A federal judge yesterday tossed out Hollinger International Inc.'s $1.25 billion suit against embattled press tycoon Conrad M. Black and other top corporate officials, ruling that the company could not use racketeering laws to recover money it claims Black and the others stole.
In November, Black resigned as chief executive of Hollinger, which owns the Chicago Sun-Times, Jerusalem Post and other papers, after an internal investigation alleged that he and other company executives siphoned off money that belonged to the company.
Black has 73 percent of the voting rights and 30 percent of the equity in Hollinger, which he controls through his holding company. In late August, a lengthy Hollinger company investigation charged that Black and others ran a "corporate kleptocracy" at Hollinger from 1997 to 2003, pocketing more than $400 million in revenue that should have gone to the company, draining off 95 percent of the company's adjusted net income.
At the time, Black said the report was filled with "outright lies."
In dismissing the suit, Judge Blanche M. Manning of the U.S. District Court of Northern Illinois said Hollinger's attempt to use federal racketeering laws to recoup company money from Black and others failed to pass the required tests.
The judge dismissed the racketeering charges, effectively ending the suit. However, the judge's action made it possible for Hollinger to pursue civil action at the state level against Black and others for breach of fiduciary duties.
In the ruling, Manning wrote that the court "is not making any determination as to validity of the fraudulent actions underlying these claims." Hollinger said the suit was dismissed on a technicality and that the company still has a strong case against Black and the others.
"We continue to believe that Hollinger International's entire suit is tabloid journalism masquerading as law and, if any of the claims are re-filed, we will look forward to exposing, in an appropriate legal forum, the falsehoods on which those claims are based," Jim Badenhausen, a spokesman for Black, said in a statement yesterday.
"We always believed that Hollinger International's racketeering claim highlighted the overreaching and exaggerated nature of this lawsuit," Badenhausen said.
Hollinger, however, said that claims against Black and others will be "pursued vigorously" by the company board's special committee that investigated Black. Manning has set an Oct. 14 meeting with Hollinger so the company can tell the court how it intends to proceed against Black and the others, including its former chief operating officer, F. David Radler.
"The court's dismissal of the special committee's claims on technical grounds does not in any way diminish the strength or merits of the breach of fiduciary duty claims that have been asserted against these defendants," Gordon A. Paris, Hollinger's interim chairman, said in a statement yesterday. "In the interest of the company and its shareholders, the special committee will pursue these claims aggressively and seek restitution for funds diverted by the defendants from the company."
Earlier this week, Hollinger revealed that during the same period when Black and others were allegedly misappropriating funds, the Sun-Times and other company papers were inflating circulation figures, the Sun-Times by as much as 10 percent as late as April of this year.
The company will pay advertisers $27 million to compensate for overcharging them for ads based on the inflated circulation figures, the company said. Circulation inflation occurred at other Hollinger papers, such as the Jerusalem Post, but the company termed those overstatements "immaterial."