Formica case reaches courtroom
Fletcher Building will fight to keep its counterclaims to a US$22 million lawsuit alive in a New York courtroom next month as it squares off against the US company from which it bought Formica.
The July 9 hearing, at the New York County Courthouse, will address Pertech Bermuda Holdings' attempt to have Fletcher's counterclaims and affirmative defences dismissed.
Pertech, an associate company of Cerberus Capital Management and Oaktree Capital Management which sold Fletcher laminated-board maker Formica for $1.05 billion, sued Fletcher last November for disputed additional, or earn-out, payments potentially worth about US$22m.
This money is the balance of total potential earn-outs of US$50m that were part of the deal, completed on July 2, 2007.
The earn-out payments were to be made by Fletcher if Formica achieved five restructuring milestones by June 30, 2008. Fletcher says two of the five were achieved and has therefore coughed up US$27.94m to cover them.
Fletcher chief financial officer Bill Roest said the full US$50m was accrued in Fletcher's accounts at the time of the acquisition.
The balance of what Fletcher has not actually paid remains in Fletcher's balance sheet as a provision, Roest added.
In court documents, Pertech argues that all the milestones were met, or if they weren't, it was because Fletcher, as Formica's owner, failed to make commercially reasonable efforts to assist in their completion. Pertech wants the balance of the US$50m plus interest, costs, and attorneys' fees.
Fletcher countered by accusing Pertech of fraud, fraudulently inducing Fletcher into agreements and aiding and abetting Formica's former chief executive Frank Riddick in breaching his fiduciary duty to Formica. Riddick held a 5 per cent Pertech stake and stood to pocket US$2.5m if all five milestones were successfully implemented, Fletcher says.
Fletcher wants compensation to be determined at trial, and interest, costs and attorneys' fees.
On July 9 Pertech will argue that one of Fletcher's ''inherently incredible'' allegations is that it was the victim of fraud because it was induced to enter a contract more favourable to Fletcher than what Fletcher had originally anticipated.