We
are
subject to various litigation arising in the ordinary course of our business.
Members of our insurance operations segment are frequently a party in
claims proceedings and actions regarding insurance coverage, all of which we
consider routine and incidental to our business. Based upon information
presently available, we are of the opinion that such litigation will not have
a
material adverse effect on our consolidated financial position, results of
operations or cash flows.
Neither
we nor our subsidiaries are parties to any potentially material
pending legal proceedings other than the following.
Exegy
Litigation:
HyperFeed
Technologies, Inc.
(“Hyperfeed”), our majority-owned subsidiary, was a provider of
enterprise-wide ticker plant and transaction technology software and services
enabling financial institutions to process and use high performance exchange
data with Smart Order Routing and other applications. During 2006, PICO and
HyperFeed negotiated a business combination with Exegy Incorporated (“Exegy”).
On August 25, 2006, PICO, HyperFeed, and Exegy entered into a contribution
agreement, pursuant to which the common stock of HyperFeed owned by PICO
would
have been contributed to Exegy in exchange for Exegy's issuing certain Exegy
stock to PICO. However, in a letter dated November 7, 2006, Exegy
informed PICO and HyperFeed that it was terminating the
agreement.
On
November 13, 2006 Exegy filed a
lawsuit against PICO and HyperFeed in state court in
Missouri
seeking
a declaratory judgment that
Exegy’s purported November 7, 2006 termination of the August 25, 2006
contribution
agreement
was
valid. In the event that Exegy’s November 7, 2006 letter is not determined
to be a valid termination of the
contribution agreement
,
Exegy seeks a declaration that
PICO and HyperFeed have materially breached the
contribution agreement
,
for
which Exegy seeks monetary
damages and an injunction against further material breach. Finally,
Exegy seeks a declaratory judgment that if its November 7, 2006 notice
of termination was not valid, and that if
(1)
PICO
and HyperFeed did materially breach
the
contribution agreement
and (2)
a continuing breach
cannot be remedied or enjoined, then Exegy seeks a declaration that Exegy
should
be relieved of further performance under the
contribution a
greement. On
December 15,
2006 the lawsuit was removed from
Missouri
state
court to federal
court. On February 2, 2007, this case was transferred to the United
States Bankruptcy Court, District of Delaware.
On
November 17, 2006 HyperFeed and
PICO filed a lawsuit against Exegy in state court in Illinois. PICO
and HyperFeed allege that Exegy, after the November 7, 2006 letter purporting
to
terminate the
contribution
agreement
, used and
continues to use HyperFeed’s confidential and proprietary information in an
unauthorized manner and without HyperFeed’s consent. PICO and HyperFeed are also
seeking a preliminary injunction enjoining Exegy from disclosing, using,
or
disseminating HyperFeed’s confidential and proprietary information, and from
continuing to interfere with HyperFeed’s business relations. PICO and
HyperFeed also seek monetary damages from Exegy. On January 18, 2007
,
this
case was removed from Illinois
state court to federal bankruptcy court in Illinois. On February 6, 2007
this
case was transferred to the United States Bankruptcy Court, District of
Delaware.
O
n
July 11, 2007, the parties entered
into mediation to attempt to resolve these two lawsuits.
However, the
mediation
was unsuccessful
and
both
cases have resumed as adversary
proceedings in the United States Bankruptcy Court, District of
Delaware.
Fish
Springs Ranch, LLC:
In
2006,
the Company, through
Fish Springs Ranch
LLC, a 51% owned subsidiary,
began construction
of a pipeline from
Fish Springs Ranch in northern
Nevada
to
the north valleys of
Reno
,
Nevada
.
The
final regulatory
approval required for the pipeline project was a Record of Decision for
a right
of way, which was granted on May 31, 2006. On October 26, 2006,
the Pyramid Lake Paiute Tribe of Indians (the “Tribe”) filed suit against the
Bureau of Land Management of the United States Department of the Interior
(“BLM”) and the United States Department of the Interior in the United States
in
the United States District Court for the District of Nevada claiming that
the
BLM had failed to fulfill is legal obligations to protect and conserve
the trust
resources of the Tribe and seeking various equitable remedies. The
Tribe asserted that the exportation of 8,000 acre-feet of water per year
from
the properties owned by Fish Springs Ranch, LLC would negatively impact
their
water rights located in a basin within the boundaries of the Tribe
reservation. Fish Springs Ranch, LLC was allowed to participate in
this proceeding and was later allowed to intervene directly in the
action.
On
May 9,
2007, the Tribe initiated other legal action against the BLM and the Department
of the Interior before the United States Court of Appeals for the Ninth
Circuit
to stop construction of the pipeline and the transportation of water from
the
properties owned by Fish Springs Ranch, LLC. Again, Fish Springs
Ranch, LLC was allowed to participate in this proceeding and was later
allowed
to intervene directly in the action.
While
we
believed the claims were without merit, the Tribe’s legal actions might have
caused significant delays to the completion of the construction of the
pipeline. To avoid future delays and additional costs of litigation,
the parties reached a complete monetary settlement and signed a settlement
agreement on May 30, 2007, that resolved all of the Tribe’s
claims. The settlement agreement is subject to ratification by the
United States Congress, which we anticipate will occur in 2008, due to
the
Tribe’s involvement and the nature of the claims. The settlement
agreement requires Fish Springs Ranch, LLC to:
·
pay
$500,000 upon signing of agreement;
·
transfer
6,214 acres of real estate that Fish Spring Ranch, LLC owns,
with a fair
value of $500,000;
·
pay
$3.1 million on January 8, 2008; and
·
pay
$3.6 million on the later of January 8, 2009 or the date the
United States
Congress ratifies the settlement agreement. Interest accrues at
the London Inter-Bank Offering Rate, or LIBOR, from January 8,
2009, if
the payment is made after that
date.
There is
13,000 acre-feet per-year of permitted water rights at Fish Springs
Ranch. The existing permit allows up to 8,000 acre-feet of water per
year to be exported to support the development in the Reno area. The
settlement agreement also provides that, in exchange for the Tribe agreeing
to
not oppose all permitting activities for the pumping and export of groundwater
in excess of 8,000 acre-feet of water per year, Fish Springs will pay the
Tribe
12% of the gross sales price for each acre-foot of additional water that
Fish
Springs sells in excess of 8,000 acre-feet per year, up to 13,000 acre-
feet per
year. Currently, we do not have regulatory approval to export any
water in excess of 8,000 acre-feet per year from the Fish Springs Ranch,
and it
is uncertain whether such regulatory approval will be granted in the
future.
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