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Thursday, January 14, 2010

"New Times Is Simply a Holding Company"

Posted by on Thu, Jan 14, 2010 at 2:29 PM

If you read the response from Village Voice Media, owner of the Seattle Weekly, to all the legal drama that's erupted down in San Francisco between the Bay Guardian and the SF Weekly (background here, here, and here), you'll notice something interesting.

You'll notice that this case isn't just about the $20 million that a court says is owed to the Bay Guardian because the SF Weekly was found to have engaged in illegal predatory pricing of its ads. Nor is it solely about whether the Bay Guardian can now seize assets of publications like the Seattle Weekly in order to get its money. It's also a public relations war, an independently-owned David (the Bay Guardian) vs. a corporate-owned Goliath (Village Voice Media) in a race to see who can make the other look worse while both wait for an appeals court to hear their legal arguments all over again.

And VVM's public relations strategy so far shows that the company is in a bad perceptual bind.

In order to explain its belief that the Bay Guardian can't seize or sell off assets of VVM's entire alt-weekly empire in order to collect that $20 million, the people at VVM are having to explain the complex corporate structure that governs their alt-weekly operations around the country.

It's not what you might expect.

For example, you might have heard that in 2005 New Times bought Village Voice Media, creating "a chain of 17 free weekly newspapers around the country with a combined circulation of 1.8 million." But if you read the explanation for VVM's current position on what's owed the Bay Guardian, you learn this:

New Times is simply a holding company.

In effect, the Guardian has received an order for monies that don't exist.


Here's what's going on, as I understand it after talking to lawyers for both sides yesterday: The Bay Guardian has a $20 million judgment against both the the limited partnership that owns the SF Weekly—SF Weekly, LP—and the company that controls that limited partnership, New Times Media, LLC.

New Times Media, LLC, according to a declaration made as part of the ongoing legal machinations by John E. Brunst, its chief financial officer...

...owns the membership interests or limited partnership interests in various separately organized limited liability companies or limited partnerships that own, operate and publish weekly print publications, a classified internet web site, and an advertising representation firm in various cities in the United States (collectively, the "Operating Entities"). New Times is a holding company and does not conduct any business. There are sixteen (16) Operating Entities located throughout the United States. The Operating Entities include San Francisco Weekly, LP ("SF Weekly")

In other words, New Times Media, LLC, has its hands in a lot of smaller LLC and LP pots (or "operating entitites"), but isn't holding money from any of them. Among those 16 operating entities, according to the declaration: Seattle Weekly, the Village Voice, and LA Weekly.

But how is it that New Times Media, LLC, which controls so many money-making alt-weeklies across the country, and according to a document from the case had $190 million in assets in 2007, now has only "monies that don't exist," aka $0?

Neither attorney could completely answer this question, citing client confidentiality and/or sealed documents. But both made clear that part of the answer involves entities "upstream" of New Times Media, LLC. For example, Village Voice Media, LLC, which has an interest in Village Voice Media Holdings, LLC, which in turn is a member of New Times Media, LLC.

If stacks of money are sitting anywhere in the company, they're somewhere further up the chain than New Times Media, LLC, apparently.

But what about the fact that New Times Media, LLC, even if it has $0 on hand, still "owns the membership interest" in various alt-weeklies and other "operating entities" around the country? Can't the Bay Guardian take over that interest and seize or sell off those "operating entities"?

The lawyer for the Bay Guardian, Jay Adkisson, thinks it ultimately can. "Eventually we'll get there," he told me. In the meantime, Adkisson asked a San Francisco court this week to issue an order sending half the advertising revenue from the SF Weekly over to the Bay Guardian in order to start paying down the $20 million. The court has yet to rule on that request.

The lawyer for Village Voice Media, Randall S. Farrimond, thinks otherwise. He says the Bay Guardian's ability to collect stops at New Times, LLC's membership interest in San Francisco Weekly, LP. Which, again, involves $0. “New Times is just a holding company," he told me, repeating the line. "They don’t have any assets themselves.”

These issues will be sorted out by the courts in the near future, but in the public relations fight that's going on now, VVM is having to make something very clear:

A person who works for one of its alt-weeklies actually works for an LP (or an LLC) that's controlled by another LLC, that's controlled by still another LLC, and perhaps ultimately controlled by yet another LLC (or more) on top of that.

Bay Guardian editor Bruce Brugmann complained in a statement yesterday that, rather than pay what it owes (or post a $20 million bond pending appeal), "New Times has instead attempted to rely on its complex corporate structure to defeat the collection of the judgment while it pursues its appeal.

Replied Farrimond: "We’re entitled to rely on whatever we can, legitimately, to get the appeal heard and decided. If the complex corporate structure were to help with that somehow, there certainly wouldn’t be anything wrong with it.”


Comments (18) RSS

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Fifty-Two-Eighty 1
Ah, yes. Perhaps they need to be introduced to a legal procedure called "piercing the corporate veil." I've done it myself - successfully - and when it workd it generally tends to bankrupt everybody involved, including the officers and directors.
Posted by Fifty-Two-Eighty on January 14, 2010 at 2:42 PM · Report this
Wait, so where does the Sheinhardt Wig Company fit into all of this?
Posted by Juris on January 14, 2010 at 2:59 PM · Report this
The Stranger sees a chance to rag endlessly on the company that owns Seattle Weekly and takes it. again. and again. and .....
rob! 4
@1, who in daily life wears veils anymore? I think a hymen or sphincter metaphor would be much more to the, um, point.
Posted by rob! on January 14, 2010 at 3:16 PM · Report this
Fifty-Two-Eighty 5
Nevertheless, that's what it's called. I don't make this shit up; if I did, I guarantee I'd have a much better imagination about it.
Posted by Fifty-Two-Eighty on January 14, 2010 at 3:27 PM · Report this
Fifty-Two-Eighty 6
Did I mention that there's a "five-pronged test" you apply when piercing the veil?

