News & Politics » Media

Serafin v. Seith: A Failure in Communications

by

1 comment

Last April Alex Seith and Thom Serafin had a funeral to go to out in Sterling, Illinois. Tom Davis, who'd sold them WSDR AM back in 1987, had passed on.

Before the funeral Seith did business. He went over to the studios housing WSDR and the FM station WSSQ, and questioned their general manager. The GM happened to be Serafin's sister, Anne-Louise Shaffer.

A few months earlier WSSQ had switched formats from adult contemporary to hard rock, and advertising revenues had gone into the toilet. Seith was furious about the switch, and he blamed it on Serafin. Now his partner's sister was telling him that a consultant would be coming in to make repairs, at a cost to the station of $3,900.

Seith didn't get it. Serafin had said something to Seith about a consultant, but Seith had understood the guy would be working gratis. So Seith decided to confront his partner. He found him sitting pensively in a pew, waiting for the mass to begin.

"I was in the middle of the third decade of my rosary," Serafin tells us, "and he came in and insisted I leave the church. I wondered, what the heck is so important? It turned out we had a consultant working at the radio station who was involved in new formats. He wanted more information on that. I said, "I'm in the middle of the rosary! This is a friend of mine who just died! There's plenty of time to talk about this!"'

Normally, says Serafin, he didn't stand up to his partner. "I did what he wanted me to do all the time. But this time I had to pay my respects."

"Oh my God!" said Seith, when we asked him about Tom Davis's funeral. "Now he's into that silly story!" Seith told us how he remembered it.

"Thom was not kneeling. He was sitting in the pew, and I didn't see any rosary in his hand. His hands were open, sitting there. If he was counting the rosary, he must have been counting them mentally. I'm not Catholic. But most of the time when I've been to Catholic funeral masses, it's been my observation when people are doing the rosary they get forward and kneel. Maybe that practice has changed, but I saw no rosary in his hand at any point."

Seith knew what to look for. Years earlier he and Serafin had traveled to the Holy Land. Seith, who fancies himself an internationalist, spent most of his days calling on political leaders, while Serafin visited the holy places. But each also indulged the other. Seith was with Serafin in Nazareth when Serafin bought a rosary, had it blessed, and began tolling the beads.

And Seith remembers this clearly: "He knelt."

Such are the small matters on which bitterness dines. Up until four months ago, Thom Serafin believed Alex Seith to be his lawyer, his business partner, and his best friend. Today Serafin is suing Seith for deceit, fraud, misrepresentation, and breach of fiduciary duty--and asking for punitive damages of more than $20 million.

The friendship began at a Democratic meeting in Kansas City back in 1974, when Serafin was a young radio reporter and Seith had a seat on the party's reform commission. Four years later Serafin was Seith's press secretary when Seith nearly unseated Charles Percy. In 1984 Serafin managed Seith's second Senate campaign, one that didn't survive the Democratic primary.

They founded Seith-Serafin Communications in '86. The new company issued 1,000 shares of stock, Serafin buying 300 shares at a dollar per, Alex Seith 510 shares, and his son William Seith 190. The $300 was the extent of Serafin's financial investment in the enterprise. "My son and I," Seith told us, "have financed the company to the tune of more than $3 million."

Serafin became president of Seith-Serafin Communications, and the company sublet space in his PR firm's suite in River North. Seith-Serafin grew steadily. The partners bought the radio stations in Sterling, then in 1988 took over a statewide radio news service called InforNet that the Tribune Company was shutting down. Today the Illinois News Network, as it was renamed, claims 56 affiliate stations in Illinois, while a parallel network of 50 stations has been established in Wisconsin. Seith said he plans to expand into Indiana and Ohio.

What happened between them last spring, says Serafin, must be understood in the context of a personal tragedy. On March 31, his first child was born with a damaged heart and lived only a few hours. For weeks afterward, the lawsuit declares, "SERAFIN was depressed, distraught, distracted and in an extremely vulnerable state. A. SEITH was aware of all this . . . " The other thing Serafin asks us to understand is that corporate law is beyond him. "I relied on Alex for all my advice. And he was good at it. He knew the law."

On April 22, Seith had Serafin sign two documents, one as a director of Seith-Serafin and the other as a stockholder. These "consents" amended the articles of incorporation to delete a sentence that said: "The shareholders . . . shall have preemptive rights to acquire unissued shares of the corporation."

