Item 3. Legal Proceedings
Reading Railroad Employee Health Claims
The Company is a defendant in actions instituted in the United States
District Court for the Eastern District of Pennsylvania or the [Pennsylvania
State] Court of Common Pleas by or on behalf of persons who had been employed by
the Reading Railroad prior to its reorganization under the federal bankruptcy
laws in 1980. In general, these actions also name Conrail, which acquired
substantially all of Reading's railroad assets in connection with the Company's
reorganization, as a defendant. Approximately 115 plaintiffs seek damages under
the Federal Employers Liability Act ("FELA") in varying amounts for illnesses or
death allegedly caused by exposure to asbestos fibers while employed by the
Reading Railroad and, in some cases, by Conrail. Approximately 122 plaintiffs in
pending actions seek damages in varying amounts for alleged impaired hearing
suffered while employed by the Reading Railroad prior to its reorganization and,
in some cases, by Conrail. The underlying actions are proceeding to trial.
The eventual outcome of the above-described litigation cannot be predicted
at this time, and the Company's liability, if any, cannot be accurately
determined. However, during 1990, the Company and its insurance carriers entered
into an agreement (the "Settlement Agreement") which provided the Company with
reimbursement for prior payments made to claimants in certain personal injury
actions and which provides for the Company to receive reimbursement of amounts
expended in conjunction with the matters described above or, if the Company
elects, to receive reimbursement from the parties to the Settlement Agreement
prior to expenditures. Three participants in the insurance settlement are
insolvent. Unreimbursed claims by these three carriers have totaled $61,000. The
Company believes that it may be entitled to reimbursement of such amounts from
the other parties to the Settlement Agreement and may file for an arbitration
hearing on such matters. The Company believes that the amounts available under
the Settlement Agreement are sufficient to prevent the above-described
litigation from having a materially adverse effect on the financial position,
results of operations, or liquidity of the Company.
Cine Vista
A landlord of Cine Vista has alleged that Cine Vista underpaid rent by
approximately $480,000 for the thirty month period ended December 31, 1995. The
Company is contesting the landlord's claim and believes the claim to be without
merit. If the landlord were to prevail in its assertion, the Company is
indemnified by TALP for the amount due at June 30, 1994 ($180,000) and the
Company believes it would be entitled to a reduction in the purchase price of
TAPR relating not only to the 18 months ended December 31, 1995 but also
relating to the 17 1/2 future years under the lease. Such purchase price
reduction would be funded, in part, from the proceeds of the TAPR purchase
escrow.
Environmental Litigation
McAdoo Site
The Company is one of approximately 63 private parties (the "Settlors")
which in 1988 signed a consent decree (the "1988 Consent Decree") to perform a
remedial action (the "RA") on a Superfund site located on land owned largely by
the Company in McAdoo, Pennsylvania ("McAdoo"). Apart from future operation and
maintenance ("O&M") expenses, the entire RA is complete. Under the 1988 Consent
Decree, a portion of the costs the Settlors incurred to perform the RA before
O&M is reimbursable from the Hazardous Substance Superfund (the "Fund"). In
1992, the Settlors submitted to the Fund a claim for reimbursement of such
pre-O&M expenses (the "Claim").
To protect their right to seek contribution towards O&M from certain
potentially responsible parties ("PRPs") who had refused to join in the 1988
Consent Decree (the "Non-Settlors"), the Settlors in 1992 attempted to intervene
in the attempted settlement of the federal civil action which the United States
had instituted against the Non-Settlors (the "Non-Settlors Litigation"). An
agreement in principle to settle the Non-Settlors Litigation (the "Tentative
Settlement") has now been reached and is being documented by the United States.
The Company anticipates that the Settlors will approve the Tentative Settlement.
Under the Tentative Settlement, the Settlors would withdraw the Claim and
instead recover most of the reimbursement sought thereby from funds which the
Non-Settlors had deposited, before the Settlors attempted intervention, into a
court registry to settle the Non-Settlors Litigation. The amount recovered by
the Settlors from the court registry, along with an additional amount newly
contributed by the Non-Settlors, would be dedicated to performing the remaining
O&M at McAdoo and would also be used to perform certain additional ground water
9
monitoring sought by the United States. The Company has been advised that, in
the likely event that the Tentative Settlement is finalized, it is unlikely that
any additional amounts will be required to meet any of the Settlors' obligations
under either the 1988 Consent Decree or the Tentative Settlement. Any amounts
which might be so required would not be material.
