The company that owns SF Weekly is positioning itself to become the greatest deadbeat in the history of the alternative press.
Village Voice Media, the 16-paper chain, owes the Bay Guardian close to $20 million as the result of a year-old jury verdict in a predatory-pricing lawsuit.
After a six-week trial in the spring of 2008, the jury found that the Weekly had intentionally sold ads below cost over a period of years, losing millions in the process, in an effort to put the locally owned competitor out of business.
But while the case is on appeal, VVM hasn't posted an appeal bond -- that is, a guarantee that the defendant will pay up after the appeals are over. That's highly unusual for a business that isn't claiming insolvency - and since there's no bond, the Guardian is free to start collecting the money.
However, the Guardian lawyers have gotten a clear message from VVM's legal team in a variety of communications over the past months. In a July 18, 2008 legal filings and subsequent disclosures, VVM claims that it owes a consortium of banks, led by the Bank of Montreal, $92 million -- and that those banks have a prior claim on all of the company's assets.
That suggests that the entire chain is worth less than $92 million -- something that stretches credibility even in these difficult economic times. In 2007, the company listed assets of $191 million, documents presented during the trial showed.
If the current claim is true, then VVM has lost more than half its value in just two years and is technically underwater, much like the homeowners whose mortgages exceed the value of their property.
The VVM lawyers are also claiming that the company's assets are set up in such a way that the Guardian will never be able to reach the money.
That leaves the largest alternative newspaper publisher in America in the remarkable position of saying that it's prepared to duck a legitimate debt, to defy a jury and court order and hide its assets -- like a media version of Bernard Madoff.
Asset-protection is a booming area of law, and in some cases, it's considered entirely appropriate and ethical. Plenty of businesses -- and increasingly, surgeons, dentists and others subject to a high risk of lawsuits -- set up subsidiary companies, limited liability companies and other corporate structures to protect them from potential creditors.
But creating such a scheme to avoid paying a valid debt, particularly a court judgment, is frowned on both by legal experts and courts.
"It is never ethical to devise or implement a scheme to deprive a legitimate creditor of access to your assets," Marjorie Jobe, an El Paso, Texas business litigation attorney and an expert on asset protection, told us by email. "It is never ethical not to pay or satisfy a legitimate debt."
Adds Jay Adkisson, a Newport Beach lawyer and the author of a leading book on asset-protection: "Typically, it is considered unethical to transfer assets to harm a legitimate creditor."
There are, experts point out, asset-protection programs that are both legal and ethical -- and while Jacob Stein, a Los Angeles attorney who lectures regularly on the topic, told us there's no "bright line," it typically depends on the timing.
"If a business has a legitimate reason for setting up an asset-protection plan, that's entirely proper," Stein told us. "But if it's done after a judgment is in place, it's not a good idea."
Added Jobe: "the asset protection plan needs to be deliberate and not aimed at only one creditor."
At this point, only VVM executives and their lawyers and bankers know for sure when the asset-protection scheme was devised. The Guardian's legal action began in 2002; if the program had been in place prior to that, it would be easier to defend.