In Los Angeles Judge Clement L. Shinn last week finished a long and lonesome job of unraveling a complicated lawsuit against the super-complicated empire of William Randolph Hearst. Concluding his verdict, Judge Shinn complained mildly of the difficulty of attempting a one-man exploration of the labyrinth, suggested that the facts in such a case should be reviewed by three judges before an appeal were taken. But at week’s end it appeared that no appeal might ever be taken. Both sides thought they had won.
The suit concerned Hearst Consolidated Publications, Inc. (twelve of the strongest Hearst papers and American Weekly), whose preferred stock was sold to the public for $50,000,000 in 1930. The plaintiff: Samuel Mann, a New Yorker who has 332 shares of the stock and a lawyer son. The general charge: that Consolidated had been dominated by Hearst (who owns common-stock control) for the benefit of his privately owned “upstream” companies. The demand: restitution to Consolidated of $32,500,000 which it was claimed had been lost through intercorporate finagling.
Judge Shinn threw out the most sensational charges: that Consolidated was organized as a fraudulent scheme to sell part of Hearst’s property at an excessive price; that Hearst had charged it too much for goods and services from his newsprint and news-feature companies; that Consolidated was forced to pay Hearst’s salary (once $500,000 a year) although he spent just as much time in behalf of his private interests; that in general Consolidated had been forced to. pay the freight for the Hearst empire. The court absolved Hearst, his companies and the Consolidated directors of fraud, took occasion to say one of the nicest things William Hearst has heard about himself for a long time (“extraordinary ability . . . phenomenal success . . .”). To John Francis Neylan, attorney who conceived the idea of Consolidated and became its chief executive officer, the court was equally flattering (“zealous in the protection of its interests . . .”).
But Judge Shinn did grant recovery on some items. He found that in 1935, when Consolidated bought four more Hearst papers (Baltimore News-Post and American, San Antonio Light, Atlanta Georgian), the $8,297,595 purchase price was too high by $2,832,941. Consolidated is entitled to recover this sum plus interest. He also ruled that Consolidated should recover some of the dividends it paid to other Hearst companies on stock which had not been paid for in cash, as well as interest on some complex inter-company loans. Best estimate of the total amount of the verdict (which is against Hearst, Hearst Corp. and American Newspapers, Inc.): $5,000,000.
For that kind of money, Samuel Mann & son were entitled to feel pretty good. But Hearst and his associates were absolved of fraud or bad faith. Aware that most of the verdict could be paid off by canceling a $4,200,000 Consolidated debt to the upstream companies, they thought that they had won the suit too.
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