Forget about my imagination - I think they're doing pretty well on their own.
Posted by Fifty-Two-Eighty on January 14, 2010 at 3:30 PM · Report this
rob! 7
This makes it look like VVM/NT set up a hall-of-mirrors corporate structure specifically to facilitate a wide-ranging network of alt weeklies that could, with fairy-godmother-like infusions of cash, engage in all kinds of anti-competitive shenanigans. I'm just a simple country boy, but isn't that evidence of premeditation, or malice aforethought, or something?
Posted by rob! on January 14, 2010 at 3:31 PM · Report this
Fifty-Two-Eighty 8
Yep, that's one of the "prongs." If you can prove all five, the whole house of cards comes down. Including, as I said earlier, exposing the officers and directors to personal liability too.
Posted by Fifty-Two-Eighty on January 14, 2010 at 3:36 PM · Report this
rob! 9
Two funny quotes from the 2005 NYT article linked by Eli:
James Larkin, the chairman and chief executive of New Times, said in an interview that the merger, unlike those in the broader newspaper industry, where consolidation has led to accusations of uniformity and boilerplate coverage, "allows us to get stronger and to have stronger content."...

"I'm doing it because I love good journalism," Mr. Larkin said. "I want to have newspapers in the most exciting markets in the country. This is not a financial play."
Posted by rob! on January 14, 2010 at 3:40 PM · Report this
Will in Seattle 10
The whole idea of shell corporations is making the public take all the risk and privatize all the profit.

It's evil, but that's why our activist justices on the Supreme Court made corporations people that couldn't be jailed.
Posted by Will in Seattle on January 14, 2010 at 3:57 PM · Report this
@10 pretty well said, but you can't improve on Ambrose Bierce:

Corporation, n. An ingenious device for obtaining individual profit without individual responsibility
Posted by Corydon on January 14, 2010 at 4:36 PM · Report this
But how is it that New Times Media, LLC, which controls so many money-making alt-weeklies across the country, and according to a document from the case had $190 million in assets in 2007, now has only "monies that don't exist," aka $0?

A holding company is a company whose sole purpose is to hold stock in other companies. Typically, they will have high % of ownership in these companies so that they can dictate policy and direct activity to benefit their ownership.

All assets in a holding company are shares of stock in other companies. Any revenue, profit or loss of a company in their portfolio only impacts them if it changes the value of the shares.

So, it is plausible that they would see a quick and dramatic decrease in assets if they have 1) divested from their holdings (sold their shares), or 2) if the market value of their holdings has significantly changed in value.

My bet is on #2. The market value of print media has seen double digit declines year-over-year since before 2007. You could easily make a case that the value of stocks in each of these companies has declined to $0 simply because there is no longer a market willing to pay anything for the stock.
Posted by Velveteen Robot on January 14, 2010 at 4:48 PM · Report this
Fnarf 13
@10, corporations, in the sense of businesses with corporate, or person-like, rights, have been around a lot longer than the US Supreme Court, or the US. Try ancient Rome. It's also rather unclear how the US Supreme Court has jurisdiction not just across time but space, in the hundreds of countries with corporation law similar to ours.

And this company we're talking about isn't a corporation at all, it's an LLC.

Other than that, yeah, you make a good point. Except that there isn't anything in your post other than that. So, alas, once again you are completely full of shit up to your eyebrows and beyond. How can you breathe?
Posted by Fnarf on January 14, 2010 at 5:25 PM · Report this
Hyzenthlayk9 14
@8, if you're willing, would you post the other four prongs?
Posted by Hyzenthlayk9 on January 14, 2010 at 5:46 PM · Report this
Fifty-Two-Eighty 15
Oh, hell, it's been so long since I've done it that I'd have to look them up again myself if I needed to know it. It's a minor miracle I remembered that there are five of them.
Posted by Fifty-Two-Eighty on January 14, 2010 at 5:56 PM · Report this
Fnarf 16
@14, @15, it's not quite as cut-and-dried as "five points". There's more than that, but you don't need all of them, and the interpretation is up to the local court you're in. You might only need one if it's egregious enough. Most of them are obvious and commonsensical -- "Mingling of assets of the corporation and the shareholder", "faked corporate records", and so on.

The summary on Wikipedia is pretty good:…
Posted by Fnarf on January 14, 2010 at 6:12 PM · Report this
vooodooo84 17
@fnarf, its not as cut and dried as you make it seem, the corporate form only became the mode of choice for US business since the late 19th century when states relaxed the requirement that the corporation be limited to a specific purpose.

That the corporation was deemed a person for the purposes of constitutional rights was another factor in the modern explosion of corporate influence. Though i hesitate to side with WiS, he is mostly right here.
Posted by vooodooo84 on January 14, 2010 at 9:10 PM · Report this
Fnarf 18
@17, so go on, finish the thought. How does a US Supreme Court decision extend this right of personhood to corporations in other countries?
Posted by Fnarf on January 15, 2010 at 5:15 AM · Report this

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