*see updates below*
Inside Air America: An Investigative Blog Report
Part 1: A Trail of Debts
By Michelle Malkin and Brian Maloney
August 17, 2005
It’s not just the Gloria Wise Boys & Girls that’s knocking on Air America Radio’s door looking for lost money. According to court records obtained by Radio Equalizer/MichelleMalkin.com, another major creditor has been demanding that Air America pay up. The liberal radio network has refused to do so, despite a court order and scathing words from a New York judge overseeing the case. Now, the creditor–Multicultural Radio Broadcasting Inc.–has filed a new complaint, accusing Air America and Piquant LLC (Air America’s current owners) of engaging in a “sham transaction” and “fraudulent conveyance” of assets in order to avoid paying its debts. (See the prescient Professor Bainbridge for corporate law background.)
Two weeks after their debut, Air America Radio was pulled off the air by the owners of two stations the network had licensed in Chicago and Santa Monica, California (near Los Angeles). This was due to a contract dispute between Air America and the station’s owner, Multicultural Radio Broadcasting. Air America alleges Multicultural Radio may have sold time on their Los Angeles station to them and another party, and stopped payment on checks to them while they investigated. Multicultural Radio alleges that Air America bounced a check and owes $1 million. Air America Radio filed a complaint in New York Supreme Court, charging breach of contract and was granted an injunction to restore the network on WNTD-AM in Chicago. On April 20, the network announced the dispute had been settled, and Air America’s last day of broadcast on WNTD was April 30.
Four weeks after Air America’s debut, the CEO, Mark Walsh, and Dave Logan, its executive vice president for programming, left the network. One week after those departures, the chairman and vice chairman, Evan Cohen and his investment partner Rex Sorensen, also left. Some attributed Cohen’s departure to investor unhappiness with how he handled the dispute with Multicultural Radio Broadcasting.
Now, here’s the rest of the story the MSM has yet to report.
On June 23, 2004, New York Supreme Court Judge Marylin Diamond filed this order. The matter concerning the two parties’ time brokerage agreement was not settled in Air America’s favor. Judge Diamond wrote:
The Time Brokerage Agreement provides that in the event any action is commenced by either party to seek remedies for a wrongful termination of the agreement, the prevailing party shall be entitled to an award of the reasonable attorney’s fees and costs incurred therein. In opposition to Multicultural’s request for attorney’s fees under this provision, Air America argues that there was no prevailing party here because no disposition on the merits of its complaint was ever issued since the two sides settled the action. This argument is frivolous. Air America has not cited any case which has held that a party who effectively prevails through the settlement and discontinuance of an action may not be considered the “prevailing party” as that term is used under a contractual agreement entitling the prevailing party to an award of attorney’s fees.
Clearly, Multicultural is the prevailing party in this action. Indeed, Air America’s complaint was entirely without merit. It was based upon Air America’s assertion that it was not in default in its monthly payments, that its check to Multicultural was erroneously returned by the bank for insufficient funds, that it was ready, willing and able to make its monthly payments for air time and that it was entitled to an idunction requiring Multicultural to provide it with the air time for which the parties had contracted. The facts which later became known and the events which later occurred all belied this assertion and established that Multicultural was entitled to terminate the agreement and take Air America off of the air.
The mere fact that Air America agreed to discontinue the action pursuant to a settlement agreement – - the terms of which it did not even live up to – - does not mean that it may thereby avoid the application of the contractual provision entitling the prevailing party to an award of attorney’s fees. Having brought this meritless lawsuit which thus required the defendant to incur attorney’s fees, it is entirely appropriate that Air America reimburse Multicultural for these expenses.
Five months later, on Nov. 24, 2004, Judge Diamond filed a default judgment ordering Air America to pay Multicultural Radio the sum of $255,518.86 in damages.
*Click here to download the 11/24/04 default judgment.*
Six months after that order was filed, Multicultural Radio still had not been paid. On May 24, 2005, the company filed another complaint with the New York State Supreme Court–this time with legal guns blazing. Named as defendants were past officers and directors of Air America Radio, as well as current officers, directors and investors of Piquant LLC, including:
The complaint (which will be uploaded in its entirety shortly) opens:
Multicultural Radio spotlights the current Air America management’s efforts to raise cash from dubious sources–including the Gloria Wise Boys & Girls Club:
Note that this revelation included in the complaint was made in May 2005–two months before the story hit the blogosphere and Air America publicly acknowledged its “moral obligation” to pay back Gloria Wise.
