PANAMA CITY — The 1st District Court of Appeal has given a former broadcasting company and its many local investors a resurrection of sorts by overturning a judge’s decision to dismiss a lawsuit against a former director of the company.
In a split opinion issued in late December, the 1st DCA overturned Judge Don Sirmons’ 2013 order that effectively dismissed a case brought by Magic Broadcasting against Durden Enterprises and Michael Durden.
Don McCoy and other Magic leaders accused Michael Durden and leaders of the company he controls, Durden Enterprises, of purposely sinking the business after taking control of his father’s holdings after Earl Durden died in 2010.
Durden Enterprises was a lender that backed Magic’s operations, which was formed by McCoy to acquire and operate radio stations. In 2006, Magic bought two stations in California with a $65 million loan from Durden. At the time, Earl Durden was Magic’s primary owner.
Magic defaulted on the loan in 2007 and again in 2008 after an extension. After the second default, Durden required as a condition of refinancing the Magic board accept the terms of an operating agreement that gave Durden a majority of seats on the board and thus control of the company.
McCoy, who created the company by raising more than $40 million from investors located primarily in the Panama City area — including the Durdens’ significant investment — beginning in 2003, alleged in an affidavit that Michael Durden began taking actions that seemed intended to set Magic up for failure immediately upon gaining control of the company.
For instance, McCoy said he offered to buy the two California stations back for $62 million and operate them independently of Durden. Michael Durden and the board, he said, rejected the notion outright, and instead explored another option to sell them for significantly less money.
Because the Durdens were both investors in and lenders to the company, they were in a conflicted position.
For instance, when Magic sold a radio station in 2006 for $25 million, McCoy wanted to put the money back into the business, but Earl Durden pressured board members to use the money to pay down the loan from Durden Enterprises. “Accordingly ... Durden Enterprises benefited at the expense of Magic,” McCoy says in the affidavit.
“A man can’t serve two masters,” said Tucker Byrd, the attorney representing Magic.
The Durdens couldn’t reasonably be expected to take Magic in a direction that benefited investors if that direction negatively impacted their own bottom line, he said. “They chose to be in a conflict of interest situation.”
But so did Magic, Durden argued, by entering into a loan agreement that gave them control of the board.
Mike Dickey, an attorney representing Durden, said Magic’s leaders signed an agreement that gave Durden control of Magic’s board of directors and the authority to make the decisions he made.
“It always seemed to us that the operating agreement ... foreclosed all of these proceedings,” Dickey said. “The agreement gave the board the latitude to do everything they did.”
Sirmons concluded the same and effectively dismissed the case in 2013, saying there were no questions of fact for a jury to determine, but the 1st DCA disagreed, saying there are “numerous questions of material fact” of whether Durden engaged in willful misconduct and violated a “fiduciary duty” to Magic.
The 1st DCA was not unanimous, and the dissenting judge agreed there were no material disputes of fact and McCoy had not presented evidence that the decisions Michael Durden made were not in Magic’s best interest.
The opinion is not a win for Magic and its investors, who lost their investments when Magic failed; it merely clears the way for more argument in the case, which could now potentially go to a jury trial, Byrd said.
“Let’s go back and have a real lawsuit, a real fight about this,” Byrd said.
No court dates have been set since the 1st DCA’s opinion.