CLASH OF THE L.A. TITANS STUNNED BY RIORDAN SUIT, BURKLE SETTLES DISPUTE.

Byline: BETH BARRETT

Staff Writer

Hours after multimillionaire Richard Riordan sued billionaire Ron Burkle on Thursday over a business deal gone sour, the Beverly Hills supermarket magnate settled a long-running dispute with the former Los Angeles mayor that had wrecked their friendship.

Riordan's suit claimed that Burkle, who recently tried unsuccessfully to buy the Los Angeles Times and The Wall Street Journal, had refused to let him sell his investment in a high-tech firm he had become disenchanted with. He accused Burkle of being motivated by money and ego, accusing him in the lawsuit of breach of fiduciary duty, fraud, deceit, and violation of state business and professional codes. Riordan sought damages in excess of $5 million, as well as punitive damages.

Stunned by the filing, which came after at least two years of rancor, Burkle told the Daily News he would buy out Riordan's investment interest, originally valued at $5 million.

In a letter to Riordan sent Thursday night, Burkle said he had only accepted the investment out of friendship.

"I was shocked and surprised when I received a call from a reporter saying that you had sued me ... It has always been my principle that partners go into an investment together and get out together. Having said that, and because I know you've had a rough year with many challenges, I am willing to take you up on the offer you made ... that we buy your partnership interest."

Riordan, a philanthropist who started The Riordan Foundation in 1981 and who had planned to donate any money from the lawsuit to charity, said he was happy the dispute was resolved so quickly.

"I'm glad the charities will benefit from it, and I thank Ron that we could resolve it," Riordan said late Thursday, saying he expects LA's BEST and Puente Learning Center in East Los Angeles to get at least $1 million each.

In the lawsuit, Riordan said: "Mr. Burkle's mis-use and mis-direction of the assets ... (are) akin to what could best be described as Mr. Burkle's personal piggybank to aggrandize both Mr. Burkle's own ego and pocketbook."

Riordan, who said he has vacationed with Burkle on billionaire Eli Broad's yacht and had considered him a friend, said he tried for years to get his investment back but took legal action after learning that other Burkle investors were facing similar problems.

"I pride myself on being fair to my co-investors, and I expect others to be fair to me. Simply put, Ron Burkle is just not being fair -- to me and to the other investors," Riordan said in an interview.

"This is not about money. It is about being treated fairly and honestly."

Burkle, a pal of former President Clinton and part owner of the National Hockey League's Pittsburgh Penguins, said he was "shocked and hurt" by the lawsuit and caught "completely off guard."

"It's really sad. It makes me sad he did this," Burkle said in an interview. "There's nothing to it. It doesn't do anything for me to have a couple million dollars of Dick Riordan's money."

'A favor to you'

Burkle said after Riordan asked him, as a friend, to look out for technology opportunities, he suggested a partnership investing in what appeared to be a sound and fairly safe private company.

"There were no fees ... it was done purely as a friend," Burkle said.

He said it was always made clear to Riordan that the partners' investments would become financially liquid only all at the same time.

Burkle said that while the investment had caused some strains, he thought everything was fine even after Riordan came to his office about a year ago and said he didn't want to own newspapers.

Burkle -- who with Broad bid on Tribune Co., which owns the Los Angeles Times, and more recently competed against Rupert Murdoch for The Wall Street Journal -- said the partnership Riordan was involved in was not interested in investing in newspapers.

He said he reiterated to Riordan, "'When I'm liquid, you get liquid.' I did this as a favor to you. He said, 'No good deed goes unpunished,' and he gave me a hug."

Busy as mayor of Los Angeles, Riordan said he missed out on much of the Internet boom so he approached his friend Burkle in the late 1990s on how he could invest in high-tech firms.

In the filing, Riordan said Burkle was eager to provide counsel and assistance and that he felt secure that Burkle wouldn't benefit at his expense.

In 1999, Riordan agreed to put $5 million into one of Burkle's partnerships, Yucaipa AEC Associates Inc., which purchased an equity stake in Florida-based Alliance Entertainment Corp., a firm involved in high-tech media distribution.

Key to his investment was assurance by a top Burkle aide that Riordan's stake in Alliance would be a "liquid investment," and that there would be a "window of liquidity" within three to five years -- either when Alliance was sold or there was a market for the stock, the lawsuit says.

In 2005, Alliance merged and became publicly traded Source Interlink Companies Inc., with the partnership holding a controlling interest.

At that point, Riordan's partnership interest represented about $7 million in company shares, and he began considering liquidating in part because some of his original investment had been diluted in a failed side venture.

He also said the company wasn't engaging in the high-tech activities he'd anticipated.

But when he contacted Burkle, both formally and informally, he said, he was rebuffed and charged with seeking an unfair advantage over other investors.

Friendship strained

In a July 8, 2005, letter to Burkle obtained by the Daily News, Riordan said that since Burkle hadn't returned a phone call two months earlier he had come to the conclusion "we should sever our relations."

He instructed Burkle either to sell his 495,000 shares of Source Interlink stock and give him the proceeds, or distribute the shares directly to him.

Riordan said he didn't seek any advantage and told Burkle that if other shareholders wanted to sell he would agree to allow it.

"What kind of investment is it when you invest, and then can't get your money out till after you are long dead?" Riordan said.

Four months later, Burkle sent Riordan a letter that alluded to their business partnership but did not directly respond to his instruction to sell the stock.

In the letter, a copy of which was obtained by the Daily News, Burkle said that if the partnership kept its shares it could maintain its position as a controlling shareholder in Source Interlink, which "will enhance our value."

"I don't know quite what to say in response to your letter," Burkle's correspondence of Nov. 4, 2005, began. "Since I met you over fifteen years ago, I have considered you a friend, a mentor and often even a father figure.

"I don't know what I did to upset you, whether it was politics, or some other thing of which I am not aware, but clearly our relationship has not been what I wanted it to be for some time."

Burkle noted that when they last met, Riordan gave him the "cold shoulder." He also said Riordan called mutual friends to say "not such nice things about me."

Burkle went on to remind Riordan in the letter that Riordan had sought out his investment advice: "I didn't ask you, you asked me."

"I didn't charge you fees, I didn't take a profit position, and you weren't promoted in any way."

Burkle also defended the investment, saying that when the technology component became the victim of an industrywide bust, the operating arm turned a profit.

Stock in Source Interlink -- which recently spent $1.2 billion to acquire Premedia Inc.'s specialty magazine unit -- has dropped since 2005 from about $14 to $4 a share.

In that time, Riordan estimated he lost two-thirds of his investment, according to the suit.

The filing also alleges that Burkle created a "barrier to liquidity" to control other people's money in order to "perpetuate the myth that he is a billionaire, 'legendary investor,' and to profit from millions of dollars in consulting, acquisition, and management services agreements and fees."

"The bottom line, this is a matter of integrity. He has not been forthright to me or other investors," Riordan said.

beth.barrett(at)dailynews.com

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CAPTION(S):

2 photos

Photo:

(1 -- color) RON BURKLE

(2 -- color) RICHARD RIORDAN