ILNews

Behind the News: '80s anti-takeover law helped sow Emmis win in court

Greg Andrews
September 26, 2012
Keywords
Back to TopCommentsE-mailPrintBookmark and Share

Emmis Communications Corp.’s tactics as it plotted to strip preferred shareholders of their rights were “admittedly unusual,” Judge Sarah Evans Barker acknowledged in her Aug. 31 ruling that let the company go forward with a shareholder vote a few days later that did just that.

But if a company was going to press the limits of normal business conduct, Indiana was the right place to do it. That’s because the Indiana Business Corporation Law — enacted in the mid-1980s to help Hoosier companies fight off a wave of attacks by corporate raiders — gives boards of directors unusually broad authority to exercise judgment as they see fit.

As Emmis wrote in a court filing defending its conduct, “Plaintiffs’ argument that they are entitled to a different substantive outcome because they dislike the result dictated by unambiguous statutory and contractual language is a plea properly directed to Indiana’s General Assembly, not this court.”

Corre Opportunities Fund and other preferred shareholders had argued Emmis used a succession of illegal, sham transactions to amass two-thirds voting control of preferred shares late last year and early this year.

Reaching that threshold set the stage for the vote, which wiped out $34 million in unpaid dividends. Emmis CEO Jeff Smulyan had pushed for the changes as a way to boost the company’s long-slumping common stock, which surged following the Sept. 4 vote.

Emmis isn’t out of the woods yet, because the plaintiffs still can press for damages in a full trial. However, Barker’s 48-page ruling was replete with language suggesting she doubts plaintiffs can prevail.

To understand why, it’s helpful to take a trip back to December 1985, when Canada’s Belzberg family was threatening an assault on Arvin Industries Inc., then a powerful Columbus-based auto-parts maker.

In response, Arvin CEO James K. Baker called on his old friend Robert Garton, president pro tem of the Indiana Senate, for help. As The Wall Street Journal later recounted, within weeks Garton had steered a tough anti-takeover measure, drafted by Arvin’s own lawyers, through the General Assembly.

One of Arvin’s attorneys who helped craft the legislation was none other than Jim Strain, who, as a partner at Taft Stettinius & Hollister LLP, now represents Emmis. So the company clearly grasped the legal landscape it was navigating when it decided to get tough with preferred shareholders.

Ted Boehm, who served as an expert witness for Emmis in the lawsuit, knows the terrain as well. Boehm, a corporate lawyer before serving as an Indiana Supreme Court justice from 1996 to 2010, also had a hand in drafting the Indiana Business Corporation Law.

At the time, he said in his deposition for the Emmis suit, “there was considerable concern that the phenomenon of hostile business takeovers that was prevalent was resulting in a severe depletion of locally based businesses in our state.”

The concern was so great, he said, that lawmakers wanted “to make Indiana as hospitable as it could to boards of directors’ governance of the company, and to make it as easy as possible for the board to accomplish what it determined to be in the best interests of the corporation.”

So, asked David Campbell, an attorney with Bingham Greenebaum Doll LLP representing preferred shareholders, “If the board of directors made a decision that it’s in the best interests of the corporation to entrench management and allow management to take over economic control of the company at the expense of preferred shareholders, that’s fine?”

Boehm’s response: “Well, you put it in terms that are slightly pejorative, but ultimately I’d say the answer is essentially yes.”

Trustee, counsel keep jobs

Federal bankruptcy Judge Basil Lorch has refused to remove the high-profile legal team that’s untangling the massive Eastern Livestock Co. fraud.

Indianapolis Business Journal reported Aug. 27 that some parties in the case were seeking the ouster of bankruptcy Trustee Jim Knauer and his legal counsel — Faegre Baker Daniels LLP — over their failure to disclose a potential conflict of interest at the outset of the 21-month-old case.

At issue was whether they should have disclosed their representation of San Francisco-based Wells Fargo, which was a so-called participant in Fifth Third Bank’s loan to Eastern Livestock.

Faegre Baker Daniels and Knauer, a partner with Kroger Gardis & Regas LLP, argued disclosure was not necessary because loan participants don’t count as creditors and have no legal rights in bankruptcy cases.

Lorch, in an Aug. 31 ruling, concluded removal was unwarranted and would delay efforts to recover money for creditors by many months. But in his order rejecting Faegre Baker Daniels’ dismissal, he wrote that the brouhaha served as a lesson “on the wisdom of a forthcoming and openhanded approach to disclosures that goes beyond the minimum required by the law.”•
 __________

Originally published in the Sept. 10, 2012, Indianapolis Business Journal.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Indianapolis employers harassment among minorities AFRICAN Americans needs to be discussed the metro Indianapolis area is horrible when it comes to harassing African American employees especially in the local healthcare facilities. Racially profiling in the workplace is an major issue. Please make it better because I'm many civil rights leaders would come here and justify that Indiana is a state the WORKS only applies to Caucasian Americans especially in Hamilton county. Indiana targets African Americans in the workplace so when governor pence is trying to convince people to vote for him this would be awesome publicity for the Presidency Elections.

  2. Wishing Mary Willis only God's best, and superhuman strength, as she attempts to right a ship that too often strays far off course. May she never suffer this personal affect, as some do who attempt to change a broken system: https://www.youtube.com/watch?v=QojajMsd2nE

  3. Indiana's seatbelt law is not punishable as a crime. It is an infraction. Apparently some of our Circuit judges have deemed settled law inapplicable if it fails to fit their litmus test of political correctness. Extrapolating to redefine terms of behavior in a violation of immigration law to the entire body of criminal law leaves a smorgasbord of opportunity for judicial mischief.

  4. I wonder if $10 diversions for failure to wear seat belts are considered moral turpitude in federal immigration law like they are under Indiana law? Anyone know?

  5. What a fine article, thank you! I can testify firsthand and by detailed legal reports (at end of this note) as to the dire consequences of rejecting this truth from the fine article above: "The inclusion and expansion of this right [to jury] in Indiana’s Constitution is a clear reflection of our state’s intention to emphasize the importance of every Hoosier’s right to make their case in front of a jury of their peers." Over $20? Every Hoosier? Well then how about when your very vocation is on the line? How about instead of a jury of peers, one faces a bevy of political appointees, mini-czars, who care less about due process of the law than the real czars did? Instead of trial by jury, trial by ideological ordeal run by Orwellian agents? Well that is built into more than a few administrative law committees of the Ind S.Ct., and it is now being weaponized, as is revealed in articles posted at this ezine, to root out post moderns heresies like refusal to stand and pledge allegiance to all things politically correct. My career was burned at the stake for not so saluting, but I think I was just one of the early logs. Due, at least in part, to the removal of the jury from bar admission and bar discipline cases, many more fires will soon be lit. Perhaps one awaits you, dear heretic? Oh, at that Ind. article 12 plank about a remedy at law for every damage done ... ah, well, the founders evidently meant only for those damages done not by the government itself, rabid statists that they were. (Yes, that was sarcasm.) My written reports available here: Denied petition for cert (this time around): http://tinyurl.com/zdmawmw Denied petition for cert (from the 2009 denial and five year banishment): http://tinyurl.com/zcypybh Related, not written by me: Amicus brief: http://tinyurl.com/hvh7qgp

ADVERTISEMENT