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Legal Contingencies | 6 Months Ended
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Jul. 31, 2013
Legal Contingencies [Abstract] |
LEGAL CONTINGENCIES | NOTE 12—LEGAL CONTINGENCIES In the normal course of business, the Company has pending claims and legal proceedings. It is the opinion of the Company’s management, based on information available at this time, that none of the current claims and proceedings could have a material effect on the Company’s condensed consolidated financial statements other than the matters discussed below. The material amounts of any legal fees expected to be incurred in connection with these matters are accrued when such amounts are estimable. ACCO Dispute Gemma Power Systems California, Inc. (“GPS CA,” a wholly owned subsidiary of Argan) has received certain claims for payment from ACCO Engineered Systems, Inc. (“ACCO”) under a subcontract with GPS CA on a California construction project (the “ACCO Subcontract”). GPS CA terminated the ACCO Subcontract for convenience in November 2012, and believes that the amount owed ACCO at the time of termination was approximately $663,000. ACCO has made claims that it is entitled to substantially more than that amount but has failed to substantiate any such claim to date. On May 2, 2013 and pursuant to the provisions of the ACCO Subcontract, GPS CA filed a demand for arbitration seeking a declaration as to the amount owed under the ACCO Subcontract. On May 8, 2013, ACCO served GPS CA with a claim in the approximate amount of $7,742,000 and, on May 23, 2013, ACCO served GPS CA with a lien and a stop payment notice filed on the project, each for approximately $7,592,000. ACCO filed suit in the Superior Court of California in order to dispute the Connecticut location of the binding arbitration and the specific clause identifying New York as the governing state law, both provisions expressly included in the ACCO Subcontract. ACCO’s motion was denied. GPS CA has bonded off the lien under California law and intends vigorously to pursue the binding arbitration pursuant to the provisions of the ACCO Subcontract, to defend against the claims of ACCO and to pursue several affirmative claims against ACCO. Arbitration hearings are tentatively scheduled to commence in January 2014. Due to the uncertainty of the ultimate outcome of this dispute, assurance cannot be provided that GPS CA will be successful in arbitration or in its effort to defend against these claims. In addition to amounts accrued associated with this matter, the Company’s determination of the amount of net revenues recorded as of July 31, 2013 for the California construction project reflected an estimate of the additional amount that the Company may possibly pay in order to resolve this matter. Management does not believe that resolution of the matters discussed above will result in any additional loss with material negative effect on the Company’s consolidated operating results in a future reporting period. If new facts become known in the future indicating that it is probable that additional loss has been incurred by GPS CA and the amount of additional loss can be reasonably estimated by GPS CA, the impact of the additional loss will be reflected in the consolidated financial statements at that time. Altra Matters GPS was the contractor for engineering, procurement and construction services related to an anhydrous ethanol plant in Carleton, Nebraska (the “Project”). The Project owner was ALTRA Nebraska, LLC (“Altra”). In November 2007, GPS and Altra agreed to a suspension of the Project while Altra sought to obtain financing to complete the Project. By March 2008, financing had not been arranged which terminated the construction contract prior to completion of the Project. In March 2008, GPS filed a mechanic’s lien against the Project in the approximate amount of $23.8 million, which amount included sums owed to subcontractors/suppliers of GPS and their subcontractors/suppliers. Several other claimants also filed mechanic’s liens against the Project. In August 2009, Altra filed for bankruptcy protection. Proceedings resulted in a court-ordered liquidation of Altra’s assets. The incomplete plant was sold at auction in October 2009. Remaining net proceeds of approximately $5.5 million are being held by the bankruptcy court and have not been distributed to Altra’s creditors. The court separated the lien action into two phases relating to the priority of the claims first and the validity and amount of each party’s lien claim second. In November 2011, the court held that the claim of the project lender is superior to the lien claim of GPS. Fact discovery related to the second phase was completed in January 2012, but the court has continued to stay this action pending the final resolution of the claim against the Company’s payment bond that is discussed below. Delta-T Corporation (“Delta-T”) was a major subcontractor to GPS on the Project. In January 2009, GPS and Delta-T executed a Project Close-Out Agreement (the “Close-Out”) which settled all contract claims between the parties and included a settlement payment in the amount of $3.5 million that GPS made to Delta-T. In the Close-Out, Delta-T also agreed to prosecute any lien claims against Altra, to assign to GPS the first $3.5 million of any resulting proceeds and to indemnify and defend any claims against GPS related to the Project. In addition, GPS received a guarantee from Delta-T’s parent company in support of the indemnification commitment. Delta-T assigned its lien rights related to the Project to GPS which advised the parties that it would be pursuing only