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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2017
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Legal Contingencies From time to time, the Company is a party to legal proceedings and potential claims arising in the ordinary course of business. Despite the inherent uncertainties of litigation, management believes that the ultimate disposition of such proceedings and exposure, after taking into account recorded accruals and the availability and limits of insurance coverage, will not have a material adverse impact on its results of operations. The legal matters discussed below and others could result in losses, including damages, fines, civil penalties and criminal charges, which could be substantial. The Company records accruals for these contingencies to the extent the Company concludes that a loss is both probable and reasonably estimable. The Company also records an accrual for legal fees related to these contingencies. Regarding the matters disclosed below, unless otherwise disclosed, the Company has determined that liabilities associated with these legal matters are reasonably possible; however, unless otherwise stated, the liabilities cannot be reasonably estimated. Given the nature of the litigation and investigations and the complexities involved, the Company is unable to reasonably estimate a possible loss for all such matters until the Company knows, among other factors:
• | What claims, if any, will survive dispositive motion practice;
• | The extent of the claims, particularly when damages are not specified or are indeterminate;
• | How the discovery process will affect the litigation;
• | The settlement posture of the other parties to the litigation; and
• | Any other factors that may have a material effect on the litigation or investigation.
However, the Company could incur judgments, enter into settlements or revise its expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on the Company's results of operations in the period in which the amounts are accrued and/or liquidity in the period in which the amounts are paid. Carl Trent, Kenneth Trent, and CKT Holdings, Inc. vs. 3PI and the Company On October 24, 2014, the Trents filed a complaint in Circuit Court in Walworth County, Wisconsin against the Company and its subsidiary, 3PI, asserting that the Company breached their employment contracts and seeking declaratory judgment with regard to the stock purchase agreement entered into by and between the Company and the Trents on April 1, 2014 relating to the Company's acquisition of 3PI. As part of the Trents’ claim for breach of their employment agreements, they sought damages of between $0.5 million and $1.0 million. As part of the Trents’ claim for declaratory judgment, the Trents sought judgment against the Company obligating the Company to calculate and issue certain accelerated payments and an earn-out described in the stock purchase agreement. On April 24, 2015, together with 3PI, the Company filed an amended answer and affirmative defenses to the complaint, along with a counterclaim against the Trents alleging that they had breached their employment contracts, fraudulently induced the Company to enter into the employment agreements, breached their fiduciary duties, converted 3PI property and confidential business information, conspired to interfere with and steal 3PI’s confidential and proprietary business information, and misappropriated trade secrets belonging to 3PI. By way of the counterclaim, the Company and 3PI sought compensatory damages in the amount of $20.0 million, consequential damages, punitive damages in excess of $20.0 million, and also an injunction prohibiting the Trents from continuing to retain 3PI’s confidential business information and other equitable relief. On June 30, 2016, the Trents amended their complaint to additionally allege that the Company and 3PI breached the stock purchase agreement by failing to maintain the assets and properties of 3PI in good working order and condition, failed to operate 3PI in good faith, took actions to reduce 3PI's EBITDA used in connection with determining the number of shares issuable to the Trents as part of the earn-out described in the stock purchase agreement, and failed to make a tax gross-up payment to the Trents as mandated by the stock purchase agreement. The Trents sought additional damages for these alleged breaches in the amount of $0.35 million for the tax gross-up payment and $9.3 million for the equity payment under the stock purchase agreement. On June 1, 2017, the Company settled this matter for $3.0 million in return for full and final mutual releases of all claims, predicated on the Company making a payment of $1.75 million on June 30, 2017 and the remaining $1.25 million in 12 equal monthly installment