Fabulous Inns Ordered to Seat New Directors

San Diego County Business Editor

A Superior Court judge ruled Tuesday that the election last summer of directors representing the ousted management of Fabulous Inns of America was valid and that the directors should be seated.

The ruling by Superior Court Judge G. Dennis Adams seemingly paves the way for the former management to regain control of the embattled but profitable Mission Valley hotel company.

Adams ordered that the directors, who were elected during a contested special shareholders meeting, assume power on May 12. However, for reasons not specified, he also called for a new election to be held July 10.

Current Fabulous Inns Chairman Jeffrey Krinsk said Tuesday that he will "vigorously pursue our appellate rights." Krinsk said he and the current board will remain in power pending the appeal, which is expected to be filed soon.

Adams' ruling stipulates that former members of management, led by ousted Chairman Henry Maxwell, former President Walter L. Palmer and former director and Chairman Ernest M. Stanley, are barred from serving as directors or executives of Fabulous Inns for four years after the new election.

No Participation in Management

"We prevailed on all of the points we advocated," said John Wertz, an attorney representing the ousted management. "And our clients made it clear to the court . . . that they did not care to participate in the management for at least the near future."

Wertz disputed Krinsk's contention that current management will remain in power during the appeal process.

Adams' order went beyond the recommendations made last month by attorney C. Hugh Friedman, who served as a court-appointed mediator through 10 weeks of hearings examining the ownership dispute.

Adams agreed with Friedman's finding that the majority shares owned by the ousted Fabulous Inns executives were obtained legally, contrary to claims by current management. He also agreed with Friedman that the special shareholders meeting last summer was properly convened. However, Adams did not accept Friedman's recommendation that the results of that meeting were invalid.

Exercising "independent judgment," Adams reinstated the disputed directors and appointed former Superior Court Judge Charles Froelich to monitor the new board election.

Friedman, who will be paid $39,825 for his efforts as mediator, will also monitor the election.

Expensive Battle

Friedman's and Adams' reports both take shots at the two sides in the expensive battle for control.

Adams criticized Krinsk's efforts to challenge Friedman's objectivity on the grounds that Friedman was Palmer's attorney in several business matters in the 1960s.

Earlier in the proceedings, attorneys for Krinsk had waived the conflict issue when Friedman could not recall his work for Palmer, but Krinsk on Tuesday morning filed additional documents relating to the alleged conflict.

Adams also charged Tuesday that current management waited until after Friedman's report was presented to "see if they disagreed with it" before filing the new papers.

Friedman, in his report, charged that the ousted management had "badly mishandled" the corporation "for their own benefit."

The company has been in turmoil since 1982, when Krinsk, then a dissident shareholder, and others protested the company's 57% interest in a Palm Springs time-share condominium project that was built by Maxwell and partially owned by him and Palmer.

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