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Contingencies
12 Months Ended
Sep. 30, 2011
Contingencies [Abstract]  
Contingencies

3. CONTINGENCIES

The Company is party to a number of claims, including five remaining lawsuits brought on behalf of five employees or their families, for injuries and losses suffered as a result of the 2008 Port Wentworth refinery industrial accident. All of the lawsuits are pending in the State Court of Chatham County, Georgia. None of the lawsuits demand a specific dollar amount of damages sought by the plaintiffs. The Company has workers compensation insurance which provides for coverage equal to the statutory benefits provided to workers under state law. Additionally, the Company's general liability policy provides for coverage for damages to third parties up to a policy limit of $101 million.

The Company previously settled forty-three lawsuits related to the accident. On October 19, 2011, the attorneys representing the plaintiffs in the lawsuits remaining at that time submitted a time-limited global settlement offer to resolve these lawsuits for a sum within the Company's remaining limits of insurance. Two of the three insurers who issued the insurance policies representing the Company's remaining limits of insurance, American Guarantee & Liability Insurance Company ("AGLIC") and St. Paul Fire & Marine Insurance Company ("St. Paul"), elected not to respond to this settlement offer by its deadline. The Company has notified AGLIC and St. Paul that due to their failure to settle the remaining lawsuits within the Company's available limits of insurance pursuant to the global settlement offer, the Company will seek to hold them responsible for damages due to their negligent failure to settle and bad faith in the event verdicts or settlements in the remaining lawsuits are in excess of the Company's limits of insurance.

While the Company believes, based on the facts of these cases, that claims by employees and certain contractors are limited to benefits provided under Georgia workers compensation law, the ultimate resolution of these matters could result in liability in excess of the amount accrued. The Company believes the likelihood of the aggregate liability, including the amounts paid in the previous settlements, exceeding the $101 million policy limit is remote.

The Company was named as a defendant in a lawsuit filed by one of its excess general liability insurers, AGLIC, in the U.S. District Court for the Northern District of Georgia on August 19, 2011, and styled as American Guarantee & Liability Insurance Company v. Imperial Sugar Company, et al., Civil Action No. 1:11-CV-2778-WSD (the "Georgia Lawsuit"). AGLIC seeks in the Georgia Lawsuit: (1) a judicial declaration that the AGLIC policy does not cover the Company's defense expenses incurred though the defense of various claims arising from the industrial accident that occurred at its plant located in Port Wentworth, Georgia (the "Port Wentworth Claims") in 2008; and (2) an equitable accounting of the settlements of certain of the Port Wentworth Claims that were settled using proceeds provided by the primary and umbrella layers of liability policies and the workers compensation policy issued by Chartis-affiliated insurers. In its briefing concerning its claim for an equitable accounting, AGLIC asserts that the coverage provided by the underlying Chartis policies may have been improperly exhausted and that, therefore, the AGLIC policy may not be available to cover the remaining Port Wentworth Claims. AGLIC shares on a 50/50 pro-rata basis with St. Paul the final $50 million layer of excess liability coverage available to the Company for the Port Wentworth Claims. St. Paul was also named as a defendant in the Georgia Lawsuit and has asserted a cross claim against the Company, which seeks a judicial declaration that the St. Paul policy does not cover the Company's defense expenses incurred in connection with the Port Wentworth Claims. St. Paul has not asserted any improper exhaustion claim but has stated that it reserves its rights regarding whether the underlying policies were properly exhausted. On December 9, 2011, the Court issued an order denying the Company's motion to dismiss the Georgia Lawsuit and holding that the Georgia Lawsuit was not wrongfully filed by AGLIC and that venue for the dispute is proper in the U.S. District Court for the Northern District of Georgia. On December 16, 2011, the court held a hearing regarding AGLIC's claim for an equitable accounting and, at that hearing, ruled that AGLIC and the Company should seek additional information and documents pertaining to the accounting issue from Chartis. On December 23, 2011, the Company filed its answer to the complaint, counterclaims and cross claims against AGLIC and St. Paul, respectively, asserting, among other claims that (1) AGLIC and St. Paul have breached their insurance policies by wrongfully denying coverage for the Company's defense expenses incurred as a result of the Port Wentworth Claims; and (2) AGLIC's and St. Paul's breaches amount to bad faith under Texas law.

