News-Journal Dynasty’s Post-Mortem: Federal Judge Snips Golden Parachutes’ Last Lines
FlaglerLive | August 20, 2012
ORLANDO — Two fired executives of the Daytona Beach News-Journal, chastised by a judge for misrepresenting the $5.5 million golden parachutes they tried to obtain from the newspaper, now face a $438,000 legal bill from their opponent, Cox Newspapers.
The executives contend the bill is vastly inflated and should be chopped by 96 percent.
U.S. District Court Judge John A. Antoon II ruled last month that Georgia Kaney, the paper’s former publisher, and David R. Kendall, its former chief financial officer, must reimburse Cox for legal fees that Cox spent to cancel Kaney’s $2.9 million severance package and Kendall’s $2.6 million package. Antoon had killed both severance contracts back in December 2008, ruling they were improperly arranged in secret and too costly by newspaper industry standards.
On July 27, Cox informed the judge that the attorneys’ fees and expenses generated by the severance dispute amounted to $437,502. The hourly rates charged by Cox’s legal team ranged from $100 an hour for paralegal work to $395 an hour charged by senior attorneys.
However, Kendall and Kaney disputed nearly all of the bill in a response filed on Aug. 6. They argued the bill should be chopped to just $18,137, divided evenly between them.
The fees that Antoon awarded to Cox are the latest legal blow dealt to onetime loyalists of the late Herbert “Tippen” Davidson Jr., whose family ran the News-Journal for three generations until Tippen Davidson’s death in 2007. The paper, weakened by the recession and a six-year legal battle between its former owners, has since been sold to another company, Halifax Media Group. Neither the Davidson family nor Cox plays any role in its current operation.
For years, Atlanta-based Cox held a 47.5 percent share in the News-Journal Corp. but paid scant attention to Davidson’s management practices, which included multi-million dollar donations to music charities led by the Davidson family. Cox’s pattern of indulging Davidson’s passion for music changed dramatically in 2004 when Cox discovered that Davidson had spent $13 million of the newspaper’s money to place the News-Journal’s name on a new performing arts center in downtown Daytona Beach, another pet project of the Davidsons. Davidson defended the naming-rights deal as smart marketing, but Cox branded it “corporate waste” and brought a federal lawsuit to remove Davidson and his board, which included Kaney and Kendall.
After four years of litigation, in which the Davidson family lost nearly every ruling, Cox wound up with an unpaid $129 million judgment against the Davidsons. After Tippen Davidson’s death, Cox persuaded Judge Antoon to place the newspaper under the control of a receiver, who would sell off the paper to satisfy the unpaid judgment. Receiver Jim Hopson started the process in 2008 by firing more than 100 of the paper’s 800 employees and dismissing the entire Davidson board, including Tippen Davidson’s son, Marc, his daughter, Julia Davidson Truilo, his son-in-law Robert Truilo, along with Kaney and Kendall. Also fired was the newspaper’s longtime attorney, Jon Kaney, Georgia Kaney’s husband.
That coup triggered a fresh battle between Cox and the newspaper’s old guard. Hopson discovered that Davidson, six months after being challenged by Cox, had drawn up secret severance agreements to protect Kaney, Kendall and 27 other managers in the event of a hostile takeover. All told, the severance packages were valued at more than $8 million. While most of the packages were capped at 2.99 times annual pay – the ceiling that the Internal Revenue considers a legitimate business expense – the Kaney and Kendall parachutes were pegged at 13 times their annual gross compensation. At the time, Kaney was being paid $220,000 a year while Kendall earned $201.000.
Cox let the 27 smaller packages, dubbed the “tin parachutes,” stand, but asked Antoon to scrap the much richer deals promised to Kaney and Kendall. After hearing an actuary testify that most newspaper executives typically get no more than 1 to 3 years in severance pay, Antoon tossed out super-severance contracts but deferred ruling on who would be liable for the legal costs of Cox’s challenge.
Later, the matter was handed over to Magistrate Judge David A. Baker, who decided Cox was not entitled to seek legal fees from individual members of the old News-Journal board. However, in a July 17 order, Antoon overturned most of Baker’s decision, saying that Kendall and Kaney had given misleading information about how the parachutes were created. That constituted an act of “bad faith” against the court, Antoon said, and made the pair liable for legal costs.
Specifically, he faulted Kendall for submitting a page of handwritten notes and implying that the cryptic notes showed the newspaper’s full board had approved the parachutes in late 2004. Later, after Truilo presented a conflicting account in a deposition, Kendall acknowledged that Tippen Davidson never bothered telling other board members about the deals he had offered in a secret meeting held at a yacht club. Marc Davidson and the Truilos didn’t find out about them until after Tippen’s death two years later.
Both Kaney and Kendall were asked for comment for this story, but did not respond. In their brief submitted to Antoon, they contended that nearly $200,000 in billings submitted by Cox’s in-house law firm, Low Dohnes, should be rejected because their research duplicated the work of Cox’s outside attorney, John DeVault of Jacksonville. Kendall also challenged the bills submitted by compensation experts, noting that he himself calculated the value of the golden and tin parachutes and has turned the information over to Cox.
Antoon did not spell out how the bill should be divided between the two former board members. In his July 17 order, the judge was particularly critical of assertions made by Kendall. He called Kendall’s handwritten note “inaccurate and misleading,” and his testimony “tenuous.” Kendall’s explanation for why the golden parachutes had been hidden from News-Journal auditors was described by the judge as “vague and not credible.”
In a related proceeding, Cox earlier had asked the court to force Jon Kaney’s then-law firm , Cobb Cole, to “disgorge” – that is, refund to the News-Journal – nearly $370,000 it had collected for defending the two super-severance packages. However, Cox and the law firm later settled its fees out of court for an undisclosed sum.
A bigger issue left over from the Davidson era is how the sales proceeds from the News-Journal sale in 2010 should be divided. Antoon allowed Cox to collect the whole $42 million in cash and real estate from the News-Journal liquidation, but his distribution plan was overturned by the Eleventh Circuit Court of Appeals, which ordered Antoon to carry out a do-over. The appeals court found that Antoon had misconstrued a Florida law on corporate dissolutions and wrongly gave Cox priority over other News-Journal creditors.
In a new batch of claims, argued before Antoon on Aug. 2, the federal Pension Benefit Guaranty Corp. is seeking $15 million to help cover retirement benefits owed to 1,100 present and former News-Journal workers, many of whom still live in Flagler and Volusia counties. The Davidson family is asking for about $1.3 million as reserve against future liability suits and payment of deferred compensation owed to Robert Truilo. Cox, meanwhile, insists it should not have to give up any of the sale money.
With the PBGC stepping into the breach after the receiver abandoned the pension plan in 2010, all retirement benefits have continued being paid without interruption.