Newspaper publisher Hollinger International Inc suffered a setback on Friday in its legal battle against ousted CEO Conrad Black and several associates when a federal judge sharply scaled back its effort to win US$1.25 billion in damages for the executives' alleged plundering of the company.
US District Judge Blanche Manning dismissed the suit at the request of Black and parent company Hollinger Inc, saying racketeering laws do not apply, although she said most of its claims can be refiled if pursued as a securities fraud case.
The ruling slows but does not derail Hollinger International's case against Black and associates, who were accused in a 513-page report compiled by a special committee of the board of directors this year of looting the publishing firm of more than US$400 million -- almost all its profits from 1997 through last year. Manning dismissed the non-racketeering claims without prejudice, meaning Hollinger International could still prevail on those points if it refiles.
"This court is not making any determination as to validity of the fraudulent actions underlying these claims," she said in her 20-page ruling.
Hollinger International, undaunted by what it called a technical ruling, said it will continue to aggressively pursue its legal claims. It did not immediately disclose whether it will appeal the decision or refile an amended version of the suit.
Black and Toronto-based Hollinger Inc hailed what they described as a "stinging setback" to the "campaign" against Black and other former top managers. They said the rejected racketeering claim had highlighted the "overreaching and exaggerated" nature of the lawsuit.
"We continue to believe that Hollinger International's entire suit is tabloid journalism masquerading as law," Black's office said in a statement. "If any of the claims are refiled, we will look forward to exposing, in an appropriate legal forum, the falsehoods on which those claims are based."
Hollinger International accuses Black, former chief operating officer David Radler and others associated with the parent firm of pocketing millions of dollars in non-competition fees and other payments when they allegedly sold newspapers for less than their market value.
The Chicago-based publishing company said those actions constituted a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). It sought to triple damages of more than US$380 million because of the alleged racketeering, and also asked for US$104 million in interest.
But Manning's ruling cited legal precedents which showed that racketeering laws clearly do not apply in this case.
Hollinger International, which owns the Chicago Sun-Times and The Jerusalem Post, told the judge it was considering its next action -- a step expected to be disclosed at a court session next Thursday.
Gordon Paris, Hollinger International's interim CEO, said the company was not deterred by the ruling.
"The court's dismissal of the special committee's claims on technical grounds does not in any way diminish the strength or merits of the breach of fiduciary duty claims that have been asserted against these defendants," Paris said. "In the interest of the company and its shareholders, the special committee will pursue these claims aggressively and seek restitution for funds."
Hollinger International shares fell US$0.11 to close at US$17.63 on the New York Stock Exchange. They are up 13 percent since the beginning of the year.