Updated 3 yearss ago
In U.S. District Judge John Antoon II's Orlando courtroom last year, family members who own the Daytona Beach News- Journal tried to portray a lawsuit by minority owner Cox Newspapers as a David and Goliath battle pitting evil corporate ownership against good community journalism ["Paper Profits," February, FloridaTrend. com].
Cox, which owns 47.5% of the paper, alleged News-Journal CEO Tippen Davidson and other board members misused corporate funds and wasted assets. During an eight-day bench trial in December, Cox tried to show that Davidson and his family spent millions on pet cultural projects without informing their minority shareholder, including $13 million for naming rights to the recently opened News-Journal Center performing arts complex in downtown Daytona.
Davidson argued that supporting arts, educational and other projects is a matter of responsible newspapering and that the Atlanta-based corporate giant expected unreasonable profits at the expense of worthwhile local projects. Judge Antoon didn't buy it. He skewered the News-Journal's management in a 34-page ruling, saying the $13-million naming rights deal -- an overpayment of $9 million, according to the judge -- "might have been defendants' worst abuse, but it was hardly their first.
"The record is replete with evidence of corporate waste and questionable conduct by defendants," Antoon wrote.
In just one example, the Seaside Music Theatre that Tippen founded and his daughter directs and several other related cultural organizations had 58 employees on the payroll of the News-Journal, worked in the same building and got the same benefits as the newspaper's employees.
Antoon found his most damning evidence in the words of the News-Journal's own lawyer, Jonathan Kaney Jr., who is married to the newspaper's publisher, Georgia Kaney. In 2000, Jonathan Kaney wrote Davidson a 24-page letter with his opinion on what would happen if Cox ever sued the paper for "dereliction of duty" based on its significant contributions to cultural organizations. Kaney observed that the paper's so-called promotional expenditures were twice the industry average. He advised the expenditures "had a material adverse effect on corporate profits and thus shareholder value" and concluded they could not "be justified in terms of promotional consideration (or) as reasonable corporate philanthropy."
When the News-Journal failed to have Cox's lawsuit dismissed, it exercised an option to buy out Cox's shares. Part of Antoon's job was to determine "fair value." The News-Journal's owners argued that was $29 million; Cox said it was closer to $145 million.
Antoon set the value at $129.2 million. He declined to award Cox $15 million in damages but ordered the News-Journal to pay its minority partner's legal fees and expenses.
Jay Smith, president of Cox newspapers, says he feels "vindicated that many of our fears and suspicions were confirmed." He says he and other executives were horrified in the course of the lawsuit to learn just how much money the News-Journal had spent "in so many ways that had nothing to do with the newspaper."
"I was satisfied that Judge Antoon made mention of all this behavior, that he frowned upon it," Smith says. "Now we're eager to see this matter resolved as quickly and amicably as possible for the benefit of not just Cox but for the News-Journal and its readers."
Quick and amicable is not likely. News- Journal executives declined to comment except in an editorial written by Davidson. He said the family and staff were shocked by Antoon's valuation and that the ruling "may be -- and will be -- appealed." The family, it appears, has little choice but to appeal. In filings in response to Antoon's ruling, News-Journal executives said they could come up with only $70 million in cash. Still, Davidson, 80, is as full of moxie as ever. In his editorial, he wrote: "It is our intention to continue operating as we have, with the good of our community and our staff foremost in our minds."