Hoiles’ Attorneys Wade Through Hostile Witnesses in Bid to Dissolve Company

In five weeks of testimony, lawyers for dissident shareholder Harry H. Hoiles have been wading through a sea of hostile witnesses and some adverse court rulings to try to prove that Hoiles was treated so unfairly that the family-owned Freedom Newspapers Inc. should be dissolved.

Hoiles, whose family owns about a third of the Irvine-based media chain, is building nearly his entire Orange County Superior Court case around the testimony of hostile witnesses, mostly family members he is suing.

And, because both sides agree on most of the facts, it is the families of Hoiles’ sister, Mary Jane Hoiles Hardie, and his late brother, Clarence H. Hoiles, who have been getting a chance to interpret those facts. The Hardie and Clarence Hoiles families each own about a third of the company.

Harry Hoiles, who may take the stand later this week, and an expert witness are expected to be the only people who will shed a different light on the facts.

There may be another month or two of testimony before Judge Leonard Goldstein, who is presiding over the non-jury trial, rules on whether Freedom Newspapers should be dissolved.

Essentially, Hoiles claims that the other two family branches took actions from late 1980 through early 1982 to thwart his bid to succeed his brother as the company’s chief executive officer. He also claims that they also forced him out of a key management post and destroyed the value of his family’s stock.

And, he charges, by preventing him from withdrawing from the company with his share of the assets, their actions violated the libertarian philosophy of his father, company founder R.C. Hoiles.

The other two families contend that Hoiles did not have the ability to lead the company, that he took himself out of other corporate jobs and that the actions they took were reasonable in light of his threat to sell his shares to outsiders without giving them a chance to match any offer he received.

They also counter that the libertarian philosophy, while it has a role in the operations of the company, does not replace majority rule.

Vernon W. Hunt Jr., Hoiles’ trial attorney, has been trying to chip away at the defense stance.

On Friday, D. Robert Segal, president of Freedom Newspapers and a defendant, acknowledged that members of the majority families had been discussing such things as a stock restriction agreement and a bylaw change at the same time they were formulating a counterproposal to two of Hoiles’ plans to split up the company.

The stock restriction agreement and a bylaw amendment changing the way the three members of the executive committee are elected--an amendment eventually used to bar Hoiles from the committee--represented coercive action that required the majority to offer the Hoiles family full value for his stock, Hunt claimed. Anything less would be unfair, he said.

The majority offered to buy Hoiles out for $120 a share, or about $74.1 million. That was higher than the $85 a share that an outside appraiser said the minority stake would be worth. But it was far less than the $320 a share the appraiser said the stake would be worth if the entire company were for sale.

The counterproposal also contained an offer to sell Hoiles some of the newspaper properties, but the majority used a different formula to price those properties, resulting in a company whose stock would be worth $410 a share.

Shares in the company, however, are not the same as assets of the company, and each are valued differently, Leonard A. Hampel, attorney for the majority shareholders, said outside court.

One key piece of evidence for Hoiles is a September, 1981, letter written by R. David Threshie, Clarence’s son-in-law and publisher of the Orange County Register. In the letter, Threshie urges his father-in-law to deal with Harry’s demand to leave the company “unemotionally . . . as a tactical business problem” in which Harry would be unlikely to get full value for his shares from any outsider.

“So I’d think an offer to him that was less than 100% value, but more than he could get on the outside, presented on a take-it-or-leave-it basis, with a deadline (a short deadline) for decision, and a believable statement that if he didn’t accept it we’d not make another, all coupled with transfer restrictions on the remaining stock, might do the trick,” Threshie wrote.

Hunt claims that kind of an offer indicates coercion and requires the majority to pay full value, not a discounted price, for the minority interest.