(CN) – The law firm that represented News-Journal in a shareholder class action for corporate waste prepared “golden parachutes” that cost the company millions and benefited only News Journal’s top executives, according to a complaint in Orlando Federal Court.
After a two-week trial, the court determined that Delaware-based Cox Enterprises’ minority position in News-Journal was worth $129.2 million. The defendant (in this action) Cobb & Cole law firm, however, claimed that paying the judgment would ruin News-Journal, a Florida company that owns the Daytona Beach News Journal, according to the complaint.
“Cobb Cole represented to the court on behalf of NJC that due to a number of factors, including a two-year downward trend in newspaper valuations, it would not be possible for NJC to pay this amount fully and promptly and that requiring NJC to do so would result in ‘the ultimate hardship, the cessation of business,'” according to the complaint.
But after plaintiff James Hopson was appointed receiver for News-Journal in 2008, he says, he discovered that Cobb & Cole had prepared multimillion-dollar severance packages for News-Journal executives, who took home 13 times their annual base pay.
“On November 2 and 4, 2004 (less than a week prior to the meditation in the underlying case), NJC had purportedly entered into grossly excessive compensation agreements with two of its officers/directors … and at least twenty-seven of its employees,” according to the complaint. (Parentheses in complaint.)
Hopson says the former CEO of News-Journal, Tippen Davidson, did not have authority to create the severance packages and that they never were approved by the News-Journal board of directors or shareholders.
The packages guaranteed News-Journal CFO David Kendall and CEO Georgia Kaney “lifetime employment at the highest level of the company at levels of compensation exceeding $200,000 per year,” according to the complaint.
Cox and Hopson claim that “executive severance agreements” would cost News-Journal more than $5 million in payouts, while “key manager agreements” would cost the company more than $8 million.
When Cox filed a motion to set aside the executive severance agreements, Cobb & Cole allegedly lied and said that the News-Journal board had approved the golden parachutes.
“Once Cox learned of the agreements and filed its motion to set aside on May 23, 2008, Cobb Cole had an irreconcilable conflict between its representation of NJC and its representation of Kendell and Kaney in support of their agreements,” according to the complaint. “While Kendall and Kaney eventually employed their own individual counsel, Cobb Cole continued to work on their behalf – employing expert witnesses, preparing memoranda of law, attending depositions, appearing at hearings and arguing in support of the validity of the agreements.”
A court voided the agreements because there “was no reasonable relationship between the services rendered by Kendall and Kaney and the benefits received by NJC,” according to the complaint.
Hopson and Cox seek damages and an order directing Cobb & Cole to disgorge the cost of their defense, alleging breach of fiduciary duty and fraudulent transfer. Their lead attorney is John DeVault with Bedell, Dittmar, DeVault, Pillans & Coxe of Jacksonville, Fla.