(CN) - The Bank of Montreal claims the San Francisco Bay Guardian newspaper is trying to use a court order to shut down the competing SF Weekly, disregarding the senior lien rights of lenders to whom the SF Weekly still owns $77 million.
The Bank of Montreal's claim in Delaware Chancery Court is the latest shot in an increasingly ugly newspaper war that has seen the Bay Guardian and SF Weekly trade barbs and legal briefs for years.
Most recently, the Bay Guardian successfully sued SF Weekly, which is owned by the Village Voice Media chain, for trying to drive it out of business by selling advertising at below cost. After a 6-week trial, the Bay Guardian received a $15.9 million judgment, which SF Weekly has appealed.
This month the Bay Guardian got an assignment order from a second California court, requiring SF Weekly to deliver to the Bay Guardian its complete list of advertisers and 50 percent of its advertising revenue - including 100 percent of its payments for ads paid through American Express - toward payment of the judgment.
The Bank of Montreal argues that both courts erred by failing to acknowledge that it has long had a perfected senior security interest in all personal property belonging to SF Weekly. Further, it said that by seizing revenue necessary to pay SF Weekly's operating expenses, the Bay Guardian would effectively wipe out the Bank of Montreal's collateral interest in it.
"Bay Guardian knows that it is not entitled to be paid from the receivables ahead of the Bank of Montreal," the complaint states. "However, as a competitor of SF Weekly, Bay Guardian has an ulterior motive: it hopes that, by improperly restricting SF weekly's cash flow, it can eliminate [it] as a competitor."
The bank seeks declaratory relief and a restraining order preventing the Bay Guardian from requesting direct payment from SF Weekly's advertisers. It alleges interference with contract, breach of contract and unjust enrichment,
More to the point, the Bank of Montreal demands that all revenue from advertisers of SF Weekly be paid directly to it, to be applied against the $77 million debt.
The added that rather than close the paper, it will continue to fund its expenses and "sustain its operations in order to generate further revenue and pay down its debt to its lenders."
The Bank of Montreal is represented by Kenneth Nachbar of Wilmington, Del.
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