Palm Harbor, Champion Look To Settle Hurricane Housing Lawsuit

Source: Dow Jones News Service, March 28, 2011
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A group of companies — including two currently ensnared in bankruptcy proceedings — that provided emergency housing to victims of Hurricanes Katrina and Rita is looking to dole out $2.625 million to settle claims that they exposed individuals to hazardous levels of formaldehyde.

Palm Harbor Homes Inc. (PHHMQ) and Champion Enterprises Inc. (CJHBQ) are among 34 businesses that have struck a deal to resolve a lawsuit currently pending in Louisiana district court. The two companies, both of which have sold their assets in bankruptcy, require permission from the U.S. Bankruptcy Court in Wilmington, Del., to participate in the settlement — a deal that Palm Harbor says will save it from an uncertain fate at trial.

“Absent a stipulation resolving the debtors’ liability in the [lawsuit], the debtors will face complex, time-consuming and expensive litigation,” Palm Harbor said in court papers filed with the Wilmington bankruptcy court. “Such litigation is inherently risky, with little or no certainty that the debtors would prevail.”

In the wake of 2005’s pair of devastating storms, the Federal Emergency Management Association acquired manufactured homes from builders like Palm Harbor and Champion to assist thousands of citizens whose homes were destroyed, according to court papers. But that housing was found to contain dangerous chemicals, according to lawsuits from thousands who lived there. The litigation, eventually combined into one proceeding in New Orleans, proved to be a potential liability for the defendants.

“After substantial testing, discovery, motion practice, and three bellwether jury trials in the FEMA Trailer MDL, the plaintiffs and the defendants have decided to settle the matter,” Palm Harbor said in court papers filed Friday with the Wilmington bankruptcy court.

In its Chapter 11 proceedings, Palm Harbor faces 46,500 claims stemming from the lawsuit, all of which would be resolved under the settlement. As part of Palm Harbor’s proposed participation in the deal, the company’s insurer would contribute $50,000 to the $2.625 million fund, leaving Palm Harbor free to use its own funds for other uses.

Palm Harbor earlier this month received permission to sell its assets for nearly $84 million and is currently working to propose a Chapter 11 plan in the case. It warned that without a settlement of the lawsuit, its officers would be forced to divert their time and energy away from the bankruptcy case to handle the Louisiana litigation. It also cautioned that the company might not be able to fund the continuing costs of litigating the matter.

“Balanced against such risk and uncertainty, it is in the debtors’ and their estates’ best interests to consensually resolve their part” of the lawsuit, Palm Harbor said.

No papers have yet been filed in Champion’s bankruptcy case, now known as CEI Liquidation Estates, but the settlement specifies that Champion too requires clearance from the bankruptcy court.

A judge is set to consider approving Palm Harbor’s participation in the settlement at a hearing April 19.

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