A federal appeals court late last week affirmed a lower court’s determination that Emmis Communications Corp. complied with Indiana law when it undertook a series of moves that wiped out tens of millions of dollars in dividends that had been owed to preferred shareholders.
Corre Opportunities Fund and other preferred shareholders had argued Indianapolis-based Emmis used a succession of illegal, sham transactions to amass two-thirds voting control of preferred shares in 2011 and 2012, which gave it the clout to eliminate the dividends. Emmis had stopped making dividend payments in 2008, as part of its ultimately successful quest to avoid Chapter 11 bankruptcy.
"It has been a long road, but we are incredibly gratified” that the federal appeals court in Chicago upheld Indianapolis federal Judge Sarah Evans Barker, Emmis CEO Jeff Smulyan said in a statement. “We were always confident in our stance, and we are pleased the court agreed.”
In her 2012 ruling, Barker had called Emmis’ tactics “admittedly unusual.” But she said Indiana law gives boards of directors unusually broad authority to exercise judgment as they see fit.
The influential Council of Institutional Investors had submitted an amicus brief to the appeals court asking it to reverse Barker because Emmis did not employ “corporate governance best practices.”
But in its 11-page opinion, the appeals court said it was not the court’s role to decide best practices.
“If judges (and state legislators) could be sufficiently sure what the best practices are, that would be an attractive idea,” the opinion said. “But it is hard to know the full effects of corporate codes, which lead to contractual adjustments and changes in prices.”
Emmis shares rose 10 cents on July 2, the day of the ruling, to $1.09.