For 1,200 News-Journal Pensioners, a Bittersweet Victory in Appeals Court’s Overrule
FlaglerLive | January 10, 2012
After ousting the publisher of the Daytona Beach News-Journal to end its lavish support of three music groups, Cox Enterprises–the News-Journal’s former minority partner–sold the paper nearly two years ago for $39.3 million in cash and real estate. Now, because of an appeal filed by the government, Cox may have to surrender most of that money to a federal pension insurance fund.
The 11th Circuit Court of Appeals ruled Jan. 4 that U.S. District Court Judge John Antoon II in Orlando misread Florida law when he brushed aside a $26.5 million claim from the Pension Benefit Guaranty Corp. to cover present and future retirement payments for News-Journal employees. Instead, Antoon ruled that a $129 million judgment that Cox won against the Davidson family, former co-owner of the newspaper, outweighed all other claims from creditors, including that of the pension insurer. On that basis, Antoon directed that all money from the sale should go to Cox.
The ruling by the three-judge panel sends the case back to Antoon, directing him to issue a new order on how the proceeds should be divided up. Cox is to get no money until the pension agency and other creditors have been paid. The ruling does not affect Halifax Media, owner of the News-Journal since April 2010, or its current employees, at least not directly. But it amplifies ongoing ripples from the dislocation of and redefinition of the region’s largest media company–indirectly redefining, too, the retirement benefits of current employees. (See the full text of the ruling below.)
For 1,200 people who hold pension rights from the Daytona paper, the appellate ruling is a bittersweet victory. Pension checks were never interrupted by the legal battle, now entering its eighth year, and nearly all retirees continue receiving full benefits under PBGC’s management of the underfunded plan. Most of those pensions are well under $1,000 a month, even for employees who logged 20 to 30 years of service. But Cox, after firing the Davidsons from management, insisted on increasing the paper’s profit margin, even as a recession and Internet competition took a toll on the paper’s advertising. As a consequence, nearly half of the 800-member staff lost their jobs, suburban bureaus were closed, and the paper grew noticeably thinner.
Writing for the appellate court, Senior Judge Emmet R. Cox (who has no connection with Cox Enterprises) said Antoon should have considered whether transferring all the sale money to Cox would have left the News-Journal Corp. insolvent, a test required by a section of a Florida law on dissolving corporations. The law prohibits transfers to shareholders if they render the corporation insolvent.
“If on remand the district court finds a distribution to Cox would violate this section, News-Journal’s other creditors should receive payment before any distribution is made to Cox,” the judge wrote.
Cox had insisted it had first dibs on any money generated by a sale of the daily newspaper and its Pennysaver weeklies because the court had found the Davidsons, longtime majority owners of the paper, had channeled much of the paper’s profit into family-sponsored arts projects without consulting Cox. The paper’s $13 million purchase of naming rights to a new performing arts center in downtown Daytona Beach infuriated Cox and triggered a lawsuit accusing the Davidsons of wasting the paper’s money. In a non-jury trial before Antoon, Cox won its lawsuit and later won permission to install a receiver to take control of the paper.
To escape damages from the adverse verdict, the Davidsons tried to take advantage of a Florida law that gave them the option of buying out Cox’s 47 percent interest in the paper and continue running it as they pleased. But when Antoon set the value of Cox’s shares at a pre-recession level of $129 million, the Davidsons couldn’t come up with the money—or even the first installment of $29 million. (The paper eventually sold to Halifax for the official sum of $20 million, but Cox got nearly double that amount when tax refunds, land values and other properties at the paper were cashed out and tabulated.)
The appellate ruling turned on narrow procedural issues of how the buyout should have been carried out. Antoon and lawyers for both sides acknowledged there was no precedent in Florida law to guide the buyout. The appeals court found that Antoon chose not to follow a “plain reading” of the corporate dissolution law, which would have put Cox last in line to collect anything from the sale. “The district court apparently avoided this construction because it recognized that following the plain language in this case might result in the petitioning shareholder, Cox, receiving nothing,” the appellate panel said in its opinion. Instead of applying the insolvency test required for insider deals, Antoon treated Cox as an outside creditor whose judgment would take priority over any other claim except those of taxing authorities.
One of the economy measures instituted by Receiver James W. Hopson was to shut down the paper’s defined-benefit pension plan, which had about $25 million in stocks and bonds but faced a long-term shortfall of about $15.4 million. The PBGC, in return for taking over the plan, demanded $26.5 million in premiums and penalties from the receiver to remedy the deficit. The two sides later bargained down the claim to $14.7 million, but the money was never paid. Instead, Antoon ruled all of the paper’s assets would go to Cox.
Cox Enterprises has not indicated whether it intends to appeal the ruling. Cox and its legal team did not respond Monday to requests for comment. Jeffrey Speicher, a PBGC spokesman, said his agency has not been notified of any appeal.
Cox has up to the 21 days from the ruling date to ask for a rehearing of the case by the 11th Circuit. It has 90 days to decide whether to attempt to get the U.S. Supreme Court to hear the case.
Emery Jeffreys, a former online editor at the paper, was one of seven ex-employees who won Antoon’s permission to become interveners in the case in April 2009. Their aim was to try to make sure the pension plan received a significant share of money from the sale.
“This case shows that ordinary people can still have a voice in the legal system,” Jeffreys said. But, he added, “Many people lost jobs because arrogant men at two warring corporations tried to prove a point and they failed.”
The case also has had a spillover impact on News-Journal employees who stayed on after the paper was sold to Halifax Media Group, a partnership backed by Stephens Capital of Little Rock, Ark. The new publisher, Michael Redding, declined to take over the old pension plan and has stopped providing corporate matching contributions to the paper’s 401(k) savings plan.
Besides the PBGC, the other major creditor trying to get money from Cox is the Davidson family. Robert Truilo, son-in-law of deceased CEO Tippen Davidson, contends he is entitled to $191,000 in deferred compensation. The other family members want an unspecified amount of financial indemnity in case they are sued for any other alleged misdeeds at the paper.
The paper under the receiver’s control halted its once generous support of Seaside Music Theatre, the Florida International Festival and debt service on the $30 million News-Journal Center arts complex. As a result, Seaside folded, the Festival has postponed its biennial London Symphony Concerts indefinitely and the News-Journal Center was turned over to Daytona State College for a token sum.