Legal Proceedings

9 Months Ended

Sep. 30, 2012

Legal Proceedings [Abstract]

Legal Proceedings

11. Legal Proceedings

Intellectual Property Matter

In 2009, Lufkin Industries, Inc. ("Lufkin") brought suit in a Texas state court against the former owners of a business acquired by Lufkin in order to protect certain of the Company's intellectual property rights.  The former owners responded by counter suit against Lufkin as well as its outside counsel for that transaction, Andrews Kurth LLP ("AK"), claiming that Lufkin had acquired title to their inventions improperly. The countersuit was severed from the original lawsuit, the parties were realigned, and the severed lawsuit was removed from the Texas state court to a U.S. District Court in Midland, Texas in order to address intellectual property and patent issues as well as other claims made by the parties. After reviewing the facts and positions of the parties, in February 2011, the U.S. District Court granted summary judgment for Lufkin disposing of all federal claims and remanded the remainder of the case back to the Texas state court.

As a defendant, AK independently elected to appeal to the U.S. Court of Appeals for the Federal Circuit (and provisionally to the Fifth Circuit) the decision of the U.S. District Court to remand the case, as well as other issues. Thereafter, both plaintiffs, as well as defendant Lufkin (through its own counsel), filed separate appeals to the U.S. Court of Appeals for the Federal Circuit (and provisionally to the Fifth Circuit) to challenge other decisions of the U.S. District Court. The plaintiffs filed motions to dismiss these appeals based on lack of jurisdiction.  On May 19, 2011, the Fifth Circuit issued an order that the motion to dismiss would be carried with the case. In addition to the appeals, the plaintiffs asked the Texas state court to proceed with a trial on the remanded case. The Texas state court set the case for trial over defendants' objections. AK then returned to the U.S. District Court and obtained an injunction against the plaintiffs and their counsel from pursuing the Texas state court case until resolution of the federal appeals. Plaintiffs filed a motion with the U.S. District Court to reconsider that injunction.  In July 2011, the U.S. District Court denied the plaintiffs' motion for reconsideration. Plaintiffs appealed the injunction to the U.S. Court of Appeals for the Federal Circuit (and provisionally to the Fifth Circuit).  On February 1, 2012, the Federal Circuit issued an order dismissing both sets of appeals for lack of jurisdiction and transferring the appeals to the Fifth Circuit.   On February 15, 2012, plaintiff Gibbs filed in each appeal in the Fifth Circuit "Gibbs F.R.A.P. 8 Motion Seeking Suspension of Injunction Prohibiting Litigation in State Court of Remanded Case."  On February 29, 2012, plaintiff Nolen filed similar motions in both appeals. On June 20, 2012, the Fifth Circuit issued orders that the Motions Seeking Suspension of the Injunction would be carried with the cases. On July 9, 2012, AK, Bush and Lufkin filed a Motion Requesting Consolidation of Appeals. That motion was denied on July 12, 2012.  In September 2012, the Fifth Circuit ruled in favor of the plaintiffs by vacating the injunction prohibiting the plaintiffs from litigating in state court.  Lufkin expects court proceedings in Texas state court to commence in the fourth quarter of 2012, while a number of substantive appeals remain before the Fifth Circuit.

Due to the number of issues currently on Federal appeal, it is unclear what issues would be left for trial after such appeal and, further, the outcome of any proceedings in state court. Consequently, Lufkin cannot determine the potential range of exposure from this litigation, which Lufkin intends to continue to defend vigorously. Lufkin does not believe that the ultimate outcome of this matter will have a material adverse effect on its financial position.

Other Matters

There are various other claims and legal proceedings arising in the ordinary course of business pending against or involving the Company wherein monetary damages are sought.  For certain of these claims, the Company maintains insurance coverage while retaining a portion of the losses that occur through the use of deductibles and retention limits.  Amounts in excess of the self-insured retention levels are fully insured to limits believed appropriate for the Company's operations. Self-insurance accruals are based on claims filed and an estimate for claims incurred but not reported.  While the Company does maintain insurance above its self-insured levels, a decline in the financial condition of its insurer, while not currently anticipated, could result in increased risk.  It is management's opinion that the Company's exposure under such circumstances or involving any other non-insured claims or legal proceedings would not materially affect its consolidated financial position, results of operations, or cash flow.