Judge Dismisses Claims against Shareholders of Tribune in Bankruptcy Lawsuit

by San Antonio Attorney

The shareholders of Tribune Co. safe from a multidistrict lawsuit accusing them of cashing out stock worth billions of dollars in a leveraged buyout (LBO) in 2007 before the company filed for bankruptcy in 2008.


This decision of Southern District Judge Richard Sullivan prevents the litigation trustee, Marc Kirschner, from recovering part of the $8 billion distributed to shareholders in return for their shares in the takeover organized by Equity Group Investments, which is founded by Sam Zell.


Sullivan said the trustee failed to reasonably assert that Tribune directors who approved the LBO intentionally defrauded creditors with the upcoming bankruptcy.


Sullivan is supervising the multidistrict court case—the outcome of the 2011 integration of 74 state and federal suits filed across the United States involving about 5,000 defendants made up of Tribune directors, shareholders, financial advisers and officers.


The company’s restructuring plan was approved by the bankruptcy court in 2012, and the claims of unsecured creditors were reassigned to Kirschner.


In 2013, Sullivan rejected creditors’ fraudulent conveyance under the state law—a ruling supported by an appeals court and presently the subject of a petition for a review by a higher court.


About the federal claims, the trustee argued the company board, which had appointed a seven-member board of directors to evaluate the LBO, operated with fraudulent intention that could be attributed to shareholders.


He also asserted the intention of each officer, including the company CEO and members of the board, could be attributed to the corporation.


However, Kirschner failed to provide adequate facts to demonstrate the directors had real intention to deter, holdup or defraud the company’s creditors or that they handled the board or influence it on a crucial issue—an assessment of the Tribune’s solvency carried out for the firm by an independent valuation services provider.


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