Bloomberg: Tribune Co. Chairman Sam Zell is battling to avoid legal liability for leading what he called “the deal from hell,” the $8.2 billion buyout of the bankrupt newspaper and television company.
In court papers filed yesterday, Zell asked the judge overseeing Tribune’s bankruptcy for permission to challenge a lawsuit filed against him by creditors. The lawsuit seeks to recover money from him, and other Tribune managers, whom creditors blame for the company’s inability to repay about $13 billion in debt, most of which is tied to the 2007 buyout.
“He is the one person who did nothing wrong,” David Bradford, Zell’s bankruptcy attorney, said in court yesterday, a few hours before filing the latest round of court papers in which the Chicago real estate billionaire denied responsibility for Tribune’s insolvency.
Two groups of hedge funds have submitted competing plans to reorganize Tribune and resolve billions of dollars worth of legal claims related to the buyout. Both groups would allow a federal lawsuit against Zell and Tribune’s other managers to go forward.
Chicago-based Tribune filed bankruptcy in December 2008, one year after the two-stage buyout was completed. The company owns eight newspapers, including the Los Angeles Times and the Chicago Tribune, with a combined daily circulation of 1.9 million last year. The company’s 23 TV stations include sites in New York, Chicago and Los Angeles.
The bankruptcy case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).
To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net
To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net
More Lawsuits OK'd in Tribune Case
By SEAN KELLY
WILMINGTON, Del. (CN) - Individual creditors in Tribune Co.'s bankruptcy case can file lawsuits in state courts against those that benefited from the $8.2 billion buyout of the company, a judge ruled on Tuesday.
U.S. Bankruptcy judge Kevin Carey said that even though the state law fraudulent conveyance claims may proceed, they should wait until the confirmation process ends. That is expected some time next month. Tribune then will have a reorganization plan in place and will be ready to emerge as a new company after 27 months in bankruptcy.
In an AP article on March 22, 2011, reporter Randall Chase wrote that an independent examiner appointed by Carey already has concluded that some aspects of Tribune's buyout bordered on fraud. But Tribune Co.'s reorganization plan would release lenders and other parties from future legal liabilities related to the buyout.
In an AP article on March 22, 2011, reporter Randall Chase wrote that an independent examiner appointed by Carey already has concluded that some aspects of Tribune's buyout bordered on fraud. But Tribune Co.'s reorganization plan would release lenders and other parties from future legal liabilities related to the buyout.
Chase went on to write that Attorneys for some creditors told Judge Kevin Carey that they should be cleared to go after money that the company itself didn't try to get before a deadline expired in bankruptcy court. The court has been overseeing Tribune Co.'s operations since the company filed for bankruptcy protection in December 2008.
Daniel Golden, an attorney for the hedge fund Aurelius Capital Management, said his client and other noteholders must file the lawsuits by June 4 in states likely to exercise jurisdiction. Those states include: Delaware, where Tribune Co. is incorporated; Illinois, home to its Chicago headquarters; and Massachusetts, where certain shareholders tendered their stock in the buyout.
"The most important thing for us to do is to get those claims filed," Golden said.
Tribune, owner of eight newspapers and numerous television stations, filed for bankruptcy one year after real estate tycoon Sam Zell led a leveraged buyout of the company in 2007, leaving Tribune $13 billion in debt.
Federal adversary lawsuits were filed late last year against many of the players in the ill-fated buyout, including Zell, the McCormick Foundation and other shareholders who benefited from the deal.
Judge Carey stayed those claims, and now the similar state claims, until completion of the bankruptcy process.
The lawsuits were allowed to be filed during bankruptcy because the statutes of limitations were running out. The state law claims expire on June 4.
The motion to allow the filing of state-law constructive fraudulent conveyance claims was backed by Aurelius Capital Management and the Committee of Unsecured Creditors.
Aurelius, which is represented by Akin Gump Strauss Hauer & Feld, is the leader of one of two bankruptcy plans trying to get confirmation from the court.
The other plan under consideration is backed by Tribune, the banks the financed the buyout and the Committee of Unsecured Creditors.
Disputes between the rival groups have made it a contentious and drawn-out bankruptcy proceeding. But the filing of the state claims united Aurelius and the Unsecured Creditor Committee, as it did for the federal adversary actions.
"The Creditor Committee approves of this motion for filing state claims," Akin Gump attorney Daniel Golden said in court.
"This might be the nicest thing Aurelius has ever said about the Committee," Carey quipped from the bench.
Those opposed to the motion include The McCormick Foundation, the Cantigny Foundation, Zell's EGI-TRB, and other former shareholders and directors of Tribune.
"What they all have in common is shareholder redemption proceeds that they don't want to give back," Golden said.
Lawyers for both the McCormick Foundation and EGI-TRB argued that the state claims are the same as the earlier-filed adversary claims.
The representative for the McCormick Foundation said, "The fact that they want to file claims for the same $1.2 billion claim means they are the same claims they've already filed."
EGI-TRB representative David Bradford, of Jenner Block, took issue with EGI-TRB being named a "stock redeemer" in the 2007 leveraged buyout.
EGI-TRB put up $50 million in the second step of the merger, but "never got back its $50 million but only a future interest in the company," Bradford said Tuesday.
Golden countered that there was "no reason to treat a $50 million credit any different than a $50 million payout."
Confirmation hearings are expected to continue, beginning on April 11, 2011.
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