On August 23, 2011, the Company filed a lawsuit against AGLIC and St. Paul in the U.S. District Court for the Southern District of Texas, styled Imperial Sugar Company v. American Guarantee & Liability Insurance Company and St. Paul Fire & Marine Insurance Company, Civil Action No. 4:11-cv-3081 (the "Texas Lawsuit"), asserting, among other claims, that: (1) AGLIC and St. Paul have breached the AGLIC and St. Paul insurance policies by wrongfully denying coverage for the Company's defense expenses incurred as a result of the Port Wentworth Claims; and (2) that AGLIC's and St. Paul's breaches amount to bad faith under Texas law. On December 13, 2011, without ruling on AGLIC's motion to dismiss for failure to state a claim for relief, the U.S. District Court for the Southern District of Texas issued an order transferring the Texas Lawsuit to the U.S. District Court for the Northern District of Georgia. The Texas Lawsuit and the Georgia Lawsuit have since been consolidated into a single lawsuit pending before the U.S. District Court for the Northern District of Georgia.

 

In December 2010, AdvancePierre Foods, Inc. ("Pierre") filed suit against the Company and its distributor, Evergreen Sweeteners, Inc. in the United States District Court for the Western District of North Carolina seeking damages in connection with sugar that had been voluntarily recalled by the Company in July 2010 ("Voluntary Recall"). In November, 2011, the Company settled the Pierre lawsuit and two other property damage claims relating to Voluntary Recall. The sums paid to settle the Pierre lawsuit and the two other property damage claims were paid by three insurers, except for a payment of approximately $5,200 which was paid by the Company.

In December 2010, the Louisiana Department of Environmental Quality ("LDEQ") issued a Consolidated Compliance Order and Notice of Potential Penalty to the Company alleging violations of state environmental regulations and the terms of the wastewater discharge permit for the Company's Gramercy, Louisiana refinery. The alleged violations relate to the release of foam into waters of the state and exceedances of applicable criteria for dissolved oxygen and pH. The Company investigated the alleged violations, took measures to cease and contain the foam discharge, and coordinated with the LDEQ to develop and implement a plan to remove and dispose of the foamy material and achieve and maintain compliance with applicable legal requirements. In December 2011, the Company reached an agreement in principle with LDEQ to settle the allegations of violation of environmental regulations, which is subject to execution of a settlement agreement. Without admitting liability, the Company agreed to a settlement amount of $6,000 plus a payment of $4,770 for response costs.

On August 11, 2011, the Georgia Environmental Protection Division ("EPD") issued to the Port Wentworth facility a Notice of Violation (the "NOV") regarding the Company's semi-annual air permit report for the first six months of 2011. The Company reported periodic emissions of nitrogen oxides from a boiler above the permit limit. In addition, the Company reported several maintenance, repair, and other issues that had affected the boiler operations and that corrective measures had been taken. EPD requested further information which was provided, including that total excess emissions were minimal and had no significant impact on air quality. In December 2011, the Company reached an agreement in principle with EPD to settle the NOV, which is subject to execution of a consent order. Without admitting liability, the Company agreed to pay a settlement amount of $6,000 and submit a written plan for manually maintaining control over natural gas operation of the boiler.

In November 2010, the Company filed suit in the Fort Bend County, Texas District Court against Hills Fuel Company ("Hills"), its supplier of coal, for breach of contract. On August 25, 2011, the Company and Hills settled the lawsuit by amending the current coal supply agreement to, among other things, extend the term of the agreement and reduce the price payable by the Company for purchases of coal.

In March 2011, the Company filed suit in the United States District Court for the Southern District of Texas against Southern Systems, Inc. ("SSI"), the contractor who constructed the conditioning silos at the Company's Port Wentworth refinery, for breach of contract. The lawsuit seeks damages for deficiencies in construction of the conditioning silos. In June 2011, SSI filed a counterclaim against the Company for $3.5 million for work it allegedly performed and was not paid. The lawsuit is in discovery and the Company is unable to predict the ultimate outcome of this matter.

