## Facts

- Hollinger International, Inc. (International) was a publicly traded newspaper company that owned hundreds of newspapers.
- Hollinger Inc. (Inc.) was a holding company that controlled International through a chain of ownership involving Ravelston Corporation and insiders associated with Conrad Black and David Radler.
- International alleged that its controlling shareholders, officers, directors, and affiliated entities diverted hundreds of millions of dollars from the company through related-party transactions and other self-interested conduct.
- International claimed two affiliated publishing companies, Horizon Publications, Inc. (Horizon) and Bradford Publishing Co. (Bradford), were used to acquire International newspaper assets at below-market prices (including a deal in which Horizon allegedly bought publications for \$1 after International had paid about \$1.75 million and after a third party had offered \$1.25 million).
- International alleged that defendants caused the company to make large “noncompete” payments to insiders and affiliated entities as part of newspaper sales, even though those recipients allegedly lacked any real ability to compete with a newspaper business; International alleged the payments were diverted from the company to the controllers.
- International further alleged that it made loans to Inc. on favorable terms (including low interest and repayment problems), paid excessive management fees to affiliated entities for outsourced management, and paid unreasonable compensation and personal expenses to insiders.
- International’s board eventually removed key executives and formed a special committee, which reported deficiencies in oversight and alleged misinformation given to the board regarding related-party payments.
- International first sued in Delaware and then filed this federal action in the Northern District of Illinois asserting civil RICO claims and state-law claims (breach of fiduciary duty, unjust enrichment, and civil conspiracy).
- In an earlier October 8, 2004 order, the district court dismissed International’s RICO claims, ruling that 18 U.S.C. § 1964(c), as amended by the Private Securities Litigation Reform Act (PSLRA), barred the RICO theory because the alleged conduct “would have been actionable” as securities fraud.
- The decision reported at 2005 WL 589000 addresses International’s motion to certify an interlocutory appeal under 28 U.S.C. § 1292(b) from the October 8, 2004 RICO-dismissal order.

## Issues

1. Whether the October 8, 2004 order dismissing International’s RICO claims presented controlling questions of law, with substantial ground for difference of opinion, such that an immediate appeal should be certified under 28 U.S.C. § 1292(b).
2. Whether the PSLRA’s civil-RICO limitation in 18 U.S.C. § 1964(c) can bar RICO claims when the alleged predicate acts are not themselves securities-law violations and do not directly involve a purchase or sale of securities, but are alleged to be part of a broader scheme that would be actionable as securities fraud.
3. Whether certification was warranted where International argued it lacked standing to bring securities-fraud claims based on particular transactions, yet contended that § 1964(c) should not bar its RICO claims.

## Decision

- The court denied International’s motion to certify an interlocutory appeal under 28 U.S.C. § 1292(b).
- The court concluded International did not show a substantial ground for difference of opinion on the legal questions tied to the PSLRA’s RICO limitation.
- The court rejected the argument that the absence of directly controlling precedent (or an issue of first impression) by itself justified interlocutory review.
- The court determined that an immediate appeal would not sufficiently speed the end of the case to justify departing from the ordinary rule against piecemeal appeals, particularly because the litigation could proceed on the remaining state-law claims.

## Legal Principles

- Interlocutory appeal under 28 U.S.C. § 1292(b) is discretionary and requires: (1) a controlling question of law, (2) substantial ground for difference of opinion, and (3) a likelihood that immediate appeal will materially speed the end of the litigation.
- A party seeking § 1292(b) certification must show more than novelty; the lack of binding precedent alone does not establish substantial disagreement warranting immediate appellate review.
- Under 18 U.S.C. § 1964(c) (as amended by the PSLRA), a civil RICO plaintiff may not recover for injuries based on conduct that “would have been actionable” as fraud in the purchase or sale of securities.
- In applying the PSLRA’s RICO limitation, courts look at how the alleged predicate acts relate to the overall alleged fraudulent scheme; plaintiffs may not avoid the limitation through artful pleading that recasts securities-fraud conduct as mail or wire fraud.
- Even if individual alleged predicate acts do not themselves involve a securities transaction, the RICO limitation may apply when the alleged conduct functions as part of a scheme that is actionable as securities fraud.

## Conclusion

In *Hollinger International, Inc. v. Hollinger, Inc.*, the district court refused to certify an interlocutory appeal from its earlier order dismissing International’s civil RICO claims under the PSLRA’s RICO limitation, concluding that the proposed questions did not present the kind of substantial legal disagreement and case-ending efficiency gains required for § 1292(b) review, and leaving the case to proceed on the remaining non-RICO claims.


Hollinger International, Inc. v. Hollinger, Inc., 2005 WL 589000 (2005)