U. of California Settles Lawsuit With Time Warner for $246-Million

Chronicle of Higher Education 3/2/07

By Paul Fain

The University of California announced this week that Time Warner Inc. has agreed to pay it $246-million as part of a lawsuit settlement. The university sued Time Warner nearly three years ago, alleging that one of its components, AOL, had inflated its own stock's share price by misrepresenting its sales, revenues, and subscriber numbers before merging with the media corporation in 2001.

The university lost an estimated $555-million on its Time Warner holdings when the company's share price plummeted from $48 to $10 in the 18 months after the merger.

The settlement, which must be approved by the governing boards of the university and Time Warner, was pursued as part of a lawsuit filed in 2003 by the university and its co-plaintiff, Amalgamated Bank. The bank will receive $14-million of the total joint settlement of $260-million.

Instead of participating in a continuing federal class-action lawsuit over the AOL merger, the university's legal team opted to pursue its own case in a California court. The university's part of the settlement, which should yield a net recovery of $200-million, is believed to be the largest ever publicly announced payment on a securities claim filed outside of a class-action suit, university officials said in a written statement. The recovery is up to 24 times as large as what the university might have received through the class-action suit, the statement said.

"Opting out of the federal class action suit allowed the university to assert unique claims that were unavailable in the class action," Charles F. Robinson, the university's general counsel, said in the statement.

The Time Warner settlement is the latest in a string of successful shareholder lawsuits led by the university, most notably claims related to the failure of the energy company Enron. Settlements in those cases now total $7.3-billion, which will eventually be split among approximately 50,000 former investors. With a joint endowment and retirement fund worth $71-billion, the university is able to leverage its position as a major investor to challenge losses in the wake of corporate meltdowns.

William S. Lerach, perhaps the nation's most prominent class-action lawyer, is the university's lead counsel in its shareholder claims. Mr. Lerach's law firm and the university continue to pursue Time Warner's auditors, Ernst & Young, as well as six major financial institutions named in the Enron-related lawsuit.