Former employes of U.S. News & World Report took their battle against current employes to court yesterday, arguing that the company should be barred from distributing the bulk of the proceeds from its recent $178 million sale until the former employes' lawsuit is resolved.
In a hearing at U.S. District Court, an attorney representing 230 former employes argued that U.S. News had intentionally undervalued the stock in the employe-owned company by failing to take into account the true worth of valuable real estate holdings in the West End of the District.
As a result, the former employes -- who left the company before 1981 -- were cheated out of a total of $45.4 million when they sold their stock back to the company, argued attorney Alan Raywid. When interest is added to that sum, the former employes are entitled to a total of $90 million, Raywid contended.
To compensate for their loss, Raywid argued the former employes should receive some of the proceeds of the magazine's recent sale to real estate magnate Mortimer B. Zuckerman. And to guarantee that they are compensated, no distributions of funds to current employes should be made until the merits of the former employes' lawsuit are heard and decided, Raywid argued in seeking a preliminary injunction against distribution of the proceeds.
Some $28 million was distributed to employes when the sale was finalized last October; another $13 million was placed in notes to be distributed over a 15-year period to former directors.
The remaining $135 million is scheduled to be distributed to employes later this month. It is that amount -- as well as the undistributed amount of money in the $13 million of notes -- that the former employes want held pending the outcome of the lawsuit.
Lawyers for U.S. News, however, argued against the former employes' bid. "We have not been shown any evidence in the record to support . . . a charge" that U.S. News -- and its directors, in particular -- had a "sinister motivation" in determining the value of company stock, said Leslie A. Nicholson Jr., lawyer for U.S. News.
Willis B. Snell, lawyer for the American Appraisal Associates, which appraised U.S. News' stock each year, said his company acted properly in not assessing full market value to U.S. News' real estate. Because the magazine was using the land as part of its business, AAA said it would have been incorrect in adding the real estate's market value to the value of U.S. News' assets to come up with a stock price. For if the land were sold, U.S. News would have to find another place to do business, which could cost far more than the value of its existing property, Snell said.
Lawyers for current employes are scheduled to present their case today. However, in foreshadowing his arguments, Richard J. Leighton contended that the group of former employes seeking money from the sale also includes four former directors. "The plaintiffs allege that all of the past directors were basically swindlers," Leighton said after the hearing. If so, it is not fair for those four -- who would be the largest beneficiaries in the suit -- to gain more money at the expense of the current employes who are not directors, Leighton argued.
Judge Barrington D. Parker said he hoped to rule on the preliminary injunction request before March 31. In any case, however, Barrington asked U.S. News not to distribute the remaining monies until his order is issued.