A unit of Caterpillar Inc. has agreed to pay a $5 million criminal fine to settle charges that it cheated customers by performing unnecessary repairs of freight cars.
United Industries, part of Caterpillar’s Progress Rail Services unit, pleaded guilty on Thursday to a misdemeanor count of depositing refuse in navigable waters. According to a court document, employees at a facility in Southern California dumped railcar parts into the ocean to hide evidence of the improper repairs from inspectors.
The company will also pay restitution of $20 million to three railcar-owning customers — TTX Co., Greenbrier Cos., and the Pacer International unit of XPO Logistics.
United Industries “employees would remove functioning parts on the railcars (known as ‘green parts’) and replace them with new or reconditioned parts, even though the parts that were removed did not meet the applicable criteria for replacement,” the court document, filed jointly by the Department of Justice and United, said.
Caterpillar first disclosed in November 2013 that it was the subject of a criminal investigation of charges related to its inspections and repairs of railroad cars. The dumping allegedly occurred in 2008 and 2009 while it operated the Terminal Island repair facility.
According to The Wall Street Journal, workers smashed brake parts with hammers, gouged wheels with chisels or used chains to yank handles loose in order to increase revenue by making repairs.
When police officers conducted dives near the repair facility, they found “what they described as a ‘large debris field’ containing railcar parts, including roller bearing adapters, roof liners, and brake shoes,” according to court papers.
A Federal Railroad Administration inspector who examined the parts recovered by the dive team determined that only one of the brake shoes showed signs that it would have needed replacement.
“The fine and restitution are modest for a large company like Caterpillar, but the case represents a blow to its reputation for quality service,” the Journal said.