Tribune Judge Refuses to Replace Law Firm Hired By Unsecured Creditors

By Steven Church
Bloomberg

Tribune Co.’s official unsecured creditors committee can keep its current law firm during a mediation session designed to help end the publisher’s bankruptcy, a judge ruled today.

U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, rejected a request by some low-ranking creditors to replace Chadbourne & Park LLP as the lead law firm representing a panel of unsecured creditors.

Most members of the panel supported Chadbourne, saying the firm is the best qualified to represent it during two days of mediation starting Sept. 26.

It would be “wrong to take our general and put him in the back lines and put a major up front,” Jay Tietelbaum, an attorney for Tribune retirees represented on the committee, said in court. Each member of the committee is represented by individual lawyers who aren’t involved in the details of the bankruptcy.

Two members of the panel have complained that the law firm has too many conflicts of interest to participate in mediation. Those creditors asked Carey to replace Chadbourne for the mediation with the group’s other law firm, Zuckerman Spaeder LLP.

In an order yesterday, Carey told the creditors to try to divide the mediation duties between Chadbourne and Zuckerman. They were unable to reach an agreement, Chadbourne attorney Howard Seife said at the start of today’s hearing.

Zell’s Buyout

The seven-member official committee of unsecured creditors is divided over the $8 billion leveraged buyout led by real- estate billionaire Sam Zell 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 lawsuit over the buyout.

Deutsche Bank Trust Co. Americas 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 benefited only its former shareholders and the banks.

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.

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.