Hollinger International, Inc. v. Hollinger, Inc.

Newspaper conglomerate Hollinger International, Inc. (International) (plaintiff) sued alleging its controlling shareholders, officers, directors, and holding company Hollinger, Inc. (Inc.) (defendants) looted International for hundreds of millions of dollars. International was a publicly traded company that owned hundreds of newspapers. Conrad Black, David Radler, and others including Black’s wife, Amiel, controlled Ravelston Corporation, another holding company that owned most of and controlled Inc., which in turn controlled International. Black and Radler also formed two publishing companies, Horizon Publications, Inc. (Horizon) and Bradford Publishing Co. (Bradford), allegedly for the sole purpose of buying up International’s newspapers at below market value. For example, Horizon bought a group of publications from International for $1 two years after International bought them for approximately $1.75 million, and nine months after another buyer offered $1.25 million. The controlling shareholders also allegedly made International pay over $88 million to them in sham noncompete payments. Noncompete payments included as part of the purchase price buyers paid for a newspaper were standard practice in the industry—except International’s controlling shareholders lacked any ability to compete with a newspaper. The controlling shareholders allegedly diverted payments that should have gone to International to themselves. For example, Inc. and Ravelston received about $43 million in noncompete payments. The insiders also allegedly made International loan money at below market rates to Inc., which paid even less interest or defaulted. International also outsourced its management from Ravelston and Inc., collecting grossly excessive management fees over $226 million. Finally, International paid the controlling shareholders unreasonable salaries and bonuses and for personal travel and lavish lifestyles and granted them options worth millions. In all, International alleged the controlling shareholders misappropriated some $425.2 million. The total of the payments to Black and Radler comprised 100 percent of International’s adjusted net income for seven years. Eventually the board ousted Black and Radler and appointed a special committee to investigate the looting allegations. The committee concluded that the board, particularly its audit committee, did not pay attention or obtain independent advice when Black and Radler made excessive fee requests and gave the board misinformation. International sued in Delaware, then brought an action in Illinois federal court asserting the controlling shareholders violated the Racketeer Influenced and Corrupt Organizations Act as well as claims for breach of fiduciary duties, unjust enrichment, and civil conspiracy. The controlling shareholders filed motions to dismiss on multiple grounds.