International Paper 2012 Annual Report Download - page 95

LEGAL PROCEEEDINGS
In September 2010, eight containerboard producers,
including International Paper and Temple-Inland,
were named as defendants in a purported class
action complaint that alleged a civil violation of Sec-
tion 1 of the Sherman Act. The suit is captioned
Kleen Products LLC v. Packaging Corp. of America
(N.D. Ill.). The complaint alleges that the defendants,
beginning in August 2005 through November 2010,
conspired to limit the supply and thereby increase
prices of containerboard products. The alleged class
is all persons who purchased containerboard prod-
ucts directly from any defendant for use or delivery
in the United States during the period August 2005
to the present. The complaint seeks to recover an
unspecified amount of treble actual damages and
attorney’s fees on behalf of the purported class. Four
similar complaints were filed and have been con-
solidated in the Northern District of Illinois. More-
over, in January 2011, International Paper was
named as a defendant in a lawsuit filed in state court
in Cocke County, Tennessee alleging that Interna-
tional Paper violated Tennessee law by conspiring to
limit the supply and fix the prices of containerboard
from mid-2005 to the present. Plaintiffs in the state
court action seek certification of a class of Tennessee
indirect purchasers of containerboard products,
damages and costs, including attorneys’ fees. The
Company disputes the allegations made and intends
to vigorously defend each action. However, because
both actions are in the preliminary stages, we are
unable to predict an outcome or estimate a range of
reasonably possible loss.
Temple-Inland was named as a defendant in a law-
suit filed in August 2011 in the United States District
Court for the Northern District of Texas captioned
Tepper v. Temple-Inland Inc. This lawsuit was
brought by the liquidation trustee for Guaranty
Financial Group, Inc., Temple-Inland’s former finan-
cial services business which was spun off by
Temple-Inland in 2007, on behalf of certain creditors
of the business. The lawsuit alleged, among other
things, that Temple-Inland and certain of its affiliates,
officers, and directors caused the failure of Guaranty
Financial Group and its wholly-owned subsidiary
Guaranty Bank and asserted various claims related
to the failure. In October 2012, the Company entered
into a settlement with the liquidation trustee and the
Federal Deposit Insurance Corporation (FDIC) to
resolve this litigation. The settlement, which has
been approved by the bankruptcy court, resolved all
claims related to the spin-off and subsequent failure
of Guaranty Bank that have been or could be
asserted by the trustee or the FDIC, in its capacity as
Receiver of Guaranty Bank, against Temple-Inland
and its affiliates or any of its former officers, direc-
tors or employees. In exchange for this full release
from liability, Temple-Inland agreed to release cer-
tain bankruptcy-related claims it and other defend-
ants asserted in the Guaranty Financial Group
bankruptcy, and to make $80 million in payments
($38 million to the trustee and $42 million to the
FDIC) (the Settlement Amount), a portion of which
will be tax deductible. In December 2012, the settle-
ment closed and the Settlement Amount was paid
and releases were exchanged. In anticipation of this
settlement and based on a May 2012 preliminary
settlement agreement with the liquidation trustee, in
the second quarter of 2012, the Company established
a purchase price accounting reserve relating to this
matter in this same amount. As noted below and as
previously reported, the Company is seeking to
recover a portion of this settlement amount from
insurers.
Temple-Inland is a defendant in a lawsuit captioned
North Port Firefighters’ Pension v. Temple-Inland
Inc., filed in November 2011 in the United States
District Court for the Northern District of Texas and
subsequently amended. The lawsuit alleges a class
action against Temple-Inland and certain individual
defendants contending that Temple-Inland mis-
represented the financial condition of Guaranty
Financial Group during the period December 12,
2007 through August 24, 2009. Temple-Inland dis-
tributed the stock of Guaranty Financial Group to its
shareholders on December 28, 2007, after which
Guaranty Financial Group was an independent, pub-
licly held company. The action is pled as a securities
claim on behalf of persons who acquired Guaranty
Financial Group stock during the putative class peri-
od. Although focused chiefly on statements made by
Guaranty Financial Group to its shareholders after it
was an independent, publicly held company, the
action repeats many of the same allegations of fact
made in the Tepper litigation. On June 20, 2012, all
defendants in the lawsuit filed motions to dismiss
the amended complaint. The motion is fully briefed
and the Company is awaiting a decision from the
court. The Company believes the claims made
against Temple-Inland in the North Port lawsuit are
without merit, and the Company intends to defend
them vigorously. The lawsuit is in its preliminary
stages, and thus the Company believes it is pre-
mature to predict the outcome or to estimate the
amount or range of loss, if any, which may be
incurred.
Each of the individual defendants in both the Tepper
litigation and the North Port litigation has requested
advancement of their costs of defense from Temple-
Inland and has asserted a right to indemnification by
Temple-Inland. The Company believes that all or part
of these defense costs, a portion of the settlement
amount in the Tepper litigation and any potential
damages awarded against the individual defendants
in the North Port litigation and covered by any
Temple-Inland indemnity would be covered losses
under Temple-Inland’s directors and officers
insurance. The carriers under the applicable policies
have been notified of the claims and each has
responded with a reservation of rights letter.
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