Friday, April 7, 2006
When Lord Conrad Black was forced out as CEO and controlling shareholder of Hollinger International Inc. in 2004 for financial misconduct, there was -- needless to say -- a flurry of lawsuits and governmental investigations. The result of the company's determination that Black had siphoned company assets was that the SEC filed civil securities fraud charges and, in 2005, a grand jury in Chicago indicted Black on fraud, obstruction of justice, conspiracy, and RICO charges. Black has hired dozens of lawyers to defend him in the various civil and criminal cases, and one part of the litigation was his demand that Hollinger pay his attorney's fees under an indemnification agreement with the company. Such agreements are standard in larger corporations, and Delaware law, the jurisdiction in which Hollinger incorporated, is considered quite friendly to claims by former executives seeking indemnification and advancement of attorney's fees. Hollinger and Black settled their dispute about the attorney's fees in an agreement that the company's recent Form 10-K discloses (here):
Pursuant to the settlement agreement, the Company will advance approximately $4.4 million for legal bills previously submitted to the Company for advancement, which reflects an offset for amounts previously advanced to Black that he was required to repay as a result of the rulings against him in the Delaware Litigation. In connection with future legal bills, the Company will advance 75% of the legal fees of attorneys representing Black in the criminal case pending against him in the United States District Court for the Northern District of Illinois and 50% of his legal fees in other matters pending against him. All such advancement is subject to Black’s undertaking that he will repay such fees if it is ultimately determined that he is not entitled to indemnification.
Hollinger has not been charged with an offense, and it does not appear to be viewed by either the SEC or U.S. Attorney's Office as a target or subject of the investigation. Therefore, its payment of Black's attorney's fees will not be viewed as a sign of a lack of cooperation under the Thompson Memo on charging corporations with crimes. While it may appear odd that the "victim" of a crime pays the perpetrator's legal fees, in fact such payments are not at all out of the ordinary, and the fact that Black may be acquitted shows that an indictment does not mean a contractual obligation can be ignored. (ph)