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.
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.