Hoiles Family Heads for Court in Feud Over Newspaper Chain

Like gladiators about to enter the Coliseum, the heirs of newspaper publisher R. C. Hoiles will soon gather on the courthouse steps--each faction ready to destroy the other to save itself.

When the three branches of the Hoiles family--each owning about a third of the Freedom Newspapers empire--go into Orange County Superior Court early this month, they will begin a climactic battle in a six-year struggle over the existence of the highly profitable media chain.

Harry H. Hoiles--at 70, the oldest surviving offspring of R. C. Hoiles--is seeking nothing less than dismemberment of the corporation.

The families of Harry’s late brother Clarence H. Hoiles and sister Mary Jane Hoiles Hardie, 64, oppose him--unwilling to “kill the goose that laid the golden egg,” as Mary Jane’s husband and company chairman, Robert C. Hardie, puts it.

Freedom Newspapers is, indeed, a prize. It owns the Orange County Register, 28 smaller dailies, three weeklies and five television stations. Last year, it was listed by Forbes magazine as the nation’s 269th-largest private corporation, with $322 million in sales and 3,800 employees.

Industry analysts rank it as the 14th-largest newspaper chain in the nation. With circulation for all its papers totaling 934,000, Freedom is ahead of the Washington Post Co. and right behind Capital Cities Communications, which bought American Broadcasting Cos. earlier this year.

The fight over Freedom can be traced at least to the fall of 1980 when Harry was not permitted to succeed ailing brother Clarence as Freedom’s chief executive. Since then, claiming that he was deprived of effective participation in the company, and that management took steps that diminished the value of his stock, Hoiles has sought to obtain newspapers worth a third of the company’s market value. He and his branch of the family would then go their own way, spreading his father’s libertarian philosophy.

If he can’t get the newspapers, Harry wants to be paid cash equal to 33% of the corporation’s market value.

The other two families contend that the lawsuit is based on Harry’s “hurt feelings and disappointment” over being passed over as chief executive in favor of a three-member office of the chief executive designed to ensure equal power among the three families. They contend that Harry’s divisive actions caused him to be removed from company management, and that their own decisions were taken to aid all shareholders and to block the company’s destruction.

The two families argue that Harry’s one-third interest in Freedom is worth much less than one-third of the corporation’s total market value. And they clearly loathe the notion of raising the money--perhaps as much as $333 million--to pay the sum that Harry seeks.

If the two families that control Freedom win the court fight, Harry Hoiles’ family could be cut out of any active role in the operation of the company’s papers and television stations, leaving members of the family with only their stock dividends as income from the company.

Lengthy Trial Expected

The non-jury trial in the courtroom of Superior Court Judge Leonard Goldstein, lawyers estimate, will take three to four months. In the process, many of the three families’ most secret fights and financial arrangements likely will become a public spectacle. Much of it already has.

“How would you like all of your relationships with in-laws and so forth made public?” Hardie lamented in a recent interview. “How would you like all your financial affairs made public? It’s painful, silly.”

One legal issue before Judge Goldstein could make it easier for Harry Hoiles to dissolve the corporation.

Under state corporation law, a dissident minority shareholder can force a corporate dissolution in two ways, and Harry Hoiles has filed under both measures.

The more difficult route calls for Hoiles to prove that the majority’s actions constituted “persistent fraud, mismanagement or abuse of authority or persistent unfairness.”

That may be especially difficult because Freedom is making huge profits, and is sharing the wealth proportionately with the Hoiles family.

The easier route calls for Hoiles to show that “liquidation is reasonably necessary for the protection of the rights and interests of the complaining shareholder.”

But to qualify for this easier standard, the company must have not more than 35 shareholders. Freedom has about 50 heirs holding about 85 shareholder accounts.

Hoiles wants Goldstein to recognize a trend in the law that has not yet been approved by California courts. He claims that because members of the families have always been concerned about the relative balance of power among the three factions, and have consistently voted their stock in three blocks, divided along family lines, rather than as individuals, the court should recognize that there are really only three shareholders of Freedom. The judge has not ruled yet on the matter.

Seeks Psychoanalyst

Harry Hoiles’ attorneys also hope to take the unusual step of bringing in a psychoanalyst. If Goldstein rules that his testimony is allowed, they will bring in Abraham Zaleznik, a Harvard Business School professor and psychoanalyst, to analyze the families’ actions and to dissect the motives of various individuals.

“I never heard of anyone psychoanalyzing a company,” said John Morton, a Washington-based media analyst and expert witness for Freedom. “It should be interesting to hear.”

The defense, which has a witness to challenge Zaleznik’s methodology, wants the court to bar the testimony as irrelevant.

In the meantime, court documents have brought the families’ dirty linen and its financial affairs into public view.

In a 1981 letter to Clarence Hoiles, for instance, his son-in-law R. David Threshie called Harry Hoiles a “spoiled child” who is “throwing a tantrum” because the other two branches rejected his bid to succeed Clarence as chief executive. Clarence died Dec. 31, 1981.

