Alden loses a round in court with Emmis

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You need a scorecard to keep track of the lawsuits flying over last year’s aborted attempt to take Emmis Communications private. But there’s now one less case to keep track of. It’s been tossed by a judge.


Alden Global Capital had sued Emmis Communications and its directors in a New York state court, claiming that the directors had breached their fiduciary duty to shareholders by loaning money to Emmis CEO Jeff Smulyan’s would-be buyout venture, JS Acquisition (JSA), so it could sue former financial partner Alden for walking out on their bid to buy out all of the public shareholders of Emmis.

Alden’s New York lawsuit invoked Indiana securities law, but sought to have the case decided in New York. That led to a fight over where to fight. Emmis argued that there was no reason for the lawsuit to be heard in New York, since it involved Indiana law and people and companies mostly in Indiana. The fact that one Emmis director was a New York resident wasn’t enough of a connection to put the case into the Empire State, Emmis had argued in seeking to have the case tossed out.

For its part, Alden had argued that Emmis has substantial business activities in New York and uses a New York law firm whose attorneys might have advised the Emmis board by phone.

But Emmis was not a primary defendant in the lawsuit – the directors were and Emmis was considered a “nominal defendant.” So New York Supreme Court Melvin Schweitzer wasn’t impressed by Alden’s claims of a New York connection. Rather, he noted that the transaction that Alden objected to was put together in Indiana by two Indiana companies, Emmis and JSA – and that when Alden objected it had its lawyers in Texas send the demand that it be rescinded to Emmis and its board of directors in Indiana. So Judge Schweitzer found that “the majority of the alleged misconduct clearly did not occur in New York.”

The judge noted that there was no justification for the New York courts to take on the burden of a case where a preferable alternative, Indiana, was available. “Further, this suit involves unique Indiana law, with which the Indiana courts are more conversant in interpreting and applying,” he wrote.

“This court can find no reason for continuing this litigation here,” Judge Schweitzer concluded. Case dismissed.

There’s no indication that Alden has re-filed the securities law case in Indiana. But there are still a couple of other lawsuits to keep lawyers busy on both sides. Moving slowly through the federal court in Indiana is the lawsuit that JSA filed against Alden for abandoning the going private transaction. More recently, Emmis sued Alden in a New York federal court, claiming that Alden made illegal profits from “cash-settled equity swap agreements” while it was a 10% stockholder of Emmis. Alden has denied doing anything wrong. That federal case is just getting underway.

RBR-TVBR observation: How much money was spent on legal fees to get to the decision that a lawsuit by a Cayman Islands company against directors of an Indiana company over Indiana law did not really belong in a New York court? As always, the lawyers came out ahead.