HOUSTON, April 6 – LAWFUEL – The Law News Network — U.S. Bankruptcy …

HOUSTON, April 6 – LAWFUEL – The Law News Network — U.S. Bankruptcy Judge Margaret Murphy has entered an Order and Judgment holding Weyerhaeuser Company liable to the bankruptcy estate of Paragon Trade Brands for $457,858,150 million in damages, plus attorneys’ fees and interest.

This dispute stemmed from a 1993 asset sale by Weyerhaeuser to Paragon
which closed concurrent with the sale of 100 percent of Paragon’s newly issued
stock to public investors. Weyerhaeuser received more than $200 million in
proceeds from the IPO. At the time of the offering, Weyerhaeuser had
incorporated what it knew was patented features into diapers it sold in the
business it transferred to Paragon, but did not have the licenses from its
competitors for use of the technology. As a result, Paragon’s use of this
patented technology resulted in a patent infringement lawsuit against Paragon
by Procter & Gamble a year after the IPO, and another case filed after the IPO
against Paragon by Kimberly-Clark Corporation.

Paragon’s loss of the P&G
patent case in late 1997 and the huge damages verdict and injunction that were
issued set in motion Paragon’s bankruptcy filing. In this action by Paragon
against Weyerhaeuser, the Court previously held that four warranties included
as part of the agreement between Weyerhaeuser and Paragon were breached as a
matter of law, because, among other matters, the intellectual property assets
transferred to Paragon by Weyerhaeuser were not adequate to conduct the
business that Weyerhaeuser was conducting at the time of the IPO. The
$457,858,150 million damages judgment follows a 15-day damages trial held to
determine the damages the Paragon estate is entitled to recover based on
Weyerhaeuser’s breach of the warranties.

Judge Murphy had the following to say in her Order: ” … The gravamen of
Weyerhaeuser’s liability is that, in addition to the funds Weyerhaeuser
received in connection with the IPO the primary benefit of the bargain to
Weyerhaeuser was divorcing itself from what it knew to be an enormous
potential patent infringement liability that was substantially certain to
occur. Additionally, Weyerhaeuser was able to reap the benefit of an
unpredictably successful IPO. To reward Weyerhaeuser’s strategic divestment by
limiting damages … would encourage other large corporations to evade
liabilities by transferring assets to a subsidiary and divesting themselves of
their liability-laden subsidiaries … Weyerhaeuser’s apparent strategy was to
defer the inevitable as long as possible. From this perspective, it has
succeeded: Instead of paying the royalties in 1992 when they were demanded, it
has postponed the reckoning until now.”

Lawyers representing Randall Lambert, the litigation claims representative
for Paragon, were John Lee and Scott Locher of Andrews Kurth (Houston), and
co-counsel Parker C. Folse, III of Susman Godfrey L.L.P. (Seattle) and Charles
E. Campbell of McKenna Long and Aldridge L.L.P. (Atlanta). Lambert says, “I
commend Andrews Kurth for their efforts in bringing this to trial and seeking
justice on behalf of the shareholders.”

Lee, who represented Paragon shareholders in the original investigation
and now represents Lambert in bringing the claims on Paragon’s behalf, had the
following to say: “Judge Murphy’s findings establish that Weyerhaeuser’s 1993
IPO of Paragon was tainted by fraud and failure to disclose the gravity of the
patent infringement risk confronting Weyerhaeuser, and, after the IPO,
Paragon. While Weyerhaeuser managed to skirt liability for securities fraud in
the offering, Judge Murphy properly held it accountable for breaching the
warranties it was required to make to sell Paragon in the IPO. This Judgment
will enable the Paragon shareholders and creditors who were wiped out from the
patent claims and resulting bankruptcy to recover substantially all of their

With respect to Weyerhaeuser’s statement that it intends to appeal the
liability holding and damage judgment, Lee had the following to add: “Judge
Murphy’s well-reasoned and well-supported damage award follows mainstream
legal principles. We are fully confident we will prevail on appeal, just as we
have prevailed on every one of Weyerhaeuser’s previous challenges to the
liability holding. If Weyerhaeuser continues to postpone the day of reckoning
through appeal interest will continue to accrue and the judgment will continue
to grow. Lambert has both the temerity and the duty to see the case through
conclusion, and will.”

Andrews Kurth LLP, founded in 1902, has more than 400 lawyers and eight
offices in Austin, Dallas, Houston, London, Los Angeles, New York, The
Woodlands and Washington, DC. The firm has an international client base and
has experience in all major industries and areas of business law.

For more information, contact:
John Lee, 713-220-4260
Michelle Miller, Communications Manager, 713-220-3875

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