7th Circuit affirms ruling for Emmis in unpaid-dividend suit

July 6, 2015

A ruling in favor of Emmis Communications in a federal lawsuit brought by owners of preferred shares in the company was affirmed Thursday by the 7th Circuit Court of Appeals.
Preferred-stock owners claimed Emmis owed more than $34 million in unpaid dividends on shares issued in 1999. Emmis stopped paying guaranteed dividends on the shares in 2008, and their value plummeted.  Through a swap arrangement, the shares eventually were placed in escrow by mutual agreement, and Emmis acquired voting rights in the preferred shares.

The 7th Circuit affirmed U.S. District Court Judge Sarah Evans Barker’s ruling in favor of Emmis.

Circuit Judge Frank Easterbrook wrote for the panel that Indiana law under I.C. 23-1-20-24 is unique among the states in allowing corporations to vote their own shares. “The owners observe that Emmis structured this transaction so that it would bear the economic risk of the shares, while the original owners no longer faced variability in the shares’ market price. That’s true.

“So if this transaction had been conducted in any state but Indiana, a court probably would have said that Emmis could not vote these shares,” Easterbrook wrote. “But Indiana allows corporations to deal in and vote their own shares. … Indiana law is distinctive, but it is not our job to reduce inter-state variance in corporate law.

“Indiana’s willingness to allow corporations to vote their own shares may be good, or it may be bad, but the ability to negotiate for better terms, or invest elsewhere, rather than judicially imposed ‘best practices,’ is how corporate law protects investors,” the panel concluded.

The case is Corre Opportunities Fund, LP, et al., v. Emmis Communications Corp., 14-1647.


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