The CEO and three other corporate officers of a direct mail marketing agency unfairly enriched themselves by diverting a portion of proceeds from the sale of the company, according to a ruling by a Philadelphia Court of Common Pleas judge.
Judge Albert John Snite entered a verdict for a total of $12 million against four directors and officers of FLOORgraphics, Inc., a Pennsylvania corporation with its headquarters in New Jersey, in favor of the corporation, finding that the individual defendants had breached their fiduciary duties by authorizing and accepting payments to themselves in that amount in connection with a March 2009 transaction entered into as part of the settlement of a lawsuit by the company against News Corp. subsidiary, News America Marketing.
The 2009 sale brought to a close a bitter lawsuit filed by FGI against News Corp., accusing the media conglomerate of using corporate spying and hacking techniques to undermine its competition for in-store advertising contracts. The acquisition of FGI's assets and contracts expanded News America Marketing's reach to 50,000 U.S. stores.
Following a 12 day non-jury trial, Snite held that CEO Richard Rebh calculated that he and three other corporate officers, Executive Vice President George Rebh, CFO Yves Anidjar and Senior Vice President Michael Devlin deserved a total $12 million payment for "personal goodwill." The remaining estimations included $13 million for the contracts and $4.5 to buy out the officers' non-compete contracts, for a total of $29.5 million paid by News America.
The court also found that the transaction with News America was subject to the "entire fairness standard" for this interested transaction by the company's directors. While this standard has been applied in Delaware, it is the first time that it has been applied to Pennsylvania corporations. Applying that standard, the court held, "the undisputed evidence presented at trial sufficiently establishes fundamental unfairness in this case."
Though defendants had argued that the sole remedy for the plaintiff minority shareholders was appraisal, the court found that, "the inadequate Shareholder Notice is fundamentally unfair and therefore waives plaintiff's exclusive remedy under the Business Corporation Law."