Douglassville Site
Reading Company ("Reading") and a wholly-owned subsidiary, Reading
Transportation Company ("RTC"), have each been advised by the Environmental
Protection Agency ("EPA") that they are PRPs under environmental laws including
Federal Superfund legislation ("Superfund") for a site located in Douglassville,
Pennsylvania. The EPA issued an Administrative Order under Superfund against 34
PRPs requiring, among other things, that the named parties be required to
incinerate materials at the site pursuant to a June 30, 1989 Record of Decision
("ROD"). The ROD estimated that the incineration would cost approximately $53
million. Thirty-six PRPs were also named in a civil action brought by the United
States which seeks to recover alleged costs incurred at the site by the United
States of approximately $22 million. Reading and RTC have each been named in a
third-party action instituted by the majority of the 36 PRPs sued by the United
States. The actions instituted against the Company and approximately 300 PRPs
seek to have the parties contribute to reimbursement for past costs and any
costs associated with further remediation at the site.
On September 14, 1995, the federal district court judge who presided over
Reading's reorganization ruled that all liability asserted against Reading
relating to the site was discharged pursuant to the consummation order issued in
conjunction with the Company's amended plan of reorganization on December 31,
1980. The United States Department of Justice and a named defendant in the above
described Administrative Order have filed appeals of the decision. The judge's
decision did not affect the potential liability of RTC for the site. RTC has no
assets and therefore cannot fund a settlement or judgement relating to this
matter and the Company believes that the potential liability of RTC, if any, is
not in excess of $300,000. Based upon the appeal and possible alternate attempts
by the PRPs to obtain Reading's participation in funding for the site as well as
the existence of the other environmental matters set forth below, the Company
has not reduced its provision for these matters, which totals $1.2 million.
Reading Terminal Train Shed Litigation
In 1991, the Company filed a lawsuit in the United States District Court
for the Eastern District of Pennsylvania against the Southeastern Pennsylvania
Transportation Authority ("SEPTA"), Conrail, the City of Philadelphia and other
parties which sought to recover a portion of the approximately $9 million
expended by the Company in conjunction with the cleanup of polychlorinated
biphenyls ("PCBs") in the Reading Terminal Train Shed and a portion of the
viaduct south of Vine Street. The action also sought a declaratory judgement as
to future costs which could be incurred in cleaning up the remaining portions of
the Viaduct. In January 1995, the parties agreed in principle to settle the
claim for approximately $2.35 million which amount the Company anticipates
receiving during 1996. The defendants have also agreed to pay an amount ranging
from 52% to 55% of costs incurred by the Company, if any, relating to possible
PCB contamination on the Viaduct.
Atlantic City Site
During 1995, the Company settled an action seeking the recovery of
$3,800,000 of alleged environmental cleanup costs from five defendants under
various provisions of New Jersey law for $235,000 which approximates the amount
previously accrued by the Company to provide for its share of the liability.
Other Environmental
The Company removed six underground storage tanks at a site owned by the
Company in 1991 and in conjunction with such activities submitted an
environmental assessment of the site to the Pennsylvania Department of
Environmental Protection ("DEP"). DEP has advised the Company that no further
action is required at the site. With the advance knowledge and consent of DEP,
the Company extinguished a fire at a Company-owned site which
10
had been used as a landfill by the Reading Railroad. The Company neither
anticipates nor faces any administrative action against it by DEP concerning the
site.
The Company believes that the Viaduct may be contaminated by PCBs resulting
from former railroad operations on that property conducted by or on behalf of
the Reading Railroad, Conrail, the City of Philadelphia or SEPTA. The Company
has advised the EPA of the potential contamination. The Company has not
determined the scope or extent of any such PCB contamination. However, the
Company has been advised by counsel that, given the lack of regulatory attention
to the Viaduct in the eleven years which have elapsed since EPA was notified of
the likelihood of contamination, it is unlikely that the Company will be
required to decontaminate the Viaduct or incur costs related thereto. In the
event that the Company was required to incur expenditures to remove PCB
contamination on the Viaduct, under terms of the settlement described above,
Conrail, the City of Philadelphia and SEPTA would be required to fund 52% to 55%
of such costs.
Prior to the Company's reorganization, the Company had extensive railroad
and related operations. Such operations may have contributed to environmental
contamination of properties now owned by the Company, previously sold or leased
by the Company, or to which the Company, prior to its reorganization, sent
waste. The ultimate extent of liabilities, if any, with respect to such matters,
as well as the timing of cash disbursements, if any, cannot be determined.
However, management is of the opinion, based on the information currently
available to it, that while the ultimate liability resulting from such matters
could have a material effect upon the results of operations in a given year,
they will not have a material adverse effect upon the Company's financial
position or liquidity.
|