Quiznos’ stockholders wind way through court

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An attorney representing shareholders angry with the Quiznos sandwich chain for going private three years ago says the company committed “massive fraud.”

The claim by attorney Jay Horowitz was raised as a Denver (Co.) District Court judge mulls whether to throw out a proposed class-action settlement worked up by other attorneys. Quiznos and its owners deny any wrongdoing.

The fraud claims come in the midst of a series of complex lawsuits in which shareholders allege they were ripped off when the company went private in 2001.

In January, a judge ruled that Quiznos’ majority owners acted in “bad faith” when they took the company private. The stock was worth $32.50, not the $8.50 a share paid to shareholders during the privatization, the judge said. Quiznos plans to appeal that ruling.

Horowitz, who represented shareholders in that case, now wants to represent a smaller group of stockholders who were previously offered $12.90 a share to settle. Some of those stockholders say the settlement offer is unfair and are unhappy with the work of their attorneys.

Horowitz agreed, saying the attorneys failed to take any depositions or even attend hearings in the appraisal case, and that the settlement was “being put forward in ignorance.”

Had they seen some of the hearings in the parallel case, Horowitz said, the attorneys would have realized there was potential for an even bigger settlement because of the “massive fraud and breach of fiduciary duty” by the Quiznos board, “aided and abetted” by the company’s investment bankers and outside legal advisers in the merger.

If the judge does not accept the $12.90 settlement, Horowitz can go forward with his case.