Cybex Loses Barnhard Appeal, Award Dropped to $44 Million

The $66 million product liability suit against Cybex International was upheld last week, but the court reduced the award to about $44 million. Cybex, Medway, MA, says it will appeal the decision to the Court of Appeals of the State of New York.

In December 2010, a jury in the Barnhard v. Cybex International case found Cybex negligent in a case in which Natalie Barnhard was left a paraplegic after a piece of Cybex equipment that she was stretching on fell on top of her. The jury granted her $66 million, of which Cybex was deemed 75 percent liable. Cybex appealed the decision, which was heard by the Appellate Division, Fourth Judicial Department, of the Supreme Court of the State of New York. Last week, that court upheld the original decision, but it did reduce the award amount by about $22 million.

The court panel reduced the award for past pain and suffering from $8 million to $3 million; future pain and suffering from $25 million to $9 million; and eliminated a $792,435 award for care of potential children. The award of $28.56 million for future medical expenses, $1.68 million for past medical expenses, $151,690 in past lost earnings and $1.79 million for future lost earnings were left intact.

“Cybex strongly believes that it was not at fault in the accident that is the basis of the plaintiff’s claims and that this case was wrongly decided as to liability,” John Aglialoro, chairman and CEO of Cybex, said in a statement. “In addition, while the company appreciates the decision of the court to reduce the judgment, we believe that the amount of damages represented by the reduced judgment continues to be overstated.”

Under New York law, Cybex is responsible for payment of the judgment but will seek reimbursement from the co-defendant, Amherst Orthopedic Physical Therapy PC, Buffalo, NY, of approximately 21 percent. Barnhard was employed by Amherst, which is also where the accident occurred. With reimbursement from Amherst and after insurance (of which Cybex has $4 million in coverage), Cybex would have a net liability of about $33 million. Cybex also must pay interest at the annual rate of 9 percent, which accrues on the modified judgment from the judgment date, according to the company.

Within 60 days of filing the appeal, Cybex expects a decision by the Court of Appeals on whether it will consider the case. If accepted, Cybex anticipates a ruling in 2012.

“The company is also exploring both ways to protect itself in the event the Court of Appeals does not accept the appeal for consideration and available alternatives to fund an ultimate resolution of the matter,” the company said in a statement released today.

Cybex is analyzing how the decision will affect the company’s fourth quarter and full year results. It will hold a conference call tomorrow at 4:30 p.m. ET to provide a business update on the matter.

In a letter to shareholders and supporters, Cybex CEO John Aglialoro wrote: “I, along with the rest of Cybex management, am extremely disappointed with this decision, believing it is not supported by the facts or the law and that Cybex was not negligent and is in no way responsible for this accident. Regardless, to Ms. Barnhard, we express our greatest sympathy and admire her courage in dealing with the tragedy resulting from the accident.”

Aglialoro continued by writing: “We cannot change the past, only what the future holds for Cybex. Once again, I want to emphasize to you, our shareholders and supporters, that Cybex is growing and flourishing and that our company is reputable and honest in its dealings and that our fitness products are the finest in the world—safe and effective. Our company’s financial position apart from this matter is healthier than ever and will get through this legal injustice one way or another.”

Cybex has had growth in its sales for the first three quarters of 2011. First quarter sales increased 19 percent to $31 million compared to first quarter 2010. The company also had a net profit in the first quarter of $0.4 million. Second quarter sales increased 18 percent to $32.6 million compared to second quarter 2010. However, the company reported a net loss of $0.6 million in second quarter 2011, mostly due to litigation charges in the Barnhard case. Net sales for third quarter 2011 were $33.5 million, an improvement from the $29.2 million in the same quarter the previous year. However, the company also had a net loss in third quarter 2011 of $0.3 million.

In addition, NASDAQ, which has threatened to delist Cybex from the stock exchange, granted Cybex extensions on deadlines to meet its requirements to continue to be listed. Cybex has until Jan. 2, 2012, to meet the requirement that its stockholder equity be a minimum of $10 million. The company has until March 12, 2012, to move its stock price above $1 and keep it there for a minimum of 10 consecutive trading days. Earlier in the month, Cybex presented a plan to NASDAQ on how it would meet these requirements. If it does not meet the requirements, it can be delisted from the NASDAQ Stock Market.

Cybex’s stock traded at under $1 per share for most of the year. After the ruling on the appeal Friday, the stock closed at 99 cents. Today, it opened at 54 cents.