payments from June 2017 to June 2018. As of December 31, 2017, $0.625 million remained owed to the Trents, with the final payment being made in June 2018. Bandit / U.S. EPA In December 2014, Bandit, an OEM customer of the Company, inquired as to the designation of approximately 2,300 diesel engines it had purchased from the Company since January 1, 2012 pursuant to the Transition Program for Equipment Manufacturers (“TPEM”) under the Federal Clean Air Act. Bandit alleged that its records of the engines' designations did not match the Company's records of the engines’ designations, and that Bandit initially believed these engines to be legally conforming engines pursuant to TPEM, but later ascertained that it had exceeded its TPEM flex credit allowance set forth in its TPEM plan for Tier 3 flex engines for the years 2012 to 2015 (“Bandit’s Flex Plan”). The Company is not the Manufacturer of Record (“MOR”) or the OEM with regard to enforcement of the TPEM regulations but serves as a supplier of non-road diesel engines to Bandit as part of the distribution chain. Some engines ordered by and delivered to Bandit by the Company were not labeled with the required information upon sale to Bandit. In May 2015, the Company self-reported to the EPA the potential mislabeling of a small number of engines sold to Bandit, along with the Company's remediation actions pursuant to the EPA’s Voluntary Audit and Self-Disclosure Policy, including a new standard operating procedure with new shipment restrictions, and record-keeping and labeling requirements to verify the status of each engine upon delivery. To date, the EPA has not contacted the Company with regard to the Company's self-disclosure and remediation actions, and, therefore, it is the Company's and its outside counsel’s belief that it is not probable that the EPA will initiate any action against it related to this matter. The Company has not had any previous clean-air violations pursuant to the Federal Clean Air Act. In February 2015, Bandit self-disclosed that it had exceeded Bandit’s Flex Plan, and in November 2016, the EPA and Bandit reached an agreement to resolve the government’s allegations against Bandit whereby Bandit would continue to operate and supply products and services to its customers. Securities and Exchange Commission and United States Attorney’s Office for the Northern District of Illinois Investigations The Chicago Regional Office of the SEC is conducting an investigation and issued a subpoena to the Company requiring the production of documents and information. The investigation is focused on, among other things, the Company's financial reporting, misapplication of U.S. GAAP, revenue recognition practices and related conduct, which resulted in the accounting errors giving rise to the restatements reported herein. The United States Attorney's Office for the Northern District of Illinois (the “USAO”) also is conducting a parallel investigation regarding these matters. The Company has been fully cooperating with the SEC and the USAO with respect to these investigations. At this time, the Company is unable to predict the outcome of these matters or provide meaningful quantification of how the final resolution of these matters may impact its results of operations, financial condition or cash flows. Securities Litigation On August 22, 2016, Sumit Gupta filed a putative stockholder class-action complaint against the Company, Gary S. Winemaster, Michael P. Lewis and Daniel P. Gorey in the U.S. District Court for the Northern District of Illinois (the “Gupta Action”). The complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, arising from public filings made between May 8, 2015 and August 15, 2016. On October 7, 2016, Peter Stout initiated a second suit, asserting similar claims against the same defendants (the “Stout Action”). On January 19, 2017, the Court consolidated the Gupta Action and the Stout Action and appointed Richard Giunta as lead plaintiff. The consolidated case is captioned Giunta v. Power Solutions International, Inc., No. 1:16-cv-09599 (N.D. Ill.) (the “Giunta Action”). The plaintiffs then filed an Amended Class Action Complaint (the “Amended Complaint”) against the Company and certain current and former officers and directors. The Amended Complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from public filings, press releases and conference calls between February 27, 2014 and February 2, 2017. On January 22, 2019, the parties executed a Stipulation and Agreement of Settlement (the “Settlement”) to resolve the Giunta Action. Under the terms of the Settlement, a payment of $8.5 million will be made by the Company and/or its insurers in exchange for the release of claims against the defendants and other released parties by the lead plaintiff and all settlement class members and for