A federal bankruptcy judge in Delaware indicated Tuesday that he will allow Tribune Co.'s creditors to pursue fraud claims in state courts against shareholders who benefited from the media company's 2007 leveraged buyout.
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.
Tribune owns the Chicago Tribune, Los Angeles Times, other newspapers and more than 20 radio and TV stations. It sought bankruptcy protection less than a year after the leveraged buyout engineered by billionaire developer Sam Zell saddled the company with more debt than it could bear during the worst U.S. recession since World War II.
Lawyers pushing for the state claims represented noteholders opposed to Tribune Co.'s reorganization plan and the company's committee of unsecured creditors.
Carey seemed inclined to permit the filing of state claims as long as they are put on hold until he decides whether to confirm Tribune Co.'s reorganization plan, a process that has been delayed by disputes over how to handle the fraud allegations lingering from the buyout. The judge asked attorneys to try to agree on a proposed order for him to sign. He planned to revisit the matter April 11, the same day a separate hearing on Tribune's reorganization plan is scheduled to resume.
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.
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.
An objection was filed by a foundation that was created from the estate of the longtime Chicago Tribune owner and publisher Robert R. McCormick. The foundation and a related nonprofit organization received about $1 billion in the buyout. The foundations argue that individual creditors lack the legal authority to pursue their claims in state courts.
Objections also were filed by attorneys representing Zell, current and former officers, directors and employees of Tribune, and two banks that financed the buyout.