Five Companies Whose Litigation Could Affect Their Bottom Line

Litigation isn’t something that anyone wants. This is particularly true for publicly-traded companies whose stock price could be dramatically affected. Even the hint of bad news in the press can send a stock spiraling. Having a lawsuit filed against your company is, indeed, a great way to devalue your stock price.

Of course, in many cases, litigation is just par for the course for businesses. But there are still lawsuits that come up that will affect anyone’s bottom line. Year after year, lawsuits surface at the most inopportune times for some companies, and 2017 is no different. We’ll just talk about a few of these companies below. Some of them are in the midst of litigation while others have just awarded huge settlements. In any event, you can expect them to take somewhat of a financial toll in the coming year.

1. Volkswagen

It’s no secret that Volkswagen (VLKAY) underwent a very public emissions fraud scandal beginning in September 2015. Essentially, the German car manufacturer equipped 11 million diesel-powered vehicles worldwide with what were known as “defeat devices.” This software essentially allowed the car to recognize when it was being given an emissions test and to fraudulently produce emissions that passed the test. In reality, the cars were producing emissions that far exceeded the legal limit.

When the U.S. Environmental Protection Agency (EPA) discovered this irregularity, VW’s stock dropped precipitously (a full 50%), and it posted its first quarterly loss in 15 years. Over the course of the following year and a half, Volkswagen’s stock has rebounded, but it’s again coming up against some logistical and litigious road blocks.

For starters, the company paid $4.3 billion in January of this year to settle the U.S. Justice Department’s criminal and civil case against them, which is on top of the $14.7 billion it doled out for civil claims and the $1.2 billion for Volkswagen and Audi dealerships. Oliver Schmidt, a VW executive was also arrested that month by the FBI, and five other executives were charged with fraud.

There also appears to be no end in sight for Volkswagen as the focus of the case shifts to European shores. In March 2017, over 35,000 owners of VW, Audi, Seat, and Skoda automobiles joined a class-action suit in the United Kingdom. The matter is due to be debated in European courts for years to come, which means a steady stream of bad press and multimillion-dollar settlements for the manufacturer.

2. Wells Fargo

Wells Fargo (WFC) is also no stranger to recent scandals and litigation. In September 2016, the big bank was hit with a $185-million fine by the Consumer Financial Protection Bureau for opening as many as 2 million unauthorized sham accounts to meet sales quotas. On March 28, Wells Fargo settled a class-action lawsuit worth $110 million.

That same day, the U.S. Office of the Comptroller of the Currency (OCC) downgraded the company’s rating from “outstanding” to “needs to improve.” Both of these blows occurring on the same day is sure to hit Wells Fargo hard. In fact, its stock price dipped significantly after the announcement of the settlement and the OCC’s rating demotion. Although Wells is one of the most prominent banks in the United States, this scandal is clearly going to affect its bottom line.

3. Johnson & Jonson

Johnson & Johnson (JNJ) is no stranger to lawsuits. Some of the most recent litigation includes a $1 billion jury award in a hip implant case, and another filed in February 2017 over leaking breast implants. However, it is one of Johnson & Johnson’s non-medical products that is causing concern for the company.

The company has recently been ordered to pay nearly $200 million in damages from several jury verdicts related to lawsuits over baby powder. The claim is that prolonged use of the product, which contains talc (an ingredient linked to the carcinogenic asbestos), can cause ovarian cancer in women. The first two major awards came in at $72 million and $55 million respectively.

These amounts may not seem like much, but there are more than 2,500 cases pending related to these claims. Even Bloomberg Businessweek reported that J&J has a “baby powder problem.”

More recently, Johnson & Johnson received a small victory when a jury refused to award damages in a similar case. The company is appealing prior rulings but it could mean a huge hit to J&J’s bottom line if all are upheld and the other thousands are allowed to move forward.

4. Tesla

Tesla (TSLA) is the subject of several new and incipient lawsuits. In late February, the company was hit with a lawsuit by a female engineer claiming a culture of “pervasive harassment.” The claim suggests that women who work at Tesla are often targets of sexual harassment and are not given equal pay compared to their male counterparts who do the same type of work.

In mid-March, it was announced that Tesla may become the target of a class-action lawsuit alleging that it exaggerated the self-driving features of its Autopilot 2 vehicle. The law firm heading the suit, Hagens Berman, is also responsible for class-action suits against Volkswagen for its above-mentioned emissions scandal.

A third lawsuit against Tesla alleges that the company and its employees often engaged in and permitted racial harassment and discrimination in the workplace. Although Tesla denies all of these claims, there’s no doubt that the company’s public image may be marred and its revenue streams diminished.

5. Galena Biopharma

Galena Biopharma (GALE) is a pharmaceutical company that may not have the same name recognition as the other companies on this list. Nevertheless, it’s got some litigation coming in the pipeline that could spell trouble for its future.

A class-action lawsuit is being organized for current or former shareholders of Galena Biopharma stock. The suit alleges that the company made a variety of misleading or outright false claims about its product, Abstral. Last year, the company disclosed that two physicians were the subject of a criminal investigation in relation to making false claims about Abstral.

Earlier this year, President and CEO of Galena, Mark Schwartz, resigned due to the brewing scandal. It’s clear that the company stands to lose a lot if it is indeed found to be at fault.

Disclosure: I have no positions in any stocks mentioned.  I am not receiving compensation for this article. I have no business relationship with any company whose stock is mentioned in this ...

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Barry Hochhauser 7 years ago Member's comment

I was certainly familiar with the $WFC and $VLKAF fiascos, but the rest of these were news to me. Thanks for making me aware.