A Philadelphia Common Pleas Court judge has to decide whether she has jurisdiction to preside over the dissolution of Interstate General Media [IGM], owners of The Philadelphia Inquirer, the Philadelphia Daily News, and philly.com.
IGM is a Delaware corporation doing business in Pennsylvania. The question is, which state's courts should preside over the dissolution of IGM, and the auctioning off of the two newspapers and website?
In a 16-page memorandum of law filed Jan. 16th, attorney Richard A. Sprague, writing on behalf of a minority ownership faction headed by Lewis Katz and H.F. "Gerry" Lenfest, states that the Delaware Courts do not have "exclusive jurisdiction over the dissolution of IGM."
The Delaware Court Of Chancery has stated that sister jurisdictions may "adequately address dissolution issues relating to Delaware companies," Sprague writes.
"IGM's sole business is the operation of Philadelphia newspapers and media, its principal place of business is Philadelphia, and all of its operations and assets are in Philadelphia," Sprague writes. "Dismissal is unwarranted in this case where the company is a local concern." Sprague asks Philadelphia Common Pleas Court Judge Patricia McInerney to take jurisdiction over the case, and appoint a trustee to "dissolve IGM."
However, in a 30-page opposing memorandum of law filed Jan. 22, attorney Robert C. Heim, writing on behalf of a faction of majority owners headed by George Norcross, states that the Sprague memorandum "is premised upon the deeply flawed assumption" that Judge McInerney "has jurisdiction to issue a judicial decree pursuant to Delaware law dissolving a Delaware limited liability company."
Heim warns of dire consequences if Judge McInerney decides she's in charge of the dissolution.
According to IGM's governing Limited Liability Company Agreement, IGM may be dissolved "only under the Delaware Limited Liability Company Act," Heim writes. "The plain language of the Delaware LLC Act only permits the Delaware Court of Chancery to issue an order of judicial dissolution."
"Hence, under both the [IGM] LLC Agreement and the Delaware LLC Act, the Delaware Court of Chancery has indisputable -- and arguably exclusive -- jurisdiction to dissolve IGM by judicial decree, while this Court has none," Heim wrote Judge McInerney.
The "at best shaky underpinnings of this court's jurisdiction over IGM's dissolution provide a ground for appeal that can be erased by any party, by any court, at any time," Heim writes. "In other words, there is a serious risk that any judgement" by Judge McInerney "regarding the dissolution of IGM could be nullified on appeal on jurisdictional grounds, even after the dissolution took place," Heim writes in bold print.
A successful appeal, Heim writes, would force the warring ownership factions "to re-litigate the very same issues before the Delaware Court of Chancery ... causing needless, and potentially detrimental, delay."
Heim calls on Judge McInerney to stay the current lawsuit filed by the minority ownership faction in Philadelphia, and allow the suit filed by the majority ownership faction in the Delaware courts to proceed.
In addition to having Delaware law going against it, Heim writes, "There are no grounds in Pennsylvania law for this Court to exercise subject matter jurisdiction over an action to dissolve a foreign limited liability companies such as IGM."
Both ownership factions filed competing lawsuits in Delaware and Philadelphia last October, after the firing of Inquirer editor Bill Marimow by Publisher Bob Hall. The minority owners headed by Katz, suing in Philadelphia, sought to have Marimow reinstated and Hall fired.
The majority owners headed by Norcross, filing in Delaware, sought to keep Marimow in retirement and leave Hall on the job as publisher.
Judge McInerney took jurisdiction over that dispute because Marimow had been fired in Pennsylvania. She subsequently ruled that both Marimow and Hall should be reinstated, preserving the current corporate stalemate.
During a Jan. 14th phone conference, Vice Chancellor Donald F. Parsons Jr. of the Delaware Court of Chancery is quoted in the Sprague filing as saying he's not promoting a legal wrestling match.
"I think both Judge McInerney and I share the view -- although we haven't discussed it explicitly -- that we ought to go forward with this dissolution action in just one place and not in two," Parsons said.
"But I'm not trying to get in a state where I'm kind of racing Judge McInerney or anything like that," Parsons said. "But one that I won't be doing is trying to jump ahead of her in terms of deciding this issue ... And if it's her preference to go ahead and decide this issue, then I would certainly go along with that."
In that same conference, attorney Heim said that Judge McInerney has previously stated in a Jan. 13 briefing that the case may be headed to Delaware.
"I would say that the briefing has to do with whether or not the Philadelphia court should go foreword with the dissolution proceeding involving a Delaware LLC pursuant to the Delaware LLC Act," Heim said. "And I think Judge McInerney's instinct -- she stated it at the meeting, at the conference -- was that the Delaware case should go forward and should proceed."
In addition to deciding which court has jurisdiction, there's one other issue to be resolved. The Katz and Lenfest faction want an open auction extended to all bidders. The Norcross faction wants a private auction restricted to the current five feuding owners of IGM.
"As a result of Katz and Norcross's inability to agree on virtually any business decision involving IGM, IGM's board and its management committee are deadlocked and unable to make important business decisions," Sprague writes. "Further, there is no dispute among the owners that the resulting paralysis is threatening the viability of the enterprise, necessitating expeditious dissolution and appointment of a trustee."
A petition filed in Delaware by the majority owners agrees.
"With Katz and Norcross deadlocked, neither IGM's Management Committee nor its Board of Directors can take any meaningful action," the petition states. "Meanwhile, there is no mechanism in the LLC agreement to break the deadlock."
Publisher Hall is still on the job, despite the wishes of minority owner Katz.
In a letter sent last Dec. 12, Katz wrote Norcross and Hall "to make it perfectly clear that as of Dec. 31, 2013, Robert J. Hall will no longer be the 'part time' Publisher at IGM or PMN." Katz said he wanted both Norcross and Hall to know he was "strongly opposed to Mr. Hall's continued employment in any capacity past Dec. 31, 2013."
However, in a filing in the Delaware courts by the majority ownership faction it states, "It is the position of the Majority Members that Hall continues to serve as the Inquirer's publisher to date and that an affirmative vote is necessary to terminate his employment, not continue it."
The Katz letter "raised the specter that, absent an end to the deadlock between him and Norcross, there would be no editor as of April 30, 2014, and at the least, a cloud over the tenure of the Publisher," attorney P. Clarkson Collins Jr. wrote in a filing on behalf of the majority owners in the Delaware courts. "Thus, the immediate prospect is that at the paper could find itself with no publisher and no editor."