U.S. court scraps engine rule that aided Navistar

NEW YORK (Reuters) -- Navistar International Corp. will not be permitted to pay fines in order to sell heavy-duty diesel truck engines that fail to meet pollution standards, a federal appeals court ruled today.

The Environmental Protection Agency in January made an interim final rule that allowed manufacturers of these engines to pay penalties in exchange for the right to sell non-compliant engines.

"The EPA took this action without providing formal notice or an opportunity for comment, invoking the 'good cause' exception provided in the Administrative Procedure Act," the U.S. Court of Appeals for the District of Columbia Circuit said in the ruling.

"Because we find that none of the statutory criteria for good cause are satisfied, we vacate the (interim final rule)."

A Navistar spokeswoman was not immediately available to comment.

The ruling could limit Navistar's ability to continue shipping trucks until the company complies with the EPA's 2010 standard, and could cause the company to lose market share, Wells Fargo said in a research note.

Navistar last week reported an unexpected quarterly loss of $172 million after the company took a charge to cover the rising cost of repairing engines sold in 2010 and 2011.

It also warned of new delays in its quest to gain regulatory approval of a new diesel engine design.