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Hoiles Family Heads for Court in Feud Over Newspaper Chain

November 02, 1986|JAMES S. GRANELLI | Times Staff Writer

Like gladiators about to enter the Coliseum, the heirs of newspaper publisher R. C. Hoiles will soon gather on the courthouse steps--each faction ready to destroy the other to save itself.

When the three branches of the Hoiles family--each owning about a third of the Freedom Newspapers empire--go into Orange County Superior Court early this month, they will begin a climactic battle in a six-year struggle over the existence of the highly profitable media chain.

Harry H. Hoiles--at 70, the oldest surviving offspring of R. C. Hoiles--is seeking nothing less than dismemberment of the corporation.

The families of Harry's late brother Clarence H. Hoiles and sister Mary Jane Hoiles Hardie, 64, oppose him--unwilling to "kill the goose that laid the golden egg," as Mary Jane's husband and company chairman, Robert C. Hardie, puts it.

Freedom Newspapers is, indeed, a prize. It owns the Orange County Register, 28 smaller dailies, three weeklies and five television stations. Last year, it was listed by Forbes magazine as the nation's 269th-largest private corporation, with $322 million in sales and 3,800 employees.

Industry analysts rank it as the 14th-largest newspaper chain in the nation. With circulation for all its papers totaling 934,000, Freedom is ahead of the Washington Post Co. and right behind Capital Cities Communications, which bought American Broadcasting Cos. earlier this year.

The fight over Freedom can be traced at least to the fall of 1980 when Harry was not permitted to succeed ailing brother Clarence as Freedom's chief executive. Since then, claiming that he was deprived of effective participation in the company, and that management took steps that diminished the value of his stock, Hoiles has sought to obtain newspapers worth a third of the company's market value. He and his branch of the family would then go their own way, spreading his father's libertarian philosophy.

If he can't get the newspapers, Harry wants to be paid cash equal to 33% of the corporation's market value.

The other two families contend that the lawsuit is based on Harry's "hurt feelings and disappointment" over being passed over as chief executive in favor of a three-member office of the chief executive designed to ensure equal power among the three families. They contend that Harry's divisive actions caused him to be removed from company management, and that their own decisions were taken to aid all shareholders and to block the company's destruction.

The two families argue that Harry's one-third interest in Freedom is worth much less than one-third of the corporation's total market value. And they clearly loathe the notion of raising the money--perhaps as much as $333 million--to pay the sum that Harry seeks.

If the two families that control Freedom win the court fight, Harry Hoiles' family could be cut out of any active role in the operation of the company's papers and television stations, leaving members of the family with only their stock dividends as income from the company.

Lengthy Trial Expected

The non-jury trial in the courtroom of Superior Court Judge Leonard Goldstein, lawyers estimate, will take three to four months. In the process, many of the three families' most secret fights and financial arrangements likely will become a public spectacle. Much of it already has.

"How would you like all of your relationships with in-laws and so forth made public?" Hardie lamented in a recent interview. "How would you like all your financial affairs made public? It's painful, silly."

One legal issue before Judge Goldstein could make it easier for Harry Hoiles to dissolve the corporation.

Under state corporation law, a dissident minority shareholder can force a corporate dissolution in two ways, and Harry Hoiles has filed under both measures.

The more difficult route calls for Hoiles to prove that the majority's actions constituted "persistent fraud, mismanagement or abuse of authority or persistent unfairness."

That may be especially difficult because Freedom is making huge profits, and is sharing the wealth proportionately with the Hoiles family.

The easier route calls for Hoiles to show that "liquidation is reasonably necessary for the protection of the rights and interests of the complaining shareholder."

But to qualify for this easier standard, the company must have not more than 35 shareholders. Freedom has about 50 heirs holding about 85 shareholder accounts.

Hoiles wants Goldstein to recognize a trend in the law that has not yet been approved by California courts. He claims that because members of the families have always been concerned about the relative balance of power among the three factions, and have consistently voted their stock in three blocks, divided along family lines, rather than as individuals, the court should recognize that there are really only three shareholders of Freedom. The judge has not ruled yet on the matter.

Seeks Psychoanalyst

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