Facts

Plaintiff James Skorheim is the court appointed Trustee of a Litigation Trust (the "Trustee") that was formed to pursue claims against the directors and officers of Freedom, which had filed for Chapter 11 bankruptcy. Prior to filing his action against defendants, the Trustee recovered $14.5 million in connection with Freedom's Chapter 11 bankruptcy proceedings.

The Trustee's case against defendants was set to proceed with a four-week jury trial in July 2012 before Andrew J. Guilford in District Court in Santa Ana.

On Feb. 27, 2012, after attending mediation before the Hon. Layn R. Phillips, retired, defendants' insurers agreed to pay $15.5 million to the Trustee.

Between the $14.5 million previously recovered in Freedom's bankruptcy and the $15.5 million recovered in the Trustee's lawsuit against defendants, the Trustee recovered a total amount of $30 million. The lion's share of this settlement will go to pay newspaper carriers who were members of a class action against Freedom's Orange County Register.

The class action was initially filed in the Orange County Superior Court in 2003 and then preceded through the litigation process, culminating in seven weeks of jury trial before it was settled in January 2009 for $38 million. While the newspaper carriers won the battle, Freedom filed bankruptcy on Sept. 1, 2009 and sought to eliminate this obligation through bankruptcy one week before the agreed payment date.

PLAINTIFF'S CONTENTIONS:
Plaintiff contented that defendants, who were Freedom's directors and officers, breached their fiduciary duties by putting the interests of shareholders above the best interests of the company. More specifically, the Trustee alleged that defendants breached their duties of loyalty and good faith by squandering hundreds of millions of dollars of company assets while heading towards an inevitable bankruptcy filing. The Trustee sought damages of $31 million based on improper fees and costs incurred by Freedom as a result of defendants' conduct.

DEFENDANTS' CONTENTIONS:
Defendants argued that they did nothing wrong and did not breach their fiduciary duties, that defendants considered the best interests of the company at all times and that Freedom was not harmed as a result of anything they did.

In addition, defendants' insurers claimed that there was no coverage for the claims at issue. Accordingly, the insurers filed a complaint for declaratory relief wherein they claimed they were not obligated to provide coverage for any alleged damages or judgment that might be entered against defendants.

The insurers also argued that even if they were obligated to provide coverage, their exposure on any judgment was limited to whatever policy limits remained after paying all attorney's fees, expert fees and costs of defense because they were "burning limits" policies. The insurers further claimed that fees and costs in defending the case would exceed $10 million, which meant that there would be less than $15 million in policy limits available if the case proceeded to trial.

Result

The case settled for $15.5 million, in addition to a prior recovery of $14.5 million, resulting in a total recovery of $30 million.

Other Information

FILING DATE: May 5, 2010.