The complaint next documents Air America’s p.r. strategy of smearing Multicultural Radio president Arthur Liu:
The bombshell revelations are contained in paragraphs 47-84, detailing Air America’s “fraudulent conveyances and breaches of fiduciary duty” related to the formation of Piquant LLC, the liberal radio network’s current owners:
Multicultural Radio cuts to the chase:
According to Multicultural Radio, dissenters from the “classic shell game” scheme were met with threats:
And the deal proceeded:
In addition to its obligations to Multicultural Radio, the complaint alleges that Air America owed more than $2 million in accounts payable and had no means to repay its obligations. Multicultural Radio further alleges that Cohen and Sorensen made a deal with Piquant promising never to sue, retaining an ownership interest in Piquant, and all agreeing to “indemnify and hold harmless” one another “with respect to claims for any breach or default or failure to perform any undertakings pursuant to their agreement.
Now you know why the current owners of Air America seem so disinterested in holding Cohen accountable for the Gloria Wise mess.
Now you know why Air America and its defenders are using smear tactics to disparage critics and bloggers and journalists asking hard questions about its past and current finances.
But what’s next for Air America as it travels down its trail paved with debts?
Stay tuned to The Radio Equalizer for Part II of this series, as the Air America shell game continues…
Update: The full Multicultural Radio complaint is now up. Fascinating reading. Click here.
Update II: Blog reax rolling in…
John Hinderaker at Power Line: “Normally I’m very skeptical of claims made in pleadings in litigation; they are sometimes true, but should hardly be taken as Gospel. In this case, though, the allegations are very detailed, replete with names, dates and specific information.” Tons.
Ed Morrissey at Captain’s Quarters: “Perhaps Eliot Spitzer might want to check in for a little look of his own.”
Brainster’s Blog: “Of course, nowadays, even Al Franken admits that ‘our boss Evan Cohen’ was a crook. But…it appears that it’s like Roger Daltrey once sang: ‘Meet the new boss, same as the old boss!’”
“I suspect when some of the participants start to get the matching bracelets and marched off to arraignment for fraud, the mainstream media will finally cover the story–and claim that these ideological soulmates with Enron’s accountants are victims of a political vendetta. I think the real problem is that the left honestly thinks it is the vast majority of America*, and therefore couldn’t imagine that Air America wouldn’t be a smashing business success. When it cratered–because there just aren’t enough hardcore leftists (overwhelmingly, multimillionaires, Hollywood celebrities, and university professors) out there to keep Air America afloat–desperate people turned to desperate short-cuts, in the hopes that the audience would suddenly show up, and make the business model work.”
Leon H. at Macho Nachos: “Well, now we know the answer to whether the folks at Piquant have made a good faith effort to pay off the creditors of Progress Media, and also whether the transfer of the AA assets passed muster with the courts. The short answer, they didn’t. The term for today, boys and girls, is ‘fraudulent conveyance.’”
Lance at Red State Rant: “Hmm, leaves one to wonder what accounts payable at Air America really looks like. This, my friends, is a sinking ship.”
From commenter Ironman at Polipundit:
Perhaps this recent NY State opinion may enlighten us on the nature of Air America’s difficulties. Note the stature of the jurist who established NY State’s standard for determining when a fraudulent conveyance occurs
“§ 276 – Actual intent to hinder, delay or defraud creditors
Perhaps the usual situation in which § 276 comes into play is illustrated by Mr. Justice Cardozo in Shapiro v. Wilgus, 287 U.S. 348, 53 S. Ct. 142, 77 L. Ed. 355, 85 A.L.R. 128 (1932), where he observed that:
“A conveyance is illegal if made with an intent to defraud the creditors of the grantor, but equally it is illegal if made with an intent to hinder and delay them. Many an embarrassed debtor holds the genuine belief that, if suits can be staved off for a season, he will weather a financial storm, and pay his debts in full (citation omitted). The belief, even though well founded, does not clothe him with a privilege to build up obstructions that will hold his creditors at bay.” 287 U.S. at 354, 53 S. Ct. at 144.
Finding that the transferor did not intend fraud, and indeed believed his actions to be quite legal, but that the transferor there did intend to delay or hinder creditors, the court found the transfer of assets into a closely-held corporation and later a “friendly” receivership to be fraudulent conveyances.”
Robert F. Shelly et al. v. Susan Doe, Infant,
660 N.Y.S.2d 937 (N.Y. 05/28/1997)
Hugh Hewitt on blog journalism and legal reporting:
Lawyers who want stories in the press have long tried to interest reporters by slipping them crucial documents and generously providing pointers. Reporters are often uninterested in court docs because of space considerations and the sheer complexity of litigation. The la[ng]uage of the law is very often difficult to parse, and trying to explain complex civil litigation to a reporter is a challenge, especially if their time is as limited as their column inches.
The blogopshere is a whole new venue for litigators seeking some momentum shifting attention. If you have a blogger interested in your story who has an audience and some friends, there’s a new approach available to plaintiffs and defendants. Very interesting indeed.
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