On Jan. 25, 2005, the Fremont General Corporation’s motions to dismiss the lawsuit brought by the State of California Insurance Commissioner on behalf of Fremont Indemnity Company against Fremont General were argued and heard before the Superior Court of the State of California. The complaint alleges the improper utilization by the Company of certain net operating losses allegedly belonging to Fremont Indemnity.
On Jan. 26, 2005 the court issued its rulings dismissing all the causes of action in the complaint as follows:
The court found that the company properly utilized the net operating losses in accordance with the July 2, 2002 Letter Agreement among Fremont Indemnity, the company and the Commissioner. As a result of this finding, all causes of action were dismissed without leave to amend, except for the 7th cause of action for alleged concealment by the company of a potential reinsurance dispute, which was dismissed with leave to amend. The Commissioner has 20 days from the date of the ruling to amend the 7th cause of action with allegations that are fact-specific. The company believes that the 7th cause of action is without factual merit.
In addition, the court rejected the Commissioner’s request for findings that the company’s use of the net operating losses and worthless stock deduction were voidable preferences and/or fraudulent transfers. The court also rejected the Commissioner’s request for injunctive relief to force the company to amend its prior consolidated income tax returns to remove and forgo the worthless stock deduction for its investment in Fremont Indemnity.
These rulings do not address or have legal effect on a related lawsuit filed against the company by the Commissioner on behalf of Fremont Indemnity as successor in interest to Comstock Insurance Company, a former subsidiary of the company. This lawsuit is currently pending before the same court. The company believes that this complaint also involves issues that were resolved by the July 2, 2002 Letter Agreement and that the lawsuit lacks merit.
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