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.”•

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


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  1. I think the cops are doing a great job locking up criminals. The Murder rates in the inner cities are skyrocketing and you think that too any people are being incarcerated. Maybe we need to lock up more of them. We have the ACLU, BLM, NAACP, Civil right Division of the DOJ, the innocent Project etc. We have court system with an appeal process that can go on for years, with attorneys supplied by the government. I'm confused as to how that translates into the idea that the defendants are not being represented properly. Maybe the attorneys need to do more Pro-Bono work

  2. We do not have 10% of our population (which would mean about 32 million) incarcerated. It's closer to 2%.

  3. If a class action suit or other manner of retribution is possible, count me in. I have email and voicemail from the man. He colluded with opposing counsel, I am certain. My case was damaged so severely it nearly lost me everything and I am still paying dearly.

  4. There's probably a lot of blame that can be cast around for Indiana Tech's abysmal bar passage rate this last February. The folks who decided that Indiana, a state with roughly 16,000 to 18,000 attorneys, needs a fifth law school need to question the motives that drove their support of this project. Others, who have been "strong supporters" of the law school, should likewise ask themselves why they believe this institution should be supported. Is it because it fills some real need in the state? Or is it, instead, nothing more than a resume builder for those who teach there part-time? And others who make excuses for the students' poor performance, especially those who offer nothing more than conspiracy theories to back up their claims--who are they helping? What evidence do they have to support their posturing? Ultimately, though, like most everything in life, whether one succeeds or fails is entirely within one's own hands. At least one student from Indiana Tech proved this when he/she took and passed the February bar. A second Indiana Tech student proved this when they took the bar in another state and passed. As for the remaining 9 who took the bar and didn't pass (apparently, one of the students successfully appealed his/her original score), it's now up to them (and nobody else) to ensure that they pass on their second attempt. These folks should feel no shame; many currently successful practicing attorneys failed the bar exam on their first try. These same attorneys picked themselves up, dusted themselves off, and got back to the rigorous study needed to ensure they would pass on their second go 'round. This is what the Indiana Tech students who didn't pass the first time need to do. Of course, none of this answers such questions as whether Indiana Tech should be accredited by the ABA, whether the school should keep its doors open, or, most importantly, whether it should have even opened its doors in the first place. Those who promoted the idea of a fifth law school in Indiana need to do a lot of soul-searching regarding their decisions. These same people should never be allowed, again, to have a say about the future of legal education in this state or anywhere else. Indiana already has four law schools. That's probably one more than it really needs. But it's more than enough.

  5. This man Steve Hubbard goes on any online post or forum he can find and tries to push his company. He said court reporters would be obsolete a few years ago, yet here we are. How does he have time to search out every single post about court reporters and even spy in private court reporting forums if his company is so successful???? Dude, get a life. And back to what this post was about, I agree that some national firms cause a huge problem.