Canada's Supreme Court Deals Blow To CEO Patrick Byrne

Apr.18.12 | About:, Inc. (OSTK)

In a serious blow to U.S. media organizations, the Supreme Court of Canada ruled on Wednesday that disgraced media mogul Conrad Black can sue U.S. defendants in a Canadian court. In a twist of irony, one of America's most anti-media (OSTK) CEO Patrick Byrne--will also be adversely affected by the ruling.

Byrne is the subject of a libel suit in Canada by Altaf Nazerali, a Vancouver stock promoter who was the subject of lurid accusations in Deep Capture, a website founded and operated by Byrne. Byrne's effort to have the suit tossed out was denied in February, and he has since appealed.

The ruling in the Byrne case can be found here.

The Conrad Black case had been closely watched by attorneys involved in Nazerali's suit against Byrne, because it was expected to resolve the issue of jurisdiction one way or the other. It has -- in Nazerali's favor.

The Canadian Supreme Court's decision can be found here.

As you can see, the jurisdictional issue is essentially identical. Indeed, Nazerali would seem to have a stronger case than Black on the jurisdictional issue, because, unlike Black, he is a Canadian citizen.

Though any libel judgment reached against Byrne and his Deep Capture cronies may not be enforceable in the U.S. -- though that is, I understand, not a settled issue -- it would be a terrible embarrassment for the voluble CEO to be dragged through a messy libel suit across the border. Since his chances in Canada are poor (his website has made wild accusations against Nazerali, including terrorist links), an adverse judgment will pretty much destroy any credibility he may have left. And then there are the lawyer bills, which can easily mount into the millions in libel cases.

This means that the company's shares, already hugging nine-year lows, will continue to be depressed. Overstock has been teetering on the brink of insolvency, and has had to lay off employees. In addition to this libel suit, which may well involve the company as well as its CEO, Overstock faces a consumer fraud lawsuit in California that isn't going very well.

Overstock has an earnings conference call on Thursday morning. Here's a fearless prediction: the adverse ruling, and the libel suit in general, won't be mentioned by either Byrne or the thoroughly intimidated analysts at the call. It also won't be mentioned by the Utah media, which hasn't breathed a word about this suit.

The ironic part of all this is that Byrne is one of the most anti-media corporate figures on the U.S. scene today, and his Deep Capture site has attacked numerous people in the media who have criticized Byrne, myself included. That might explain why the Nazerali suit hasn't exactly elicited shrieks of horror in U.S. media circles.

Much as the Breeden ruling may cheer Byrne critics, it's not good news for the media. This suit will make it much easier to sue American companies in Canada, which has much more anti-defendant libel laws than the U.S. News media companies like the New York Times Company (NYT), Time Warner (TWX) and Dow Jones, now part of News Corp., (NWS) have been dragged into cross-border suits in the past by what has come to be known as "libel tourists." Nazerali was no libel tourist, but some have maintained that Black met the definition.

I guess this falls in the category of "every cloud has a silver lining."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.