Feb. 18 (Bloomberg) -- As Conrad Black takes the stand in a court battle with Hollinger International Inc., the newspaper publisher suing to stop him from selling control, his defense will rest on a strict interpretation of corporate law.

In Delaware, where a three-day trial pitting Black against his company starts today, ``controlling shareholders have the right to sell their shares and keep their profits,'' said Lawrence Hamermesh, a Widener University law professor.

Hollinger International will argue that Black, whom it ousted as chairman last month over allegations he helped misappropriate more than $200 million, forfeited those rights. The company will seek to persuade Leo Strine, the Delaware Chancery Court vice chancellor who imposed strict standards of governance on executives and directors in decisions involving companies such as HealthSouth Corp. and Oracle Corp.

``Leo Strine is not someone who is interested in kowtowing to corporate America,'' said Lyman Johnson, a law professor at Washington & Lee University in Lexington, Virginia. ``He is a fearless judge.''

A victory by Chicago-based Hollinger International will determine more than control over the company's $2 billion in assets, which include London's Daily Telegraph and the Chicago Sun-Times. It would set a precedent for takeover fights by curbing the power of controlling shareholders, said Larry Soderquist, a Vanderbilt University law professor.

``We could face this situation again, so everyone's keenly interested in whether this will fly,'' he said.

Fiduciary Responsibilities

At issue is whether Black, a Canadian-born British lord, violated his fiduciary duties to minority shareholders by agreeing to sell his controlling stake in the company's parent, Toronto-based Hollinger Inc.

Black held secret negotiations with U.K. entrepreneurs David and Frederick Barclay and on Jan. 18 agreed to sell them Hollinger Inc. for C$423.8 million (US$323 million). Black and his closely held holding company, Ravelston Corp., stand to gain C$247 million ($188 million) from the sale.

Hollinger International wants to sell the assets through an auction run by Lazard LLC.

The company's suit, filed Jan. 26, asks the court to block Black from completing his sale. Strine, 39, also will consider the company's request to invalidate Black's decision to change its bylaws and rule on the validity of its poison pill, a takeover defense that would dilute the Barclays' ownership if they complete the purchase.

Company Investigation

The complaint says Black violated the agreement he signed upon stepping down Nov. 15 as chief executive that restricts him from pursuing a deal involving Hollinger Inc. that might hurt Hollinger International's own attempts to sell its newspapers.

His resignation followed an investigation led by former U.S. Securities and Exchange Commission Chairman Richard Breeden, who said he found $32.2 million in unauthorized payments. The company later ousted Black as chairman and sued to recover more than $200 million, alleging he and top executives conspired to fabricate deals and mislead the board.

``This is an action to prevent a disloyal director and controlling shareholder of the company from manipulating the company's corporate machinery for his own selfish purposes,'' Hollinger International said in the Jan. 26 complaint.

Black filed a counterclaim Feb. 3, declaring the agreement invalid on the grounds that he was tricked into signing it. He accused Hollinger International interim Chief Executive Gordon Paris and Director James Thompson, a former Illinois governor, of withholding evidence that proved the payments were authorized.

Precedents Cited

Last week, Black's lawyers, led by John Warden of New York's Sullivan & Cromwell, filed court papers outlining the legal argument for his authority as controlling shareholder and citing 35 precedents.

Black, pictured in this month's Vanity Fair magazine on the lawn of his Palm Beach, Florida, estate, with his wife Barbara Amiel kneeling at his side and a statue of Poseidon in the background, expressed confidence through a spokesman.

``Conrad Black is looking forward to testifying,'' said James Badenhausen, the spokesman.

Black's counterclaim, which names directors including former U.S. Secretary of State Henry Kissinger and Pentagon adviser Richard Perle as defendants in addition to Breeden, Paris and Thompson, accuses the board of ``illegal maneuvering'' and ``blatant thievery.''

Former Friends Feuding

The trial exposes a rift between Black and his former friends on the board. Black recounted in his 1993 autobiography how he befriended Kissinger and Perle at annual meetings of the Bilderberg, a group of European and North American business and political figures that seeks to influence policy decisions.

The directors also did business with the company at times. Thompson's law firm, Winston & Strawn, handled some of Hollinger International's legal work and the company made a $2.5 million investment in Perle's venture-capital fund.

``It's a fascinating battle between former allies,'' said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

Strine, who graduated magna cum laude from the University of Pennsylvania law school in 1988, has sided with minority investors before.

In 2002, he forced the financier Ronald Perelman to cancel plans to have a company he controlled, licorice-maker M&F Worldwide Inc., pay $128 million for a stake in another of his investments, the unprofitable movie-camera maker Panavision Inc. Strine accepted minority investors' argument that Perelman arranged the deal to get out of a bad investment.

Last year, Strine ruled that a two-man committee at Oracle Corp. investigating allegations of insider dealing by board members was filled with ``bias-creating relationships.''

Shareholder Interests

Strine, a former associate in the Delaware office of New York's Skadden, Arps, Slate, Meagher & Flom who was named to the bench in 1998, also ruled last year that HealthSouth had to face investors' lawsuits claiming executives used inside information to sell $106.7 million of the hospital company's shares.

``He's a little more inclined to take the interests of shareholders into account in close cases,'' said Michael Dooley, who teaches law at the University of Virginia.

To contact the reporter on this story: Peter Robison in Seattle at robison@bloomberg.net

Last Updated: February 18, 2004 08:20 EST