By: Mark Fitzgerald
At first glance, last week’s ruling in the federal lawsuit by Louisiana’s teachers pension plan appeared to be a big, big victory for former newspaper mogul Conrad Black and the bold-face names he appointed to the board of Chicago Sun-Times publishing company Hollinger International Inc.
U.S. District Court Judge David H. Coar in Chicago began and ended his 43-page ruling with a liberal use of the word “DISMISSED,” in considering several charges. It left just two counts to be argued, and even part of Count V was DISMISSED.
Not surprisingly, the few media outlets that bothered to cover the decision portrayed the ruling as a rare courtroom win for Black and the other former key executives and directors of Hollinger, now known as the Sun-Times Media Group. (Black, who is also being sued by the U.S. Securities and Exchange Commission, faces federal criminal charges for the alleged looting in a case that goes to trial next March.)
But in between all those DISMISSED rulings, Coar’s decision indicates a rough road still lies ahead for Black and the luminaries who once filled the Hollinger board, including former Secretary of State Henry Kissinger; former Illinois Governor James Thomson; former U.S. Ambassador Richard Burt; former U.S. Under Secretary of Defense Richard Perle.
Coar repeatedly raps the defendants, especially the former directors — whom he characterizes as having ?completely abdicated any responsibility related to the running of a large corporation.”
?The recklessness with which the board and audit committee approached their review of Hollinger?s financial decision is evident in their treatment of the sham management agreements between Hollinger and Ravelston, according to the plaintiffs,? the judge writes. ?Every year, Radler proposed a fee on behalf of Ravelston. After cursory discussion, Thompson always agreed to the figure without asking for any documentary support. The audit committee never questioned the rationale behind the agreements, did not develop a method for assessing the fees, nor did they ask what the fees covered or why they were so high. The full board never discussed the fees.?
The board, Coar wrote, apparently ?served no purpose other than to collect fees.?
Now, much of this rhetoric must be taken with a grain of salt, because Coar, for the purposes of determining whether to dismiss counts of the suit before trial, was assuming the truth of what the Teachers Retirement System of Louisiana (TRSL) and other plaintiffs allege in their lawsuit. Coar makes it clear that the facts of the case still have to be determined in court.
Nevertheless, Coar kept alive some key charges TRSL is leveling against the former Hollinger executives and directors.
Black and the other defendants still face accusations that they misrepresented the terms of Hollinger?s big sell-off of community newspapers, with high and allegedly improper ?non-compete? payments pocketed by key executives.
They continue to face charges they misrepresented the terms of the ?management fees? between Hollinger International and Hollinger Inc., the holding company controlled by Black. TRSL alleges Hollinger Inc. provided no real services for those payments.
And Coar kept alive accusation that the defendants failed to disclose that some newspapers were sold well below market price, including an instance in which a paper that one group had offered to buy for more than $1 million was sold — to a Radler-controlled company — for just one dollar.
Furthermore, many of those DISMISSED counts were stricken for technical reasons. The ruling fairly groans with detailed examinations about whether the TRSL?s complaint in a particular count ?creates a strong interference of scienter? or if it is barred by SLUSA, you know, the Securities Litigation Uniform Standards Act of 1998.
When TRSL first filed its lawsuit back in February of 2004, this column predicted it would be a sleeper that could be devastating to Black and other former Hollinger figures. (http://www.editorandpublisher.com/eandp/search/article_display.jsp?vnu_content_id=2083410)
In the corporate world, after all, TRSL is a proven giant-killer. It led the litigation against HealthSouth and its former CEO Richard Scruchy, landing itself a seat on the company?s reorganized board in the ensuing settlement. The law firm representing TRSL in the Hollinger lawsuit, Delaware-based Grant & Eisenhofer was among the lead counsels in the $300 million settlement of the shareholders suit against Oxford Health Systems in 2003, and it is the lead counsel in shareholder cases against such infamous corporate wrongdoers as Global Crossing, Parmalat, Refco and Tyco.
Conrad Black and his former cronies won a handful of DISMISSED?s last week — but they are a long ways from ridding themselves of a formidable courtroom foe.