Three File Suit in Latest Round of Fabulous Inns’ Legal Battles

Two directors and a shareholder of Fabulous Inns of America on Thursday filed suit against the company, its chairman and its president in an attempt to void all or part of an out-of-court settlement reached in August with an ousted management group.

In what may be the most incredible turn of events in an already bizarre, complicated and years-long legal battle for corporate control of Fabulous Inns, directors F. Joseph Letson, Norman J. Caldwell and shareholder Lear E. Simpson claimed that the four-member board of directors had approved only a portion of the settlement agreement reached six weeks ago.

Two of the agreement’s terms--which were ordered sealed by Superior Court Judge G. Dennis Adams--call for the company to indemnify the ousted management group against any future litigation and for the ousted group to share in any money Fabulous Inns may recover from its insurance company.

According to the lawsuit, Letson and Caldwell did not approve those two terms when they voted in favor of the settlement agreement.

The suit asks that the entire agreement either be set aside or that the two terms not previously agreed upon by the entire board be voided and stricken from the settlement.

The lawsuit is the latest in a series of legal battles that have plagued the small but profitable Mission Valley hotel company since it settled a 2-year-old lawsuit against ousted management on Aug. 22.

Two weeks after that settlement, Fabulous Inns sued shareholder Frank Ferreira, a Chula Vista investor who owns about 30% of company stock, and accused him of insider trading and of improperly trying to take control of the company.

Ferreira, who had fervently supported the chairman, Jeffrey Krinsk, and the president, David Yardley, in their two-year legal battle with a group of shareholders they had ousted as company executives, refused to participate in the settlement, describing it as unfair and costly to the company.

Ferreira later sued the company, demanding a special shareholders meeting. In his court papers, Ferreira claimed that the “real price” for settling with the ousted group--led by former chairman Henry Maxwell and former president Walter Palmer--was about $3.91 per share, not the 1.6 cents per share claimed by the company.

Krinsk on Thursday said Letson, Caldwell and Simpson “are acting in concert with Frank Ferreira.”

The legal action also alleged that Krinsk and Yardley “intend” to give themselves bonuses and raises without approval by a majority of directors, and it asked that the company not be allowed to pay legal fees for its suit against Ferreira.

Claims Called ‘Unjustified’

Krinsk called the lawsuit’s claims “unjustified.”

He said that plaintiffs Letson, Caldwell and Simpson have longtime associations with several members of the ousted group. In addition, Krinsk said that Letson is a business associate of Ferreira.

Interestingly, if they are successful, the action would prevent the ousted group from receiving company-paid coverage for any future litigation.

Attorney John Wertz, who represented some members of the ousted management group, on Thursday defended the court-approved settlement and said the terms have already been “substantially if not fully performed” by both sides.

The settlement, said Wertz, “offered an opportunity for all the litigants and the corporation to get on with their lives. It’s incomprehensible to me why the shareholders . . . wouldn’t want that to happen.”