Fabulous Inns Shareholders Get Session OK
A federal judge on Tuesday refused to block a special Fabulous Inns of America shareholders meeting scheduled for Nov. 5, despite claims by company management that the gathering violates federal securities laws.
U.S. District Judge Judith N. Keep refused to issue a preliminary injunction, sought by management, which would not only have postponed the shareholders meeting but also would have prevented dissident shareholder Frank Ferreira from voting his shares, which total about 30% of the company’s stock.
An earlier Superior Court ruling prohibits Ferreira from voting more than 20% of his shares.
Ferreira is a Chula Vista investor who until two months ago was an ally and confident of company Chairman Jeffrey Krinsk and President David Yardley, two former dissident shareholders who led a lengthy court fight to oust previous management.
Parted With Company
Ferreira parted ways with the company in August when he refused to consent to an out-of-court settlement with the ousted group.
Legal action by and against Ferreira was later filed. Each side charged the other with trying to take over the company.
Next week’s scheduled shareholders meeting will be the first such investor gathering since mid-1984.
Because Krinsk and Yardley own only about 12% of company stock, and because Ferreira claims to have the support of another 15% of shareholders’ holdings, it appears unlikely that both Krinsk and Yardley will be elected to the five-member board. There are now four directors, and recent decisions have been deadlocked 2-2.
Keep in court Tuesday said she expects the election results to be appealed later, although neither Krinsk nor his attorney, William S. Lerach, would comment on that possibility.
Holding the meeting will not cause irreparable harm to the company, Keep ruled, although she acknowledged that Ferreira may have violated disclosure regulations concerning his stock purchases last summer.
Lerach argued that the Nov. 5 meeting date doesn’t give the company adequate time to notify shareholders, as required by the Securities and Exchange Commission.
Superior Court Judge James A. Malkus ordered the meeting earlier this month, but prohibited Ferreira from voting any shares he accumulated after Aug. 15, which means he can vote only about 20% of the company’s outstanding stock.
Another 200,000 shares of stock, or 20% of the total outstanding, is held in “street names” by stockbrokers. Owners of those shares also will not receive adequate notice, Lerach contended.
Peter Shenas, Ferreira’s attorney, said that SEC regulations could have been adhered to had company management approved Ferreira’s request for a special shareholders meeting last month.
Meanwhile, Keep, in preparation for a lengthy legal proceeding stemming from the company’s suit against Ferreira alleging insider trading, ordered a limit on the number of pages that can be filed in each side’s legal briefs.
In addition, Keep said she wants each side to type in red the sentences that contain any “snide references” to the other side. If she reads a sniping sentence not in red, she said, she’ll fine the attorney $5 per line.
