Grant Thornton objects to Corporacion Durango's petition for protection

By Jeff Pines

Washington, June 2 - Accounting firm Grant Thornton LLP objected to Corporacion Durango SA de CV's petition for protection from lawsuits in U.S. courts while it reorganizes itself under Mexican law. The accounting firm is a defendant in a lawsuit filed by Durango in Texas.

It said Durango wants protection from all lawsuits except for its case against Grant Thornton.

The accounting firm asked the court to either put a hold on all Durango's U.S. lawsuits while the Mexican company reorganizes, or none of them.

In a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York, Grant Thornton said Durango is attempting to use the U.S. Bankruptcy Code as a "sword and a shield," which case law prohibits.

Durango, a Mexican paper and paperboard company, bought the Gilman Paper Co. from HG Estate LLC, which prepared stand-alone financial statements for Gilman. Grant Thornton audited those statements and also reviewed financial statements for the six months ended June 30, 1999. Durango issued three notes for $45.6 million to pay for the purchase.

On Nov. 8, 2002 Durango went to arbitration to recover damages for fraud and breach of contract in the purchase of Gilman Paper. It argued HG misrepresented certain expenses as capital expenses and overstated the full life of machinery and equipment, which meant the income and assets purchased were overstated, Grant Thornton said.

Durango wants the notes it issued for the purchase declared null and void and $83 million in compensatory damages for fraud.

HG Estates wants its money, and on Dec. 19, 2002 it filed a lawsuit against Durango in the U.S. District Court for the Southern District of New York, but the case has gone to arbitration.

An oral argument for the arbitration is scheduled for July 15.

Meanwhile, Durango filed a lawsuit against Grant Thornton in Harris County, Texas, on Nov. 26, 2003. It alleged the accounting firm committed fraud and negligent misrepresentation in its audit. Durango wants an unspecified amount of compensatory damages. So far, attorneys have not interviewed potential witnesses and no documents have been produced. The case is clearly connected with the case being arbitrated and should not be treated separately, Grant Thornton said.

A June 4 hearing is scheduled.

Durango filed for bankruptcy protection in U.S. courts on May 21. Its Chapter 11 case number is 04-13487.

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