In May 2011, the Company joined seven cane and beet sugar producers and two sugar industry trade associations as plaintiffs in a lawsuit filed against six producers of high fructose corn syrup (the "Member Companies") and the Corn Refiners Association (the "CRA") (collectively, the "HFCS Defendants") in the United States District Court for the Central District of California regarding advertising and marketing of high fructose corn syrup. The lawsuit initially alleged violations of the federal Lanham Act and state law by the HFCS Defendants in marketing and advertising high fructose corn syrup as a natural product equivalent to cane and beet sugar. The lawsuit seeks money damages and injunctive relief. On October 21, 2011, the Court issued an order on the motion to dismiss the amended complaint filed by the HFCS Defendants, denying the motion as to the CRA, granting the motion as to the Member Companies, and giving plaintiffs leave to amend their complaint to set forth additional allegations regarding the Member Companies. On the same day, the Court issued a separate order on a motion filed only by the CRA, dismissing the state law claim for unfair competition. On November 18, 2011, the plaintiffs filed an amended complaint naming the Member Companies as defendants on the federal Lanham Act claim to which the Member Companies have filed a motion to dismiss. The lawsuit remains ongoing, and the Company is unable to predict the ultimate outcome of this matter.

 

On August 30, 2011, a shareholder of the Company filed a putative class action lawsuit in the United States District Court for the Southern District of Texas, styled as Dawes v. Imperial Sugar Company, et al., Civil Action No. 4:11-cv-03250, alleging that the Company, its current President and Chief Executive Officer, and its current Senior Vice President and Chief Financial Officer, violated the federal securities laws. On September 22, 2011, another shareholder filed a nearly identical putative class action lawsuit against the Company, its current President and Chief Executive Officer and its current Senior Vice President and Chief Financial Officer in the United States District Court for the Southern District of Texas styled as Hassan v. Imperial Sugar Company, et al., Civil Action No 4:11-cv-03457. On October 28, 2011, these cases were consolidated by the court. The complaints assert fraud claims under Sections 10 and 20 of the Securities Exchange Act of 1934, and allege that the defendants made misleading statements and/or omissions about the Company's sales and business prospects, which purportedly were disclosed on August 5, 2011 when the Company announced its third fiscal quarter results. A motion for appointment of lead plaintiff was filed on October 31, 2011. Pursuant to the agreed-upon schedule, the lead plaintiff will file an amended complaint 45 days after entry of an order appointing the lead plaintiff. This matter is in the early stages and the Company cannot predict its ultimate outcome.

On September 27, 2011, the Board of Directors of the Company received a letter from counsel for a shareholder of the Company requesting, among other things, that the Board cause an independent investigation to be made and a legal action commenced with respect to alleged mismanagement and breaches of fiduciary duty by the Company's officers and directors relating to the August 5, 2011 announcement of the Company's third fiscal quarter results. On October 12, 2011, the Board received a similar letter on behalf of another shareholder. The Board of Directors established a committee of independent and disinterested directors on October 5, 2011 with full authority to investigate and address the allegations contained in such shareholder letters.

The Company is party to other litigation and claims which are normal in the course of its operations. While the results of such litigation and claims cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a material effect on its consolidated results of operations, financial position or cash flows. In connection with the sales of certain businesses, the Company made customary representations and warranties, and undertook indemnification obligations with regard to certain of these representations and warranties including financial statements, environmental and tax matters, and the conduct of the businesses prior to the sale. These indemnification obligations are subject to certain deductibles, caps and expiration dates.

In connection with the sale of a subsidiary in 2002, the buyer assumed $18.5 million of industrial revenue bonds, with final maturity in 2025. The Company remained contingently liable for repayment of the bonds under a guaranty arrangement and does not believe that a liability is probable. The Company has recorded a non-current liability for the fair value of the guarantee. On January 6, 2011, the buyer redeemed $9.0 million of the industrial revenue bonds, releasing the Company's obligations related to such bonds. As a result of the redemption, the Company reduced the recorded liability by $0.7 million during the three months ended March 31, 2011.