Fabulous Inns Will Buy Back Shares From Former Director

Fabulous Inns of America, embroiled in a years-long corporate tug-of-war between current and ousted management, on Wednesday said it had settled a lawsuit against a former director and will buy back nearly 200,000 of his shares for about $1.38 per share--far below the current market price of about $3.25.

Former director Richard Tuthill will sell his shares--about 10% of Fabulous Inns’ total outstanding--because “he evaluated his chances in the litigation negatively and he did the prudent thing,” company attorney William Lerach said Wednesday.

The settlement, disclosed in a filing with the Securities and Exchange Commission, does not affect the legal action between the company and other former directors, including ousted Chairman Henry Maxwell and President Walter Palmer, according to the filing.

Fabulous Inns management will ask that its stock opening be postponed this morning so news of the agreement can be disseminated, according to President David Yardley.

Terms of the settlement call for Fabulous Inns to buy Tuthill’s shares for $275,000. The stock will then be retired, said Yardley.

Tuthill could not be reached for comment.

“I think it’s an excellent opportunity to terminate (this) aspect of litigation,” said Yardley. “It’s an advantageous purchase for the company, and it benefits all the shareholders who remain.”

Former directors had claimed 51% of Fabulous Inns stock, so the retirement of Tuthill’s 10% may tip the balance of control at the small but profitable Mission Valley hotel company.

The issue of who controls how many shares of Fabulous Inns stock has been engulfed in litigation. Current management claims in its lawsuit that the ousted group obtained the stock improperly, while the former management argues in its countersuit that they were voted out of office through sleight of hand.

In May, the entire case was argued before a three-judge panel of the state’s 4th District Court of Appeal. A decision is due no later than Aug. 12.