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COMMITMENTS AND CONTINGENCIES
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Sep. 30, 2011
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Dec. 31, 2010
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| Commitments and Contingencies Disclosure [Text Block] |
Purchase
Commitments – At September 30, 2011, the
Company had fixed-price purchase contracts with its
suppliers to purchase $17,742,000 of ethanol. These
fixed-price contracts will be satisfied throughout the
remainder of 2011. At September 30, 2011, the
Company had indexed-price purchase contracts with its
suppliers to purchase 2,826,000 gallons of
ethanol.
Sales
Commitments – At September 30, 2011, the
Company had entered into sales contracts with its major
customers to sell certain quantities of ethanol and WDG.
The volumes indicated in the indexed price contracts
table will be sold at publicly-indexed sales prices
determined by market prices in effect on their respective
transaction dates (in thousands):
Litigation
– General –
The Company is subject to legal proceedings, claims and
litigation arising in the ordinary course of business.
While the amounts claimed may be substantial, the
ultimate liability cannot presently be determined because
of considerable uncertainties that exist. Therefore, it
is possible that the outcome of those legal proceedings,
claims and litigation could adversely affect the
Company’s quarterly or annual operating results or
cash flows when resolved in a future period. However,
based on facts currently available, management believes
that such matters will not adversely affect the
Company’s financial position, results of operations
or cash flows.
Litigation
– Barry Spiegel – State Court
Action– On December 22, 2005, Barry J.
Spiegel, a former shareholder and director of Accessity,
filed a complaint in the Circuit Court of the 17th
Judicial District in and for Broward County, Florida
(Case No. 05018512), or the State Court Action, against
Barry Siegel, Philip Kart, Kenneth Friedman and Bruce
Udell, or collectively, the Individual Defendants.
Messrs. Udell and Friedman are former directors of
Accessity and Pacific Ethanol. Mr. Kart is a former
executive officer of Accessity and Pacific Ethanol. Mr.
Siegel is a former director and former executive officer
of Accessity and Pacific Ethanol.
The
State Court Action relates to the Share Exchange
Transaction and purports to state the following five
counts against the Individual Defendants: (i) breach of
fiduciary duty, (ii) violation of the Florida Deceptive
and Unfair Trade Practices Act, (iii) conspiracy to
defraud, (iv) fraud, and (v) violation of Florida’s
Securities and Investor Protection Act. Mr. Spiegel based
his claims on allegations that the actions of the
Individual Defendants in approving a Share Exchange
Transaction caused the value of his Accessity common
stock to diminish and is seeking approximately $22.0
million in damages. On March 8, 2006, the Individual
Defendants filed a motion to dismiss the State Court
Action. Mr. Spiegel filed his response in opposition on
May 30, 2006. The court granted the motion to dismiss by
Order dated December 1, 2006, on the grounds that, among
other things, Mr. Spiegel failed to bring his claims as a
derivative action.
On
February 9, 2007, Mr. Spiegel filed an amended complaint
which purports to state the following five counts: (i)
breach of fiduciary duty, (ii) fraudulent inducement,
(iii) violation of Florida’s Securities and
Investor Protection Act, (iv) fraudulent concealment, and
(v) breach of fiduciary duty of disclosure. The amended
complaint included Pacific Ethanol as a defendant. On
March 30, 2007, Pacific Ethanol filed a motion to dismiss
the amended complaint. Before the court could decide that
motion, on June 4, 2007, Mr. Spiegel amended his
complaint, which purports to state two counts: (a) breach
of fiduciary duty, and (b) fraudulent inducement. The
first count is alleged against the Individual Defendants
and the second count is alleged against the Individual
Defendants and Pacific Ethanol. The amended complaint
was, however, voluntarily dismissed on August 27, 2007,
by Mr. Spiegel as to Pacific Ethanol.
Mr.
Spiegel sought and obtained leave to file another amended
complaint on June 25, 2009, which renewed his case
against Pacific Ethanol, and named three additional
individual defendants, and asserted the following three
counts: (x) breach of fiduciary duty, (y) fraudulent
inducement, and (z) aiding and abetting breach of
fiduciary duty. The first two counts are alleged solely
against the Individual Defendants. With respect to the
third count, Mr. Spiegel has named Pacific Ethanol
California, Inc. (formerly known as Pacific Ethanol,
Inc.), as well as William L. Jones, Neil M. Koehler and
Ryan W. Turner. Mr. Jones is a director of Pacific
Ethanol. Mr. Turner is a former director and officer of
Pacific Ethanol. Mr. Koehler is a director and officer of
Pacific Ethanol. Pacific Ethanol and the Individual
Defendants filed a motion to dismiss the count against
them, and the court granted the motion. Plaintiff
then filed another amended complaint, and Defendants once
again moved to dismiss. The motion was heard on
February 17, 2010, and the court, on March 22, 2010,
denied the motion requiring Pacific Ethanol and Messrs.
