Weyerhaeuser Company will appeal a decision made by a U.S. Bankruptcy Judge awarding $460 million to the estate of diaper producer Paragon Trade Brands. Weyerhaeuser has not recorded a charge against earnings because it believes the bankruptcy decision will ultimately be reversed. Generally accepted accounting principles do not permit a reserve to be established if there is a high likelihood that the company will not be required to pay damages.
The bankruptcy court's decision arises out of Weyerhaeuser's sale of its infant diaper business to Paragon in February 1993. In May 1999, the bankruptcy estate of Paragon commenced a lawsuit against Weyerhaeuser alleging that it had breached warranties in the sale agreements by failing to have licenses at the time of the sale to certain patents. In June 2002, the bankruptcy court issued an oral opinion granting partial summary judgment on liability in favor of the Paragon estate.
The court issued its damage award on April 5, 2005. Weyerhaeuser has consistently maintained that the sales agreement transferred all liabilities of the infant diaper business, including any potential liabilities relating to the patents involved in the litigation, to Paragon as part of the sale and that, accordingly, the suit is without merit. The company has said that it plans to take every step available to seek to have the bankruptcy court's decision reversed.
Paragon's diaper business was purchased by Tyco Healthcare in 20001.