Threshie, publisher of the Register, Freedom’s flagship paper, and head of the Clarence Hoiles branch of the family, also labeled as “vindictive blackmail” Harry’s threat to sell his family’s shares to outsiders unless he received newspapers equivalent to a third of the corporation’s value.

Court documents show that in 1982, each of the family branches received about $2 million in dividends alone from their Freedom stock. And dividends have been increasing since, the documents state. In addition, most of the adult family members earned sizable incomes from salaries, bonuses, director’s fees, partnership participations and other activities within the Freedom empire.

The Register alone had an operating profit in 1982 of $18 million on about $85.7 million in revenue, the documents reveal. The Register accounts for about half the company’s total revenue, company officials have said.

The company’s only offer to buy out the Harry Hoiles family was made in 1981, after Harry submitted proposals for splitting up the assets. The company offered $120 a share for his family’s approximately 618,000 shares--a sum of more than $74 million and a 73% discount from the value an outside appraiser had placed on the company as a whole. Harry rejected the offer.

Last year, after a new class of non-voting stock quadrupled the number of common shares outstanding, Hoiles offered to buy the company, or be bought out, for $108 a share--a price that values the company at $1.01 billion. The majority shareholders rejected that proposal.

Regardless of the outcome of Harry Hoiles’ suit, analysts say, pressure will mount in the years ahead for Freedom Newspapers to go public or sell out.

Historically, large family-held corporations find that the stock over the years becomes spread out among increasingly distant relatives who have less and less to say about management of the company. That can lead to disagreements and to attempts by non-active shareholders to sell their stock.

The Hoiles feud to some extent resembles the family fights in recent years that beset the Minneapolis Star-Tribune and prompted the sales of the Louisville Courier-Journal, the Detroit News and the Des Moines Register to the Gannett chain.

Since the death of R. C. Hoiles, it has become apparent that his children were never close. They were born years apart--Clarence was 17 and Harry was 6 when Mary Jane was born in 1922--and, as adults, they lived hundreds of miles away as publishers of various Freedom papers.

Robert and Mary Jane Hardie ran the Marysville (Calif.) Appeal-Democrat while Harry headed the Colorado Springs Gazette Telegraph and Clarence remained in Santa Ana as his father’s aide and publisher of the Register.

The glue that held the family together for so long was their crusty, domineering, doctrinaire father, whose strident editorials railed against Herbert Hoover as being too left-wing and against all taxes as “the theft of wages.”

R. C. Hoiles’ brand of libertarianism extolled self-reliance and voluntary action, and it abhored government interference.

He so overwhelmed his children that his sons were in their 50s and still saying, “Yes, daddy,” whenever he wanted something done, according to Jim Dean, who joined Freedom in 1954 and ran the Register for 18 years until he retired in 1980.

When the patriarch died in 1970, the offspring began to hold regular board meetings. They were wary of upsetting the balance of power among the family branches, according to court documents and interviews with lawyers and key family members.

In 1975, Harry was asked by the other family members to move to Orange County and help run the company for his brother, who had become ill with angina.

Harry claims in his suit that he moved from Colorado with the understanding that he would take over the company if anything happened to Clarence. It was that “reasonable expectation” that was frustrated when Hardie told him in the fall of 1980 that his family would not support him for chief executive.

Hardie denies that there was any such commitment. He claims his brother-in-law proved to everyone else during the five years he managed the day-to-day operations that he had neither the ability nor the temperament to handle the job.

Shortly after that, Harry Hoiles asked that the company be split up. He also threatened to sell his family’s shares to outsiders if the company refused to give his family a third of the assets.

The ultimate separation came for Harry Hoiles in an emotional board meeting on March 2, 1981, when Clarence accused him of being a dictator.

The other family members voted to abolish the position of chief executive and replace it with a three-member office of the chief executive. Each family head would be a member. Harry Hoiles rejected the plan, and the other families obligingly voted D. Robert Segal onto the triumvirate into his place. (Segal, Freedom’s president, is the only defendant in the suit who is not a member of the Hoiles family either by birth or by marriage.)

“They not only destroyed the reason for my move (to Santa Ana) but essentially fired me” as a corporate officer, Harry Hoiles said in an interview last year.

After talking with his brother, Harry Hoiles submitted two plans in June, 1981, to split up the company. And in a letter to his children, Clarence Hoiles proposed giving Harry a third of Freedom’s assets, including the Colorado Springs paper.

But Threshie’s “spoiled child” letter persuaded Clarence to offer his brother’s family the $120-a-share discounted price for his minority interest. It was noted that the rest of the family was entering into a stock restriction agreement that would make the minority shares unattractive to outside buyers.

An appraisal by Standard Research Consultants, an independent appraiser, estimated that the stock would sell then for $320 a share for the entire company, $125 if stock were freely traded, and $85 a share for a minority interest.

The feuding families have long since ceased ordinary conversation. They see each other only at the twice-yearly board meetings, where Harry reads carefully prepared statements on why he is voting against the majority. His family still has four seats on the 12-member board.

At a special board meeting only two weeks ago, Hardie said, there was not a word about the coming trial.