Jones, Koehler and Turner to answer the complaint and
respond to discovery requests.
Discovery
was then taken by all parties, and the Plaintiff served
his expert report in June 2011 relating to the damages
that the Plaintiff is claiming. The deposition of the
Plaintiff’s expert was set for October 2011, and
the Defendants have since filed their motions for summary
judgment. The case has been set for a non-jury trial
commencing on Monday, February 27, 2012.
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Commitments
– The following is a description of significant
commitments at December 31, 2010:
Operating Leases
– Future minimum lease payments required by
non-cancelable operating leases in effect at December 31,
2010 are as follows (in thousands):
Total
rent expense during the years ended December 31, 2010 and
2009 was $1,598,000 and $2,320,000, respectively.
Sales
Commitments – At December 31, 2010, the Company
had entered into sales contracts with its major customers to
sell certain quantities of ethanol, WDG and syrup. The
volumes indicated in the indexed price contracts table will
be sold at publicly-indexed sales prices determined by market
prices in effect on their respective transaction dates (in
thousands):
Purchase
Commitments – At December 31, 2010, the Company
had fixed-price purchase contracts with its suppliers to
purchase $4,688,000 of ethanol and indexed-price purchase
contracts with its suppliers to purchase 18,500 gallons of
ethanol. These fixed- and indexed-price commitments will be
satisfied throughout 2011.
Contingencies
– The following is a description of significant
contingencies at December 31, 2010:
Litigation
– General – The Company is subject to
legal proceedings, claims and litigation arising in the
ordinary course of business. While the amounts claimed may be
substantial, the ultimate liability cannot presently be
determined because of considerable uncertainties that exist.
Therefore, it is possible that the outcome of those legal
proceedings, claims and litigation could adversely affect the
Company’s quarterly or annual operating results or cash
flows when resolved in a future period. However, based on
facts currently available, management believes that such
matters will not materially and adversely affect the
Company’s financial position, results of operations or
cash flows.
Litigation
– Delta-T Corporation – On August 18,
2008, Delta-T Corporation filed suit in the United States
District Court for the Eastern District of Virginia (the
“First Virginia Federal Court case”), naming
Pacific Ethanol, Inc. as a defendant, along with its former
subsidiaries Pacific Ethanol Stockton, LLC, Pacific Ethanol
Imperial, LLC, Pacific Ethanol Columbia, LLC, Pacific Ethanol
Magic Valley, LLC and Pacific Ethanol Madera, LLC. The suit
alleged breaches of the parties’ Engineering,
Procurement and Technology License Agreements, breaches of a
subsequent term sheet and letter agreement and breaches of
indemnity obligations. The complaint sought specified
contract damages of approximately $6,500,000, along with
other unspecified damages. All of the defendants moved to
dismiss the First Virginia Federal Court case for lack of
personal jurisdiction and on the ground that all disputes
between the parties must be resolved through binding
arbitration, and, in the alternative, moved to stay the First
Virginia Federal Court case pending arbitration. In January
2009, these motions were granted by the Court, compelling the
case to arbitration with the American Arbitration Association
(the “AAA”). By letter dated June 10, 2009, the
AAA notified the parties to the arbitration that the matter
was automatically stayed as a result of the Chapter 11
Filings.
On
March 18, 2009, Delta-T Corporation filed a cross-complaint
against Pacific Ethanol, Inc. and Pacific Ethanol Imperial,
LLC in the Superior Court of the State of California in and
for the County of Imperial. The cross-complaint arose out of
a suit by OneSource Distributors, LLC against Delta-T
Corporation. On March 31, 2009, Delta-T Corporation and
Bateman Litwin N.V, a foreign corporation, filed a
third-party complaint in the United States District Court for
the District of Minnesota naming Pacific Ethanol, Inc. and
Pacific Ethanol Imperial, LLC as defendants. The third-party
complaint arose out of a suit by Campbell-Sevey, Inc. against
Delta-T Corporation. On April 6, 2009, Delta-T Corporation
filed a cross-complaint against Pacific Ethanol, Inc. and
Pacific Ethanol Imperial, LLC in the Superior Court of the
State of California in and for the County of Imperial. The
cross-complaint arose out of a suit by GEA Westfalia
Separator, Inc. against Delta-T Corporation. Each of these
actions allegedly related to the aforementioned Engineering,
Procurement and Technology License Agreements and Delta-T
Corporation’s performance of services thereunder. The
third-party suit and the cross-complaints asserted many of
the factual allegations in the First Virginia Federal Court
case and sought unspecified damages.