the dismissal of the Giunta Action with prejudice. On May 13, 2019, the court granted final approval of the settlement. The Company has accrued for the settlement in “Other accrued liabilities” and for the full insurance recovery of the settlement amount in “Prepaid expenses and other current assets” as of December 31, 2017 and 2016. No future impact is anticipated on the Company's financial condition or results of operations. See Note 1, Summary of Significant Accounting Policies and Other Information for additional information related to the Company's insurance proceeds receivable and litigation reserves. Federal Derivative Litigation On February 10, 2017, Travis Dorvit filed a putative stockholder derivative action in the U.S. District Court for the Northern District of Illinois, captioned Dorvit v. Winemaster, et al., No. 1:17-cv-01097 (N.D. Ill.) (the “Dorvit Action”), against certain of the Company’s current and former officers and directors. The complaint asserted claims for breach of fiduciary duty and unjust enrichment arising from the same matters at issue in the Giunta Action. On April 3, 2018, Michael Martin filed a second putative stockholder derivative action, captioned Martin v. Winemaster, et al., No. 18-CV-2386 (N.D. Ill.) (the “Martin Action”), in the same court against certain of the Company’s current and former officers and directors. On July 3, 2018, the court consolidated the Martin Action and the Dorvit Actions. On July 17, 2018, the plaintiffs in the consolidated Dorvit and Martin Actions filed an amended consolidated complaint (the “Second Amended Complaint”) against certain of the Company’s current and former officers and directors, who are indemnified by the Company as to their legal fees and defense costs. The Second Amended Complaint asserts claims for breach of fiduciary duty, unjust enrichment, corporate waste and failure to hold an annual stockholders' meeting, and it seeks an unspecified amount of damages, an order compelling the Company to hold an annual stockholders' meeting and an award of costs, including reasonable attorneys’ fees and expenses. On October 1, 2018, the Company and individual defendants moved to dismiss the Second Amended Complaint on the grounds that the Second Amended Complaint fails to state a claim and does not adequately allege that pre-suit demand on the Company’s Board was excused. The motions to dismiss are fully briefed and pending before the court. On April 11, 2019, the parties reached an agreement in principle to settle the litigation for approximately $1.9 million, half of which will consist of a payment to the Company for certain defense costs, and the remaining half the plaintiffs intend to seek as an award of their attorney’s fees and expenses in connection with the benefit conferred by the settlement. The settlement is pending preliminary and final approval by the court. The Company has accrued for the settlement in “Other accrued liabilities” and for the full insurance recovery of the settlement amount in “Prepaid expenses and other current assets” as of December 31, 2017. If approved by the Court, the settlement would not have a material impact on the Company’s results of operations, financial condition or cash flows. State Derivative Litigation On May 5, 2017, Lewis McClenney filed a putative stockholder derivative action in the Chancery Division of the Circuit Court of Cook County, Illinois, captioned McClenney v. Winemaster, et al., No. 2017-CH-06481 (the “McClenney Action”), against certain of the Company’s current and former officers and directors. The McClenney Action asserted claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and corporate waste arising from the same matters at issue in the Giunta Action. On the same day that the McClenney Action was filed, Sara Rebscher also filed a putative stockholder derivative action in the same court, captioned Rebscher v. Winemaster, et al., No. 2017-CH-06517 (the “Rebscher Action”). The Rebscher Action asserts claims for breach of fiduciary duty and unjust enrichment against certain of the Company’s current and former officers and directors, arising from the same matters at issue in the Giunta Action. Additionally, the complaint in the Rebscher Action asserts a claim for professional negligence and accounting malpractice against the Company’s former auditor, RSM U.S. LLP (“RSM”). On July 26, 2017, the court consolidated the McClenney Action and the Rebscher Action. Subsequently, the court appointed Rebscher as lead plaintiff and designated the Rebscher complaint as the operative complaint. On November 9, 2018, the court granted the Company’s motion to dismiss the consolidated case with prejudice on the grounds that it is duplicative of the Dorvit and Martin Actions. Plaintiffs moved for reconsideration of the Court’s decision, which the Court