For some time, it had been the view of Nogales and Kenny that the time had come for Ruhe and Geissler to either sell UPI or send it into bankruptcy court for a restructuring. Now Nogales was making the argument directly to both owners. Recognizing that in either event, they would likely not only lose operational control, but would also walk away with nothing further to gain financially, this was the last thing Ruhe and Geissler wanted to hear. Ruhe had concluded now that he had to get rid of Nogales. In parallel, Nogales had concluded Ruhe and Geissler had to be removed from operational control of the company if it was ever going to recover from the current crisis.
With the owners now at loggerheads with the top managers of UPI, the two factions agreed to meet at the Los Angeles airport on Sunday, February 24, 1985. Foothill had summoned Nogales to be briefed on UPI’s financial status and recovery plan the next day. With primary lender Foothill, UPI’s senior management, creditors, and newspaper subscribers all having lost faith in the reign of Ruhe and Geissler, Nogales hoped that they would come around in their thinking given the inability to meet the next payroll. Not to be. Ruhe and Geissler still thought they would somehow muddle through.
When Nogales and UPI’s outside financial adviser, Ray Wechsler, met with Foothill the next day, things didn’t go well. Foothill executive John Nickoll told them:
You’d better get the owners back out here. We’re at a crucial point. You guys don’t own the company. You’re managers not owners. Owners need to make the decisions.
Ruhe and Geissler might ignore Nogales, Wechsler, or Kenny, but they couldn’t have UPI’s prime lender going wobbly on them. When Ruhe and Geissler turned up on Wednesday, they got the following blast from Foothill executives:
We don’t have confidence you can turn it around. We’re not going to fund the company with its present ownership. Often, in situations like these, management takes over. If you want to work out an agreement where management takes over, we’ll work with you.
For Ruhe and Geissler that meant giving up any further dismemberment of UPI and swapping their UPI stock in return for creditors forgiving their debts. After dickering Thursday with Nogales and Wechsler, Ruhe and Geissler agreed to the basic outlines of a plan and shook hands on it.
While all this had been going on, I had been in Brentwood and was unaware of the details of what had occurred in Los Angeles. However, as they flew back to Nashville from Los Angeles, Ruhe and Geissler were already cooking up a new Plan B for Nogales.
Down to the Wire records the next chapter in the Los Angeles blow up:
As Ruhe and Geissler headed home, Wechsler phoned Kenny in Nashville and told him to hop a plane to Los Angeles. Kenny, in turn, called new General Counsel Bill Bowe and excitedly broke the news. “I’ve made reservations for you to fly to Los Angeles,” he told Bowe. “An agreement has been reached that will result in a change of control, a sale of the company, and a working out of the creditor problem.” Bowe’s assignment was to put into ironclad writing, for presentation to Foothill Sunday night, the agreement removing the owners from control of the company. Nogales should have known it wouldn’t have been that easy. Although they had shaken hands on the deal, Ruhe and Geissler were bitter that the men they had hired had just dictated the terms of their surrender. Flying back to Nashville, they craftily plotted strategy.
Back in Nashville Saturday, March 2, Ruhe had decided to welch on the deal and fire Nogales.
I had immediately flown to Los Angeles and hired local lawyer Lisa Greer and her law firm Lawlor, Felix to provide legal assistance and office support for me all Saturday and Sunday. I was trying to understand and document the agreement for the change in control of the company. Usually this wouldn’t be any different than documenting any other arrangement between parties. The parties on both sides of an agreement are usually represented by separate counsel.
With Linda Neal recently leaving her role as UPI’s General Counsel as she prepared to marry our former law school dean, Phil Neal, I had succeeded her as General Counsel. This happened to occur at a time when ownership and management were no longer aligned. In fact, they were at each other’s throats. With management of UPI about to shift from Ruhe and Geissler to Nogales, I was still reporting to the former, but about to follow directions from the latter. This was a very uncomfortable position for a lawyer because of the expectation on both sides that they may have some leverage to push aspects of the agreement in their favor.
As I increasingly recognized being caught in the vise of these conflicting pressures, I began to ask myself who my client really was. My sympathies were completely with Nogales. I had seen Ruhe and Geissler were rank amateurs recklessly pursuing their own self-interests as they sluiced cash and assets out of UPI. Nogales on the other hand was smart, professional, and a born leader. He was likely to have success in leading UPI into and out of an inevitable bankruptcy proceeding.
Although you don’t normally have to think about who your client is as a corporate lawyer, in this case I had to. And the answer was simple. I was now General Counsel of UPI, and UPI was my only client. My client was not one or the other of the feuding parties, my client was UPI. My loyalty and duty were to the enterprise, and my obligation was to further its current and future welfare. My role was to simply assist the enterprise in any way I could to help it survive a crisis.
The earlier verbal agreement between Ruhe and Geissler and Nogales had been short on substance, and I spent a fair amount of time Saturday trying to understand what Nogales thought the agreement was. On Sunday, I called Ruhe back in Nashville to make sure his understanding matched up with what I’d learned from Nogales. Ruhe abruptly told me there was no agreement, and he wouldn’t be signing anything.
With everything coming to a head, I would be leaving from the Century Plaza Hotel with Nogales that Sunday night to meet Foothill officials for a briefing at Foothill executive John Nickoll’s Beverly Hills home. The stage was set. Foothill would learn Ruhe and Geissler would not be stepping aside, Foothill would pull the plug on its now-defaulted loan to UPI, and shortly the payroll checks going out to its 1,000-plus employees, including me, would bounce.
Nogales, Wechsler, UPI financial advisers from Bear Stearns, myself, and Lisa Greer of the Lawlor, Felix law firm represented UPI that evening in the home of Nickoll. Besides Nickoll, several other Foothill executives were present. When the news of Ruhe and Geissler’s about-face was discussed, there really wasn’t much anyone could say. Everyone knew UPI would now go down the tubes. It was now merely a question of how and when.
Then the phone rang. Nickoll’s wife, Ann, answered the call in a bedroom and said it was for Nogales. When Nogales got to the phone, it was Doug Ruhe. The conversation was a short one on Ruhe’s side, “Luis, you’re fired!” He then told Nogales he wanted to speak with Ray Wechsler. Nogales returned to the group and reported on his conversation with Ruhe. Wechsler said, “Luis, just tell Doug I’m too busy, I’m in a meeting right now. What do I want to talk to him for and get fired?”
Everybody had a good laugh except me. I did my unwelcome duty as General Counsel and went into the bedroom and picked up the phone. Ruhe immediately shouted, “Go in there and fire Wechsler, fire Lawlor, Felix, fire Bear Stearns, fire Levine!” Levine was Boston bankruptcy attorney Rick Levine. Though not present, he had been advising me on the finer points of a possible bankruptcy proceeding.
John Nickoll and the others sat quietly as I returned from the bedroom. Though I took a stab at it, it’s hard to publicly fire half the people in a large room with any degree of dignity. Based on accounts of those present, the reporting in Down to the Wire records the scene this way:
Watching Bowe uncomfortably playing the role of angel of death, John Nickoll feared for both his company’s substantial investment and the fate of UPI. Nogales’s leadership had inspired confidence among the very employees and clients Ruhe had so badly alienated…. Nickoll was simply not going to stand still while Foothill’s investment was in jeopardy. He went to the bedroom and picked up the phone. Ruhe was still on the line. “Doug, you’ve got to be crazy! UPI has no management. Foothill has nobody to deal with. You’d better get out here immediately and talk to Nogales and come to some sort of agreement.”
