“Navistar has wanted for a long time to vindicate itself in this case and with this trial it will do so,” Kempf said.

In his two-hour opening statement before U.S. District Judge James Moran, PBGC attorney William O. Bittman said company officials ignored recommendations from investment bankers that the sale was financially questionable because Envirodyne lacked the experience and funds to turn the steel company around.

Other steel companies showed no interest in buying Wisconsin Steel, Bittman said.

He said company officials were aware at the time the deal might lead to lawsuits if the steel company went bankrupt, but went ahead with the sale to Envirodyne in order to avoid $167 million in losses it faced by liquidating Wisconsin Steel.

“I think Navistar sold Wisconsin Steel to a buyer that they knew did not have the experience or the financial wherewithal to run the steel division in an economic way,” Bittman said in an interview Thursday.

“The reason they did it, was because the other alternative of liquidating the company would cost them too much money, even though they recognized that bankruptcy would be inevitable,” Bittman said.

Opening Arguments

Navistar denies duping Envirodyne into buying the steel company as part of a conspiracy to rid itself of the pension liabilities. It maintains that Wisconsin Steel went bankrupt due to a delay in promised government-backed financing for modernization, a strike against Navistar and deterioration in market and economic conditions.

Also Thursday, the judge in the non-jury trial heard opening arguments from attorneys for Wisconsin Steel creditors--including an Envirodyne unit, the EDC Holding Co.--who have filed a second separate lawsuit seeking triple damages of nearly $475 million from Navistar. The lawsuit alleges fraud and racketeering in the 1977 sale of the steel company.

Navistar, then known as International Harvester Co., in 1977 lent Envirodyne $50 million to finance the $65-million acquisition of Wisconsin Steel.

Navistar has already reached a $14.8-million out-of-court settlement with 2,700 former employees of the steel company.

The government and workers filed lawsuits against Navistar in 1981. EDC sued Navistar in 1982.

Navistar attorney Kempf denied Bittman’s argument that the Wisconsin Steel transaction lacked a reasonable chance of success.

He said the reason it did not succeed was “because of unforeseen factors that happened” three years after the sale.

The case adjourned late Thursday until Monday.