Monday, January 13, 2014

Inky Lawyers Huddle With Judge As Auction Block Looms

Inky, Daily News And Philly.com Head For Auction Block
By Ralph Cipriano
for Bigtrial.net

Lawyers gathered in Philadelphia Common Pleas Court this morning to consider whether Judge Patricia McInerney has the jurisdiction to auction off the city's two daily newspapers.

Owner Lewis Katz started the current round of litigation by filing a motion in Philadelphia Common Pleas Court. Katz seeks to dissolve Interstate General Media [IGM], and publicly auction off the company's assets that include The Philadelphia Inquirer, the Philadelphia Daily News, as well as the philly.com website.

Rival owner George Norcross responded by filing a petition in the Court of Chancery in the State of Delaware to compel a private auction restricted to the company's five feuding owners.

Norcross filed his petition in Delaware, where IGM was incorporated, rather than in Philadelphia, where the company does business. The Norcross ownership faction has argued that if the judge allows a public auction, hedge funds may come in and bid up the price, increasing the likelihood that the new owners will be saddled with heavy debt.

Judge McInerney met behind closed doors with lawyers for a brief conference on what the judge described as "housekeeping matters." When they emerged from chambers, Judge McInerney gave Katz's legal team until Jan. 16th to file their brief; and the Norcross team until Jan. 22 to file their response.

The decision over whether the IGM dispute should be resolved in the Delaware or Pennsylvania courts, however, is a potentially tricky issue. There are several legal reasons why the war over the Inky could be transferred to the Delaware courts. Or, in a nightmare scenario, the dispute could be simultaneously contested in both the Pennsylvania and Delaware courts, if judges in both states decide they have jurisdiction.

Last fall, when rival owners feuded over the firing of Inquirer editor Bill Marimow, Katz sought to overturn the firing in Philadelphia Common Pleas Court. Katz filed a lawsuit that called for Marimow to be reinstated, and the man who fired the editor, Inky publisher Bob Hall, to be terminated.

Norcross countersued in the Delaware courts, seeking to retain Hall and keep Marimow retired.

Judge McInerney solved that jurisdictional issue by saying she would preside over the dispute because Marimow was fired in Pennsylvania. The judge subsequently ordered the return of both Hall and Marimow, preserving a corporate stalemate.

This time around, the jurisdiction dispute is not as easy. The controversy to be resolved is purely a matter of Delaware law. Additionally, both IGM and the Katz company that sued to dissolve IGM  were incorporated in Delaware.

According to IGM's limited liability agreement, the rights of the parties should be interpreted in accordance with Delaware law. The agreement calls for the dissolution process to occur under the provisions of the Delaware Limited Liability Company Act. But there's no specific provision in the limited liability agreement that stipulates any dispute must be resolved in the Delaware courts.

Meanwhile, the Newspaper Guild of Greater Philadelphia filed a petition this morning to intervene in the case. The Guild said in a bulletin that they have "one potential outside investor" who might be interested in teaming up with the Guild to buy the two newspapers and philly.com website. The Guild is seeking the right to bid at any future auction, even if it's a private one.

The dispute among the current ownership group "has escalated to the point that the integrity and viability" of the two newspapers, along with 550 Guild jobs, "are in jeopardy," the Guild petition states.

"The company seems to be gridlocked," Bill Ross, the Guild's executive director, explained outside the courtroom, after today's brief conference was over. "No major decisions can be made," Ross said. "Our members are trying to find out what's going on. We're in the dark."

This is what gridlock looks like.

Inky Publisher Bob Hall was supposed to retire at the end of last year. Marimow was supposed to be gone by the end of April.

But under the current IGM partnership agreement, a two-member management team composed of Katz and Norcross has to agree on any important decision. Katz and Norcross, however, can't agree on anything.

Bob Hall doesn't have a  contract. He's an at-will employee who serves at the behest of the company.

It will take two votes from the management committee to fire Hall. So under the current stalemate, Bob Hall isn't going anywhere. He's still on the job.

Bill Marimow has a contract; it expires on April 30th. It will take two votes from the management committee to renew that contract. So under the current stalemate, Bill Marimow has no chance of being rehired at the end of April. When he goes, the Inquirer will be left without an editor. And it will take two votes of the management committee to agree on a replacement.

The Guild feels like it's been screwed over.

"These owners came to us a year ago demanding $6 million in givebacks or they would sell the company," a Guild bulletin stated. "Well they got their $6 million from us and millions more from the other unions and independents, and here we are one year later with a part-time publisher who may or may not still work here, no assistant publisher, no editor for philly.com, and they're putting the company up for sale."

Hall is still on the job, but the assistant publisher quit, and nobody was hired to replace him. Also, philly.com needs an editor.

The new owners had promised the unions that after years of self-sacrificing, they would share in company profits this year, said Lisa Lori, the lawyer who filed the Guild petition to intervene. But if there's a public auction, and everybody has to hire more lawyers and accountants, those profits might disappear.

The company has changed hands five times since 2006. Meanwhile, members of the Newspaper Guild have seen nothing but "pay cut after pay cut," along with unpaid furloughs and buyouts, Lori complained.

"It no longer matters whose fault it is," the Guild bulletin said of the current Inky ownership feud. "It has to stop."

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