denied on January 14, 2019. On February 5, 2019, plaintiffs filed a notice of appeal from the Court’s order dismissing the case. If the settlement of the consolidated Dorvit and Martin Actions is approved by that Court, the settlement would result in a release of the claims alleged by Rebscher against the Company and its current and former Officers and Directors. Eric Cohen vs. The Company On May 17, 2016, the Company announced that Eric A. Cohen would no longer serve as its Chief Operating Officer effective as of the close of business May 16, 2016, and that he had left the Company. On November 11, 2016, Mr. Cohen filed an administrative charge with the U.S. Department of Labor, and on June 9, 2017, Mr. Cohen filed a complaint against the Company in the U.S. District Court for the Northern District of Illinois alleging statutory violations of the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”), and the Illinois Whistleblower Act, common-law claims of retaliatory discharge and fraudulent inducement and a claim for breach of his employment agreement and Stock Appreciation Rights agreements. Due to Mr. Cohen electing to proceed with his case in federal court rather than before the Secretary of Labor, his administrative charge with the U.S. Department of Labor was dismissed on July 25, 2017. On November 3, 2017, the Company filed a motion for partial judgment on the pleadings seeking to dismiss Mr. Cohen’s DFA claim and his retaliatory-discharge claim. After the parties fully briefed this motion, the U.S. Supreme Court issued a conclusive decision regarding the DFA in Digital Realty Trust, Inc. v. Somers. As a result, Cohen withdrew his opposition to the Company’s motion regarding the DFA claim (Count II), and the court granted judgment in favor of the Company regarding Count II. On April 23, 2018, the court also granted judgment on the pleadings in the Company's favor with regard to Cohen’s common-law claim for retaliatory discharge (Count IV). Discovery is proceeding on the remaining claims. The Company believes it has strong defenses against the remaining claims and intends to continue to vigorously defend against them. At this time, the Company is unable to predict the outcome of this matter or provide meaningful quantification of how the final resolution of this matter may impact its results of operations, financial condition or cash flows. Jerome Treadwell v. The Company On October 30, 2018, a putative class-action complaint was filed against the Company and NOVAtime Technology, Inc. (“NOVAtime”) in the Circuit Court of Cook County, Illinois. On December 14, 2018, NOVAtime removed the case to the U.S. District Court for the Northern District of Illinois, Eastern Division under the Class Action Fairness Act. Plaintiff has since voluntarily dismissed NOVAtime from the lawsuit without prejudice and filed an amended complaint on April 11, 2019. The operable, amended complaint asserts violations of the Illinois Biometric Information Privacy Act (“BIPA”) in connection with employees’ use of the time clock to clock in and clock out using a finger scan and seeks statutory damages, attorneys’ fees, and injunctive and equitable relief. An aggrieved party under BIPA may recover (i) $1,000 per violation if the Company is found to have negligently violated BIPA or (ii) $5,000 per violation if the Company is found to have intentionally or recklessly violated BIPA plus reasonable attorneys’ fees. The Company intends to vigorously defend against this action. At this time, the Company is unable to predict the outcome of this matter or provide meaningful quantification of how the final resolution of this matter may impact its results of operations, financial condition or cash flows. Other Commitments Letters of Credit At December 31, 2017, the Company had two outstanding letters of credit totaling $0.5 million. Guaranteed Minimum Commission Payment In September 2017, the Company entered into an asset purchase agreement to acquire the Alternative-Fuel Specialty vehicle modifier technology from AGA Systems, LLC (“AGA”), a Utah limited liability company, and paid an initial cash consideration of $0.5 million. Pursuant to the AGA asset purchase agreement, the Company also agreed to make quarterly commission payments with guaranteed minimum commission payment of $1.2 million, including $0.4 million to be made in 2018. In March 2018, the Company executed an asset purchase agreement to acquire the Alternative-Fuel Specialty vehicle modifier technology, including certifications, source code, drawings, computer-aided design models, engineering analyses, know-how, files and scripts, from AGA, for cash consideration of $1.5 million plus a potential commission payment of up to $4.5 million, of which $1.2 million was guaranteed.

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