On
June 19, 2009, Delta-T Corporation filed suit in the United
States District Court for the Eastern District of Virginia
(the “Second Virginia Federal Court case”),
naming Pacific Ethanol, Inc. as the sole defendant. The suit
alleged breaches of the parties’ Engineering,
Procurement and Technology License Agreements, breaches of a
subsequent term sheet and letter agreement, and breaches of
indemnity obligations. The complaint sought specified
contract damages of approximately $6,500,000, along with
other unspecified damages.
In
connection with the Chapter 11 Filings, the Plant Owners
moved the Bankruptcy Court to enter a preliminary injunction
in favor of the Plant Owners and Pacific Ethanol, Inc.
staying and enjoining all of the aforementioned litigation
and arbitration proceedings commenced by Delta-T Corporation.
On August 6, 2009, the Bankruptcy Court ordered that the
litigation and arbitration proceedings commenced by Delta-T
Corporation be stayed and enjoined until September 21,
2009 or further order of the court, and that the Plant
Owners, Pacific Ethanol, Inc. and Delta-T Corporation
complete mediation by September 20, 2009 for purposes of
settling all disputes between the parties. Following
mediation, the parties reached an agreement under which a
stipulated order was entered in the Bankruptcy Court on
September 21, 2009, providing for a complete mutual release
and settlement of any and all claims between Delta-T
Corporation and the Plant Owners, a complete reservation of
rights as between Pacific Ethanol, Inc. and Delta-T
Corporation, and a stay of all proceedings by Delta-T
Corporation against Pacific Ethanol, Inc. until December 31,
2009. As a result of the complete mutual release and
settlement, the Company recorded a gain of approximately
$2,008,000 in reorganization costs for the year ended
December 31, 2009.
On
March 1, 2010, Delta-T Corporation resumed active litigation
of the Second Virginia Federal Court case by filing a motion
for entry of a default judgment. Also on March 1, 2010,
Pacific Ethanol, Inc. filed a motion for extension of time
for its first appearance in the Second Virginia Federal Court
case and also filed a motion to dismiss Delta-T
Corporation’s complaint based on the mandatory
arbitration clause in the parties’ contracts, and
alternatively to stay proceedings during the pendency of
arbitration. These motions were argued on March 31, 2010. The
Court ruled on the motions in May 2010, denying Delta-T
Corporation’s motion for entry of a default judgment,
and compelling the case to arbitration with the
AAA.
On
May 25, 2010, Delta-T Corporation filed a Voluntary Petition
in the Bankruptcy Court for the Eastern District of Virginia
under Chapter 7 of the Bankruptcy Code. The Company believes
that Delta-T Corporation has liquidated its assets and
abandoned its claims against the Company.
Litigation
– Barry Spiegel – State Court Action
– On December 22, 2005, Barry J. Spiegel, a former
shareholder and director of Accessity, filed a complaint in
the Circuit Court of the 17th Judicial District in and for
Broward County, Florida (Case No. 05018512), or the State
Court Action, against Barry Siegel, Philip Kart, Kenneth
Friedman and Bruce Udell, or collectively, the Individual
Defendants. Messrs. Udell and Friedman are former directors
of Accessity and Pacific Ethanol. Mr. Kart is a former
executive officer of Accessity and Pacific Ethanol. Mr.
Siegel is a former director and former executive officer of
Accessity and Pacific Ethanol.
