Major shareholders of Toledo's Owens Corning, many of whom have suffered losses in the company's stock slide and eventual descent into bankruptcy two years ago, are in for a bigger shock.
The firm wants them to give back stock dividends received between 1996 and 2000.
Mutual-fund managers such as Fidelity Management & Research and other investors who received more than $100,000 in stock dividends during the period are among targets in a series of lawsuits the company filed electronically yesterday that revolve around the question of when Toledo's third-largest corporation actually slipped into insolvency.
The company filed for Chapter 11 Oct. 5, 2000, but the lawsuits argue that the Fortune 500 firm may have been technically insolvent - or unable to repay all of its debts and loans - much earlier because of asbestos liability. If the courts agree, a judge would then be free to undo one-sided transactions in which the firm received little benefit or overpaid.
“This is highly unusual,” Louis Solimini, a Cincinnati bankruptcy lawyer who is not involved in the OC case, said of the firm's action against shareholders. “Generally, a company satisfies itself at the time of payment that it is solvent and able to pay dividends.”
OC was pushed into filing the lawsuits in U.S. Bankruptcy Court in Wilmington, Del., by creditors concerned about expiration of the statute of limitations on such claims tomorrow. However, the firm does not necessarily believe it was insolvent at the time the transactions took place.
“We're trying to preserve our right to continue to evaluate the question of solvency so the claims don't get barred by the statute of limitations,” said spokesman Stephen Krull.
Other targets of the lawsuits are:
Additional lawsuits could be filed before the deadline tomorrow of a two-year statute of limitations in an attempt to reverse other questionable transactions, the company spokesman said. OC won't file against potential targets with which it has negotiated extensions of the statute of limitations. The firm has reached such agreements with certain suppliers, asbestos victim lawyers, and executives.
The company does not know the identities or total number of all of the shareholders affected by the lawsuits, but planned to publish a notice of the actions in today's edition of the Wall Street Journal.
In all, the actions seek the recovery of nearly $709 million that would be used to help pay an estimated $11 billion in debts owed to banks, bond-holders, asbestos victims, and others. Included in the amount sought is a portion of the $62 million in dividends paid by the firm in the four years before bankruptcy.
The company was prodded into filing the lawsuits by creditors, who asked U.S. Bankruptcy Judge Judith Fitzgerald, the Delaware jurist hearing the OC case, to appoint a special trustee to file the claims if OC failed to act. Company executives earlier had expressed concern “about the merits of such actions and the recoveries that may actually be realized....”
The claims were filed under provisions of the bankruptcy code dealing with “fraudulent transfer” of assets of a bankrupt firm. However, OC's spokesman said no intentional wrongdoing is alleged in the lawsuits.
In suggesting that OC may have become insolvent sooner than when it filed for Chapter 11, the suits cite an opinion issued July 29 in Delaware Bankruptcy Court in the asbestos bankruptcy of W.R. Grace & Co.
Because asbestos illnesses sometimes do not surface for decades after exposure to the product, the court found that firms faced with victim claims “may have become insolvent far earlier than previously understood and earlier than the (firms) themselves reasonably believed,” the OC lawsuits state.
The cases are expected to be heard in minitrials in bankruptcy court in Delaware.
Named shareholders in the Fibreboard suit include John D. Roach of Dallas, who sold 416,045 Fibreboard shares for $23 million to Owens Corning.
The OC shareholder suit names a who's who of pension funds and Wall Street investment advisory firms, including Sandord Bernstein & Co., Willington Management Co., the New York State Teachers Retirement System, and the California Public Employees Retirement System. No OC executives, who typically hold thousands of shares, are named as defendants.
An OC spokesman said the company expected litigation and does not believe the current lawsuits will delay its emergence from Chapter 11. The company faces a Nov. 24 deadline for filing a repayment plan.