Cybex loses appeal of $2.5 million judgment in Kirila case

In a case that has dragged around the courts for nearly a decade, Cybex lost its appeal of a jury verdict that had awarded plaintiff and former Pyramid Fitness owner Gene Kirila $2.5 million in damages, fees and penalties.

The company, based in Medway, Mass., said it would appeal the ruling by the Superior Court of Pennsylvania and would file a petition to request permission to appeal with the Supreme Court of Pennsylvania.

“We are certainly in disagreement with it,” Cybex COO Art Hicks told SNEWS®. “I’m personally disappointed. It makes no sense.”

This appeal stemmed from a court affirmation in April 2004 of a February 2002 jury verdict, which came six years after the case was originally filed by Kirila charging breach of contract, incorrect calculations of compensation, and various allegations of unfair deductions after Cybex bought Pyramid in 1993.

Hicks said the Superior Court judge in the case simply reviewed the lower court’s finding and when no errors were found in the previous judge’s actions, the verdict was approved without checking for errors in the basis for the original judgment. Cybex said in a statement that it believes that basis was in error.

With the judgment still being contested no money has been paid, but Cybex already in the fourth quarter of 2001 had put aside nearly $2.2 million in reserves in anticipation of a possible loss, which the company said should cover the ruling and fees. In light of this loss, Cybex said it was also analyzing whether any additional net adjustments to its litigation reserve were required since it is also in appeal on two other rulings: One against the company also for $2.5 million from an August 2005 verdict regarding alleged patent infringement for its Stableflex deck, and another stemming from a 2001 charge by then-Ground Zero (now FreeMotion) for patent infringement.

The company said in a statement that if a litigation charge is necessary, the impact on the fourth quarter of 2005 pre-tax operating income would not exceed $900,000 and that it has liquidity to satisfy any judgment.

“It’s not a new issue,” said Hicks, who was named COO earlier this month from his previous position of CFO. “It’s information on an old issue. It’s already recorded on our balance sheet and we’ve reserved for it.”

To read our April 19, 2004, story about the affirmation of the original Kirila verdict, “Judge affirms Cybex vs. Kirila ruling…two years later,” click here.

Despite the announcement of the verdict, at least one investment firm has upgraded Cybex’s rating from “neutral” to “buy.” In a statement by Oppenheimer on Jan. 18, the firm wrote: “We are upgrading shares of Cybex International from ‘neutral’ to ‘buy’ and with a $6 price target. We are not changing our investment thesis or our earnings forecast. What has changed is the level of visibility and our confidence that the company will achieve our aggressive fourth quarter EPS estimate, and continue its earnings momentum into 2006 and 2007.”