the assigned lien rights of Delta-T, amounting to approximately $21.2 million, for the remainder of this action. In April 2009, a subcontractor (“DCR”) to Delta-T received an arbitration award in its favor against Delta-T in the amount of approximately $6.8 million (the “Judgment Award”). In December 2009, the Judgment Award was confirmed in federal district court in Florida. In April 2009, DCR also filed suit in the District Court of Thayer County, Nebraska, in order to recover its claimed amount of $6.8 million, as amended, from a payment bond issued to Altra on behalf of GPS. Delta-T did not pay or satisfy any portion of the award and it abandoned its defense of the surety company. In December 2011, DCR filed a separate lawsuit against GPS relating to the Project in the District Court of Thayer County, Nebraska, that alleged claims against GPS for failure to furnish the surety bond upon request and unjust enrichment. DCR claimed that, to the extent that the bonding company was successful in asserting a notice defense to DCR’s claim, GPS was liable for DCR’s damages for failing to furnish the bond when requested. DCR’s unjust enrichment claim alleged that GPS received payments from Altra that exceeded the scope of GPS’s work on the Project and should have been paid to lower tier subcontractors such as DCR; its complaint sought damages in the amount of $6.1 million plus interest, costs and attorney fees. In August 2012, the applicable parties executed settlement agreements that resulted in the dismissal of the claims against GPS and its surety company, with prejudice, and the assignment of DCR’s mechanics lien claim against the escrowed Altra Project sales proceeds to GPS. In connection with these settlements, GPS made cash payments to DCR in August 2012 that totaled $1,875,000. The payments were funded, in part, by a cash payment received during the year from Delta-T’s parent company in the amount of $275,000. The net amount of $1,600,000 was included as a charge to the cost of revenues of GPS in July 2012. Subsequent to the execution of the settlement agreements and the payments made by GPS, DCR’s former counsel filed notice of a charging lien, claiming that DCR is indebted to counsel in excess of $1.8 million in fees and costs. In addition, a subcontractor to DCR on the Altra Project filed a motion asking the court to set aside the dismissals or, in the alternative, to reconsider them. In October 2012, the court vacated the prior orders of dismissal and permitted DCR’s former counsel and former subcontractor to file complaints. A trial for the charging lien and subcontractor claims was held in April 2013. The court ordered the parties to submit post-trial briefs which were provided to the court in August 2013. The parties await the court’s verdict. The Company intends to vigorously pursue the enforcement of the settlement agreements and the pursuit of the lien claims against the Altra Project assigned to GPS. Due to the uncertainty of the ultimate outcomes of these legal proceedings, assurance cannot be provided by the Company that it will be successful in these efforts. However, management does not believe that resolution of the matters discussed above will result in additional loss with material negative effect on the Company’s consolidated operating results in a future reporting period. No additional provision for loss related to these matters was recorded in the consolidated statement of operations for the six months ended July 31, 2013. If new facts become known in the future indicating that it is probable that a loss has been incurred by GPS and the amount of additional loss can be reasonably estimated by GPS, the impacts of the change will be reflected in the consolidated financial statements at that time. Tampa Bay Nutraceutical Company On or about September 19, 2007, Tampa Bay Nutraceutical Company, Inc. (“TBN”) filed a civil action in the Circuit Court of Florida for Collier County (the “Circuit Court”) against Vitarich Laboratories, Inc. (“VLI”, see Note 15). The causes of action related to an order for product issued by TBN to VLI in June 2007 and alleged (1) breach of contract; (2) fraudulent misrepresentation; and (3) various warranty breaches, among other allegations. TBN alleged compensatory damages in excess of $42 million. Since 2011, the parties were engaged primarily in legal activity concerning TBN’s failure to provide proper discovery responses to VLI. In August 2012, the Circuit Court ordered TBN to pay to VLI, by September 17, 2012, a sanction award in the amount of $295,000 covering the costs and expenses incurred by VLI as a result of TBN’s repeated disobedience of court orders. As TBN failed to do so, the Circuit Court issued a judgment in favor of VLI, ordering that TBN’s pleadings in this matter be stricken and dismissing all of plaintiff’s claims with prejudice. However, in September 2012, TBN filed an appeal in the Florida’s Second District Court of Appeal (the “Appeal Court”) for reconsideration of the sanction award decision. In July 2013, the Appeal Court affirmed the Circuit Court’s decision. As a result, the judgment of the Circuit Court has now become final. In connection with this matter, VLI had established a reserve in its financial statements for expected litigation costs in the amount of approximately $1,300,000. Now that the action has terminated, VLI reversed the legal reserve which, accordingly, has resulted in a favorable adjustment to selling, general and administrative expenses in the Company’s condensed consolidated financial statements for the three and six months ended July 31, 2013.

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