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October 8, 2004.

HOLLINGER INC., et al. Defendants.

The opinion of the court was delivered by: BLANCHE MANNING, District Judge


Plaintiff Hollinger International, Inc. ("International" or "the Company") brought the instant action alleging that Hollinger Inc. ("Inc.") and individual and corporate defendants (collectively, "Defendants") used their positions as officers, directors, and controlling shareholders of International to "loot" over $380 million from the Company. In its First Amended Complaint ("the Complaint"), International alleges violations of the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. §§ 1962 and 1964 ("RICO"), and state law claims for breach of fiduciary duty, unjust enrichment, and civil conspiracy. The present matter comes before this Court on Defendants' Motion to Dismiss on the grounds that 18 U.S.C. § 1964(c) bars the RICO claims.*fn1 For the reasons set forth below, this Court GRANTS this motion. BACKGROUND*fn2

International brought this action to recover $380.6 million, which it contends Defendants, who include the controlling shareholders of International and companies controlled by individual Defendants, looted through a series of fraudulent transactions. By alleging RICO violations, International seeks to recover treble damages — $1.25 billion — plus attorneys' fees and costs.

  The Parties

  International is a Delaware corporation which owns and operates numerous domestic and foreign newspapers. Although a publicly traded company, International is controlled by Inc. which owns 30.3% of its equity and 72.8% of its voting rights. Inc., in turn, is owned by Defendant Ravleston Corporation which is controlled by Defendant Conrad Black, International's former CEO and chairman, and Defendant David Radler, International's former deputy chairman and president. RICO Predicate Acts*fn3

  In support of its RICO claims (Counts I and II), International sets forth "predicate acts" which allege that Defendants caused International "to transfer to them [1] sham non-compete payments, [2] sell them valuable newspaper assets at below market prices, and [3] pay them other unwarranted, excessive, and unauthorized payments."

  Non-Compete Payments

  International alleges that Defendants fraudulently caused the Company to transfer to them over $90 million in non-compete payments, which rightfully should have gone to International. Defendants failed to disclose these payments to International's board, its non-controlling shareholders, or in its SEC filings. Where Defendants did obtain board approval or publicly disclose the transfers, they made material misstatements and omissions. While unnecessary to detail all of these alleged improper transfers because they all basically follow the same modus operandi, the Court will describe some of the more blatant allegations.

  For example, International alleges that Defendants forced the Company to sell certain of its publishing assets to Intertec Publishing Corporation ("Intertec") for approximately $75 million. As part of the sale, Intertec agreed to pay $2 million to International for entering into a non-compete agreement. Although Inc. was not mentioned in the agreement, Defendants had International transfer the $2 million payment to Inc. "Defendants never obtained [International's] independent directors' approval to make this $2 million payment . . ., nor did they disclose this payment to [International's] public majority non-controlling shareholders." (First Am. Compl. at ¶¶ 80, 287-88.)

  Additionally, when International sold certain of its newspapers to Community Newspaper Holdings, Inc. ("CNHI") for $472 million, $50 million of the purchase price was in consideration for a non-compete agreement. Although Inc. is a holding company and does not actually publish newspapers (and thus not a threat to compete), Defendants had Inc. included as a signatory in the non-compete agreement. Then without obtaining approval of International's independent directors or disclosing this transaction to the Company's "public non-controlling shareholders," Defendants caused $12 million of the $50 million non-compete payment to be wired to Inc. (Id. at ¶¶ 82, 289-90.)

  After fraudulently obtaining $14 million from the above non-complete payments, Defendants transferred the money back to International as repayment for a prior loan. Defendants, however, did not disclose the fact that they repaid the loan with International's own money. Likewise, Defendants had International issue a material misstatement in its 2000 10-K annual report by reporting that a redemption of stock, not the fraudulent non-compete payments, extinguished the loan. (Id. at ¶¶ 83, 291)

  Defendants also brought about the sale of other publications owned by International to Defendant Horizon Publications, Inc. ("Horizon") for $43.7 million, which included a $5 million payment for a non-compete agreement. Although Inc. was not a threat to compete, it signed the non-compete agreement, after which Defendants caused International to transfer $1.2 million of the $5 million payment to Inc. When this transaction was presented to the board by Defendants, they did not disclose the $1.2 million payment to Inc. Likewise, this payment was never disclosed to the "majority non-controlling shareholders." (Id. at ¶¶ 84-85, 294.)

  In 2001, International sold all of its Canadian newspapers — over 200 — to Can West Global Communications Corp. ("Can West") for $2.33 billion. Included in this purchase price was a payment for $52.9 million for an agreement not to compete. Although Defendants were not signatories to the Can West non-compete agreement, they induced International to transfer to them the entire $52.9 million, plus interest. To get approval from International's board for this payment, Defendants made numerous material misrepresentations and omissions. In an attempt to hide this misappropriation, Defendants forced International to make materially false misstatements and omissions in its SEC filings and in public statements. For example, when Defendant Black was confronted with this transaction at International's annual shareholders' meeting, he made several false public statements to hide the fraudulent and unfair nature of the Can West payments. In addition to the non-compete payments, International alleges that the Can West transaction was "[un]fair to [International's] public non-controlling shareholders." (Id. at ¶¶ 98-120, 306-08.)

  Horizon Transactions

  In orchestrating the above $43.7 million sale to Horizon, Defendants failed to disclose, as required by law, their significant ownership interest in Horizon. This omission was particularly important given that International's assets were sold to Horizon at well "below fair market value," resulting in a loss for International and a windfall for Defendants. (Id. at ¶¶ 84-85, 184-193, 197-209, 292-94.)

  Defendants also effectuated the sale of millions of dollars in other assets to Horizon at well "below fair market value." Like the other Horizon transaction, Defendants failed to disclose its ownership interest in Horizon to International's board, its shareholders, or in International's SEC public filings. Additionally, Defendants caused International to make materially false statements in its SEC filings by asserting that these ...

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