The
State Court Action relates to the Share Exchange Transaction
and purports to state the following five counts against the
Individual Defendants: (i) breach of fiduciary duty, (ii)
violation of the Florida Deceptive and Unfair Trade Practices
Act, (iii) conspiracy to defraud, (iv) fraud, and (v)
violation of Florida’s Securities and Investor
Protection Act. Mr. Spiegel based his claims on allegations
that the actions of the Individual Defendants in approving
the Share Exchange Transaction caused the value of his
Accessity common stock to diminish and is seeking
approximately $22.0 million in damages. On March 8, 2006, the
Individual Defendants filed a motion to dismiss the State
Court Action. Mr. Spiegel filed his response in opposition on
May 30, 2006. The court granted the motion to dismiss by
Order dated December 1, 2006, on the grounds that, among
other things, Mr. Spiegel failed to bring his claims as a
derivative action.
On
February 9, 2007, Mr. Spiegel filed an amended complaint
which purports to state the following five counts: (i) breach
of fiduciary duty, (ii) fraudulent inducement, (iii)
violation of Florida’s Securities and Investor
Protection Act, (iv) fraudulent concealment, and (v) breach
of fiduciary duty of disclosure. The amended complaint
included Pacific Ethanol as a defendant. On March 30, 2007,
Pacific Ethanol filed a motion to dismiss the amended
complaint. Before the court could decide that motion, on June
4, 2007, Mr. Spiegel amended his complaint, which purports to
state two counts: (a) breach of fiduciary duty, and (b)
fraudulent inducement. The first count is alleged against the
Individual Defendants and the second count is alleged against
the Individual Defendants and Pacific Ethanol. The amended
complaint was, however, voluntarily dismissed on August 27,
2007, by Mr. Spiegel as to Pacific Ethanol.
Mr.
Spiegel sought and obtained leave to file another amended
complaint on June 25, 2009, which renewed his case against
Pacific Ethanol, and named three additional individual
defendants, and asserted the following three counts: (x)
breach of fiduciary duty, (y) fraudulent inducement, and (z)
aiding and abetting breach of fiduciary duty. The first two
counts are alleged solely against the Individual Defendants.
With respect to the third count, Mr. Spiegel has named
Pacific Ethanol California, Inc. (formerly known as Pacific
Ethanol, Inc.), as well as William L. Jones, Neil M. Koehler
and Ryan W. Turner. Messrs. Jones and Turner are directors of
Pacific Ethanol. Mr. Turner is a former officer of Pacific
Ethanol. Mr. Koehler is a director and officer of Pacific
Ethanol. Pacific Ethanol and the Individual Defendants filed
a motion to dismiss the count against them, and the court
granted the motion. Plaintiff then filed another amended
complaint, and Defendants once again moved to
dismiss. The motion was heard on February 17, 2010, and
the court, on March 22, 2010, denied the motion requiring
Pacific Ethanol and Messrs. Jones, Koehler and Turner to
answer the complaint and respond to discovery
requests.
Litigation
– Barry Spiegel – Federal Court Action
– On December 28, 2006, Barry J. Spiegel, filed a
complaint in the United States District Court, Southern
District of Florida (Case No. 06-61848), or the Federal Court
Action, against the Individual Defendants and Pacific
Ethanol. The Federal Court Action relates to the Share
Exchange Transaction and purports to state the following
three counts: (i) violations of Section 14(a) of the
Securities Exchange Act of 1934, as amended, or Exchange Act,
and SEC Rule 14a-9 promulgated thereunder, (ii) violations of
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder, and (iii) violation of Section 20(A) of the
Exchange Act. The first two counts are alleged against the
Individual Defendants and Pacific Ethanol and the third count
is alleged solely against the Individual Defendants. Mr.
Spiegel bases his claims on, among other things, allegations
that the actions of the Individual Defendants and Pacific
Ethanol in connection with the Share Exchange Transaction
resulted in a share exchange ratio that was unfair and
resulted in the preparation of a proxy statement seeking
shareholder approval of the Share Exchange Transaction that
contained material misrepresentations and omissions. Mr.
Spiegel is seeking in excess of $15.0 million in
damages.
Mr.
Spiegel amended the Federal Court Action on March 5, 2007,
and Pacific Ethanol and the Individual Defendants filed a
Motion to Dismiss the amended pleading on April 23, 2007.
Plaintiff Spiegel sought to stay his own federal case, but
the Motion was denied on July 17, 2007. The court
required Mr. Spiegel to respond to the Company’s Motion
to Dismiss. On January 15, 2008, the court rendered an Order
dismissing the claims under Section 14(a) of the Exchange Act
on the basis that they were time barred and that more facts
were needed for the claims under Section 10(b) of the
Exchange Act. The court, however, stayed the entire case
pending resolution of the State Court Action.
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