On May 10, the three shareholders voted to expand the board of directors by adding Alex Seith's wife, Carol.

On May 13, Alex and William Seith, voting their shares, removed Serafin as a director.

On May 15, the reconstituted board of directors voted to replace Serafin with Alex Seith as president of the corporation. The board also created 490,000 shares of unissued stock, stock that Serafin on April 22 had signed away the right to acquire.

On May 20, the directors approved the issue of 100,000 shares of stock to Alex and William Seith at a price of 20 cents a share.

On May 28, the directors changed the name of the company to Great Lakes Network, Inc.

On July 3, Seith informed Serafin in a letter that "your 300 shares represent slightly less than 0.3% of the outstanding shares."

On August 13, Serafin filed suit.

We called Seith. "Here is a guy who has filed a lawsuit which from a legal standpoint is so frivolous it is laughable," Seith commented. "All his object is--since I'm better known--is 'Let's see if I can try my lawsuit in the press and do a number on this guy.'"

But Seith understands how the above chronology makes him look. Not eager to be mistaken for a snake, he tried to round out the picture. He wanted us to know that even though he asked Serafin to sign some papers that Serafin now wishes he hadn't, it didn't really matter if he signed them or not. "It could have been done without him," Seith insisted. "When he said, 'Gee whiz! I really didn't understand what you did then,' I said, 'Thom, we didn't need your vote. My son and I had 70 percent of the vote to start with.'"

Seith said the purpose of the consents wasn't to screw Serafin. It was to make it easier to create new stock and attract outside investors. Why did you even ask for Serafin's signature? we asked him. "Because we'd done everything by unanimous vote," Seith said.

Diluting Serafin's stock leaves Seith's conscience clear. "We said, it makes no sense that he has 30 percent of the stock. So we changed it," he told us. "In the five years the company has been in business, it was my son and I who put in all the money and have never taken a cent of salary. Thom was paid a salary on an ongoing basis."

The screwing of small investors is such a highly developed art form that there's a standard two-volume legal work on the subject, O'Neal's Oppression of Minority Shareholders. Even so, we asked Seith if he was certain there was no breach of his fiduciary duties.

"Absolutely," said Seith.

And as Serafin's lawyer, was it proper to advise him to sign papers that arguably cost him his stock holding?

"Thom's excuse for all this is, 'Gee whiz! I thought Alex was my lawyer!'" Seith told us. "I was never his lawyer!" Seith said he's scoured the records of his law firm, Lord, Bissell & Brook. "There has never been a Thom Serafin file. This company we're talking about is a client of this law firm. But not Thom Serafin personally. . . . There's never been one minute of time by anybody representing Thom Serafin."

Seith wants it understood that he fired his friend Thom Serafin because his friend wasn't up to the job. "I recognize that you have made a number of worthwhile contributions to the business," he wrote Serafin in June. "You have also made a number of very expensive mistakes. The two biggest, of course, are the hiring of your sister and brother-in-law and your continued insistence that they were doing a good job in the face of a ruinous performance."

Anne-Louise Shaffer's husband Larry was sales manager of the Sterling stations. Seith fired them both when he fired Serafin, and he changed the format back to adult contemporary. "The bottom line is I don't want the two of them involved in my business in any way, shape or form, ever," Seith wrote to Serafin. "I am willing to work out something with you based on performance, in areas where you believe you have worthwhile skills."

Seith told us he's tried to do right by Serafin but for some reason Serafin keeps balking at the terms. (The fact that Serafin no longer trusts Seith could have something to do with this.) So last week Seith hired Phil Krone, prominent local "mediator and facilitator" (Krone's words), to settle the waters.

Seith told us, "I said, 'Phil, I don't want hardball here. I just want to work something out on a nice basis.'"

Krone tells us he happens to like Serafin more than he likes Seith and he believes Seith's conduct last spring was "insensitive." But as he reads the law, it's on Seith's side. So he's fashioned a "generous" settlement, and he hopes Serafin will accept it. He hopes Serafin will appreciate that "his ownership was more symbolic than substantive."

This, however, is exactly what Serafin doesn't appreciate. He owned 30 percent of the stock of a company he helped found and then ran. He sees nothing symbolic about it. And his best friend made it vanish.

Art accompanying story in printed newspaper (not available in this archive): photo/John Sundlof.

Comments

Showing 1-1 of 1

 

Add a comment