Frontier Communications 2004 Annual Report Download - page 12

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
10
Item 3. Legal Proceedings
The City of Bangor, Maine, filed suit against us on November 22, 2002, in the U.S. District Court for the District of Maine
(City of Bangor v. Citizens Communications Company, Civ. Action No. 02-183-B-S). We intend to defend ourselves
vigorously against the City's lawsuit. The City has alleged, among other things, that we are responsible for the costs of
cleaning up environmental contamination alleged to have resulted from the operation of a manufactured gas plant by
Bangor Gas Company, which we owned from 1948-1963. The City alleged the existence of extensive contamination of the
Penobscot River and has asserted that money damages and other relief at issue in the lawsuit could exceed $50.0 million.
The City also requested that punitive damages be assessed against us. We have filed an answer denying liability to the
City, and have asserted a number of counterclaims against the City. In addition, we have identified a number of other
potentially responsible parties that may be liable for the damages alleged by the City and have joined them as parties to the
lawsuit. These additional parties include Honeywell Corporation, the Army Corps of Engineers, Guilford Transportation
(formerly Maine Central Railroad), UGI Utilities, Inc., and Centerpoint Energy Resources Corporation. The Court has
dismissed all but two of the City’s claims including its CERCLA claims and the claim against us for punitive damages. We
are currently pursuing settlement discussions with the other parties, but if those efforts fail a trial of the City’s remaining
claims could begin as early as May 2005. We have demanded that various of our insurance carriers defend and indemnify
us with respect to the City's lawsuit, and on December 26, 2002, we filed a declaratory judgment action against those
insurance carriers in the Superior Court of Penobscot County, Maine, for the purpose of establishing their obligations to us
with respect to the City's lawsuit. We intend to vigorously pursue this lawsuit to obtain from our insurance carriers
indemnification for any damages that may be assessed against us in the City's lawsuit as well as to recover the costs of our
defense of that lawsuit.
On June 7, 2004, representatives of Robert A. Katz Technology Licensing, LP, contacted us regarding possible infringement
of several patents held by that firm. The patents cover a wide range of operations in which telephony is supported by
computers, including obtaining information from databases via telephone, interactive telephone transactions, and customer and
technical support applications. We are cooperating with the patent holder to determine if we are currently using any of the
processes that are protected by its patents. If we determine that we are utilizing the patent holder’s intellectual property, we
expect to commence negotiations on a license agreement.
On June 24, 2004, one of our subsidiaries, Frontier Subsidiary Telco Inc., received a "Notice of Indemnity Claim" from
Citibank, N.A., that is related to a complaint pending against Citibank and others in the U.S. Bankruptcy Court for the
Southern District of New York as part of the Global Crossing bankruptcy proceeding. Citibank bases its claim for
indemnity on the provisions of a credit agreement that was entered into in October 2000 between Citibank and our
subsidiary. We purchased Frontier Subsidiary Telco, Inc., in June 2001 as part of our acquisition of the Frontier telephone
companies. The complaint against Citibank, for which it seeks indemnification, alleges that the seller improperly used a
portion of the proceeds from the Frontier transaction to pay off the Citibank credit agreement, thereby defrauding certain
debt holders of Global Crossing North America Inc. Although the credit agreement was paid off at the closing of the
Frontier transaction, Citibank claims the indemnification obligation survives. Damages sought against Citibank and its co-
defendants could exceed $1.0 billion. In August 2004 we notified Citibank by letter that we believe its claims for
indemnification are invalid and are not supported by applicable law. We have received no further communications from
Citibank since our August letter.
We are party to other legal proceedings arising in the normal course of our business. The outcome of individual matters is
not predictable. However, we believe that the ultimate resolution of all such matters, after considering insurance coverage,
will not have a material adverse effect on our financial position, results of operations, or our cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
None in fourth quarter 2004.