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Suit filed over idle plant

May 29, 1998|By JULIE E. GREENE

The partnership that owns a failed paper recycling plant in Hagerstown has filed a $130 million suit alleging fraud and breach of contract in the construction of the plant.

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The lawsuit also alleges that some defendants manipulated plant production test results and shredded documents.

The 202-page court document was filed in U.S. Bankruptcy Court in New York City on May 6 by Hagerstown Fiber Limited Partnership in care of Pencor Inc.

It lists 26 defendants, including Carl C. Landegger, who had ties to several of the companies involved in the plant's construction, equipment and operation.

Some of the defendants are members of the partnership that filed the suit.

The suit alleges Landegger committed fraud and breached his fiduciary responsibility to the partnership on several occasions.

The lawsuit alleges Landegger conspired with the builder, SBCCS Constructors Joint Venture, to cover up that the builder couldn't complete the job and meet specific requirements by the Oct. 30, 1996, deadline.

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Peter Bailey, SBCCS' project director, said he had no comment on the lawsuit.

Landegger was out of town and not available for comment on Thursday, said his assistant, Robert Harris, in New York City. Harris is a co-defendant in the lawsuit.

Harris said the lawsuit was "specious and unfounded."

Landegger is chairman of Pencor First Fiber Inc., which used to be general partner of Hagerstown Fiber Limited Partnership, said Robert Catzen, vice president of Pencor Inc. in Baltimore.

Catzen said the partnership's minor partners removed Pencor First Fiber as general partner because of Landegger's apparent conflict of interest. Pencor Inc. was made general partner.

The lawsuit alleges Landegger was negotiating from both sides of the table during arbitration hearings between Hagerstown Fiber Limited Partnership and SBCCS. He has ties to both companies.

Harris said Pencor First Fiber has filed in New York State Supreme Court to have the firm reinstated as general partner.

According to a supreme court spokesperson, Pencor First Fiber filed a suit on April 1 against Hagerstown Fiber Limited Partnership, but details of the suit were not available over the telephone.

Other major partners of the Hagerstown Fiber Limited Partnership are SBCCS and Black Clawson Co., which is chaired by Landegger.

The plant at the intersection of Memorial and Eastern boulevards was shut down last August, with company officials citing a depressed market for recycled paper. Later that month a receiver was appointed to maintain the plant and defend it against litigation.

According to allegations contained in the lawsuit, when the receiver took over the mill on Aug. 14, 1997, "shredded documents were found on site, as well as other evidence of efforts to destroy or remove records concerning Landegger's activities at the mill."

That evidence involved file cabinets that had been removed, computer disks that had been damaged or destroyed and records, including daily logs tracking pulp production, which had been shredded, the lawsuit alleges.

The plant was taken out of receivership when Hagerstown Fiber Limited Partnership filed for Chapter 11 bankruptcy on March 20, Catzen said.

The lawsuit lists 54 counts, including conspiracy to commit fraud, breach of contract and breach of fiduciary duty. Not all counts refer to each defendant.

Under the Chapter 11 bankruptcy filing, the partnership is protected from creditors' lawsuits while it reorganizes its finances.

According to the bankruptcy filing, Hagerstown Fiber Limited Partnership has $168 million in assets and $184 million in liabilities.

The plant's future is in the hands of the bankruptcy judge, who must decide whether to sell it to pay off the creditors, Catzen said.

Catzen said the plant will reopen. "It's only a question of when and who," he said.

People have expressed an interest in buying the plant, but no deals have been struck, Catzen said. Any offers would have to go through the judge, he said.

J.T. Atkins, financial adviser to the plant's bondholders, said the plant could be separated from the bankruptcy proceedings if new investors were found. Atkins is managing director of Oppenheimer & Co.

The bondholders are entitled to a some proceeds from the bankruptcy, but Atkins wouldn't say how much.

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