By: Mark FitzgeraldCHICAGO - The judge overseeing Tribune Co.’s Chapter 11 bankruptcy ordered a hearing for today, Wednesday, over allegations that one of the law firms for the unsecured creditors has too many conflicts to represent them.
The hearing comes as the divided creditors prepare for two days of mediation to craft a reorganization plan acceptable to unsecured creditors who do not want to be left with no payment, senior lenders who are poised to take over the company and current and former manager who could be held responsible for the alleged “fraudulent conveyance” of Tribune’s $8 billion 2007 leveraged buyout. Tribune filed for Chapter 11 reorganization almost exactly a year later in December 2008.
Two days of Mediation is scheduled to begin Monday, Sept. 26.
At least two of the seven-member committee of unsecured creditors say Chadbourne should be ousted as one of their attorneys because it also represents senior lenders such as JPMorgan Chase in other matters.
In a court filing Tuesday, the Washington-Baltimore Newspaper Guild, representing employees of Tribune-owned The Sun in Baltimore, objected to the motion to bar Chadbourne made by Deutsche Bank and Wilmington Trust, a distressed-debt fund. The union said the unsecured creditors were “well-served by the invaluable guidance provided by Chadbourne.”
In a separate filing, the unsecured creditor committee members Deutsche Bank and Wilmington said: “ “Repeated allegations of conflicts have cast a shadow over this case.”
In an order entered Tuesday, U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, today told lawyers with the law firm in question, Chadbourne & Park LLP, to meet with the unsecured creditors who raised the conflict of interest claim.
He also said the committee of unsecured creditors should divide the mediation work between Chadbourne and its other law firm, Zuckerman Spaeder LLP.
Mark Fitzgerald is editor of E&P. (mfitzgerald@editorandpublisher.com)
Tribune Judge Tells Creditor Panel to Resolve Dispute
By Steven Church
Tribune Co.’s official creditor committee must try to divide the duties of its two law firms after its main lawyers were accused of a conflict of interest, the judge overseeing the publisher’s bankruptcy said.
U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, today told lawyers with Chadbourne & Park LLP to meet with creditors who claim the law firm has too many conflicts to participate in two days’ mediation starting Sept. 26. They should try to split mediation work between Chadbourne and the committee’s other law firm, Zuckerman Spaeder LLP, he said in an order issued today.
The seven-member official committee of unsecured creditors is divided over the $8 billion leveraged buyout that took the newspaper and television company private in 2007.
Low-ranking noteholders, represented by Wilmington Trust Co., want to sue fellow committee member JPMorgan Chase Bank NA and other banks that financed the buyout. Because Chadbourne represents some of the banks in other matters, the committee hired Zuckerman to advise it on a potential buyout lawsuit, according to court papers.
“Repeated allegations of conflicts have cast a shadow over this case,” committee member Deutsche Bank Trust Co. Americas said in court papers. Deutsche Bank and Wilmington Trust are the only members of the committee seeking to prevent Chadbourne from participating in the mediation.
Wilmington Trust claims the buyout was a fraudulent transfer that left the Chicago-based publisher unable to pay its debts and benefitted only its former shareholders and the banks.
Hearing Tomorrow
Carey scheduled a hearing for tomorrow on whether to bar Chadbourne from representing the committee in any matters. His order today would only apply to the mediation designed to resolve allegations about the buyout and allow Tribune to exit bankruptcy.
Fighting among Tribune creditors, who are owed more than $12 billion, intensified after July 27 when a bankruptcy examiner, Kenneth N. Klee, released a report that bolstered the position of lower-ranking creditors. Those creditors, including the noteholders owed $1.2 billion, said JPMorgan and the other buyout lenders should lose their position among the first to be repaid because of the 2007 transaction.
Tribune filed for bankruptcy in December 2008, a year after the buyout led by real-estate billionaire Sam Zell.
The case is In re Tribune Co., 08-13141, 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 E. Rovella at drovella@bloomberg.net.
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