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

Greg Andrews
September 26, 2012
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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.”•
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Originally published in the Sept. 10, 2012, Indianapolis Business Journal.

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  1. Good riddance to this dangerous activist judge

  2. What is the one thing the Hoosier legal status quo hates more than a whistleblower? A lawyer whistleblower taking on the system man to man. That must never be rewarded, must always, always, always be punished, lest the whole rotten tree be felled.

  3. I want to post this to keep this tread alive and hope more of David's former clients might come forward. In my case, this coward of a man represented me from June 2014 for a couple of months before I fired him. I knew something was wrong when he blatantly lied about what he had advised me in my contentious and unfortunate divorce trial. His impact on the proceedings cast a very long shadow and continues to impact me after a lengthy 19 month divorce. I would join a class action suit.

  4. The dispute in LB Indiana regarding lake front property rights is typical of most beach communities along our Great Lakes. Simply put, communication to non owners when visiting the lakefront would be beneficial. The Great Lakes are designated navigational waters (including shorelines). The high-water mark signifies the area one is able to navigate. This means you can walk, run, skip, etc. along the shores. You can't however loiter, camp, sunbath in front of someones property. Informational signs may be helpful to owners and visitors. Our Great Lakes are a treasure that should be enjoyed by all. PS We should all be concerned that the Long Beach, Indiana community is on septic systems.

  5. Dear Fan, let me help you correct the title to your post. "ACLU is [Left] most of the time" will render it accurate. Just google it if you doubt that I am, err, "right" about this: "By the mid-1930s, Roger Nash Baldwin had carved out a well-established reputation as America’s foremost civil libertarian. He was, at the same time, one of the nation’s leading figures in left-of-center circles. Founder and long time director of the American Civil Liberties Union, Baldwin was a firm Popular Fronter who believed that forces on the left side of the political spectrum should unite to ward off the threat posed by right-wing aggressors and to advance progressive causes. Baldwin’s expansive civil liberties perspective, coupled with his determined belief in the need for sweeping socioeconomic change, sometimes resulted in contradictory and controversial pronouncements. That made him something of a lightning rod for those who painted the ACLU with a red brush." http://www.harvardsquarelibrary.org/biographies/roger-baldwin-2/ "[George Soros underwrites the ACLU' which It supports open borders, has rushed to the defense of suspected terrorists and their abettors, and appointed former New Left terrorist Bernardine Dohrn to its Advisory Board." http://www.discoverthenetworks.org/viewSubCategory.asp?id=1237 "The creation of non-profit law firms ushered in an era of progressive public interest firms modeled after already established like the National Association for the Advancement of Colored People ("NAACP") and the American Civil Liberties Union ("ACLU") to advance progressive causes from the environmental protection to consumer advocacy." https://en.wikipedia.org/wiki/Cause_lawyering

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