RadioShack Corp. is suing U.S. Securities and Exchange Commission Chairman Harvey Pitt and his former law firm,
alleging that while doing legal work for RadioShack they ignored a conflict of interest in the leveraged buyout of a former subsidiary.
RadioShack wants Mr. Pitt and the New York law firm of Fried, Frank, Harris, Shriver and Jacobson to pay punitive damages and return fees they earned in 1994 for advising the company on the spinoff of the subsidiary.
U.S. District Judge Terry Means has ordered the parties to submit the dispute to arbitration by next July 31. Lawyers for RadioShack, Mr. Pitt, and Fried Frank declined to comment on the lawsuit.
RadioShack, a consumer-electronics retailer formerly known as Tandy Corp., spun off computer furniture manufacturer O'Sullivan Industries in 1994. Five years later, O'Sullivan's management and an investment firm led a leveraged buyout of the company
RadioShack's lawsuit is rooted in a dispute with O'Sullivan, which promised in 1994 to pay RadioShack about $10 million a year. The payments were meant to compensate RadioShack for the burden of paying taxes on its $350 million gain from the sale of O'Sullivan.
In a lawsuit filed in May in state court and moved to federal district court in Fort Worth in July, RadioShack charges that Pitt's law firm told O'Sullivan it could effectively cancel the 1994 agreement.
Mr. Pitt resigned as SEC chairman Nov. 5 after a series of missteps, including failing to tell fellow commissioners about the background of William Webster, who was selected chairman of an accounting industry oversight board but later resigned amid controversy. Mr. Pitt has stayed on the job until President Bush nominates a successor. (Associated Press)
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