Kerkorian, Tracinda to Be Only Defendants in MGM/UA Suit

Reclusive financier Kirk Kerkorian and his Tracinda Corp. will stand as lone defendants in a $200-million class-action suit filed by former MGM/UA Communications Co. shareholders.

A Los Angeles Superior Court judge on Friday approved a separate multimillion-dollar settlement between the shareholders and four insurance companies covering the remaining defendants, despite MGM/UA’s objections.

Judge R. William Schoettler Jr.’s ruling absolves MGM/UA, its directors and other executives from having to pay damages in the case, which concerns the 1986 sale of MGM/UA. But it also significantly increases the exposure of Kerkorian, the majority shareholder of MGM/UA.

Kerkorian’s attorneys said they may appeal Schoettler’s ruling. They also held out the possibility of seeking a delay in the trial, which is scheduled to begin Sept. 24.

Attorneys for the shareholders independently negotiated the settlement agreement with the insurance companies last week after discussions with MGM/UA broke down. The settlement calls for the insurers to pay $8 million to $20 million, depending on the outcome of the trial.

J. Michael Hennigan, one of the shareholder representatives, argued Friday that MGM/UA’s attorneys had a conflict of interest in opposing the settlement, because they represent both the film company and Kerkorian. Hennigan also held that the trial should rightfully focus on Kerkorian, because the suit was a result of Kerkorian’s “natural tendency for avarice.”

Terry Christensen, one of Kerkorian’s attorneys, denied that a conflict of interest exists. He maintained that the settlement was reached in bad faith. He also accused the insurers of malice, charging that the companies agreed to the settlement to avoid shouldering the full financial burden they bear.

“The insurance carriers have contracts with the defendants, not the plaintiffs,” he said.

Shareholders in the class-action case claim that Kerkorian undervalued United Artists when he sold the parent company, known at the time as MGM/UA Entertainment Co., to Turner Broadcasting for $1.5 billion. They also contend that Kerkorian subsequently bought back United Artists and the MGM/UA name from Turner at a sweetheart price, with the complicity of his board.

MGM/UA denies the allegations, noting that shareholders received a “generous” $27 to $30 a share for stock that was trading in the $11-to-$16 range at the time of the sale.

Documents submitted to the court Friday show that the two sides may have been close to reaching a full settlement agreement last month that would have made a trial unnecessary.

Hennigan stated that a $30-million settlement was agreed upon on Aug. 23, after days of negotiations before a private referee. The agreement collapsed, according to Hennigan, when Christensen subsequently reported that the MGM/UA board had rejected the deal.

That account was contradicted by MGM/UA’s attorneys. They maintained that three of the four insurers “sabotaged” the settlement agreement by refusing to guarantee payment.