September 29, 2010 1:03 PM

The Tribune Legal Bill...And, Oh Yeah, Its Future

Posted by Zach Lowe

A quick update from what may quietly be our favorite bankruptcy of them all--the madcap circus that is the Tribune Company bankruptcy, complete with a cranky fee monitor, accusations of improper leaks, and battles over alleged law firm conflicts. But despite all of that, the Tribune case is nothing--nothing--compared to the bankruptcies of finance giants, at least in terms of law firm billing. 

The bankrupt media company submitted its latest operating report this morning, and the report indicates the law firms involved in the case have billed the Tribune estate a whopping...$53.8 million. Sure, that's a ton of money for average joes like us. But consider this: Law firms involved in the Lehman bankruptcy, which beat the Trib to Chapter 11 by just a few months, already have billed Lehman's estate nearly half-a-billion dollars! 

In any case, the lead billers in the Tribune case are exactly who you'd expect. Sidley Austin, the company's lead counsel, has billed the company about $21.7 million since the filing date, court records show. Chadbourne & Parke, which has been serving as creditors committee counsel despite angry protests from some creditors, has billed the estate $17.8 million. No other firm has cracked the $4 million mark, though Zuckerman Spaeder, the creditor committee's special litigation counsel, is at $3.7 million, according to today's court filing. One caveat: The numbers are slightly out of date, since the report lists only what the Trib estate has actually paid so far. For instance: It lists zero billings from Saul Ewing and only $1.35 million from Klee, Tuchin, Bogdanoff & Stern, the two firms that teamed up to compile the examiner's report investigating Tribune's collapse. Those firms already have billed the estate about $7.6 million combined for the report, according to our prior posts.

That report, of course, helped erode creditor support for Tribune's initial plan of reorganization. Kenneth Klee, the lead author, concluded the Tribune estate might have legitimate fraud claims against bankers and other executives who engineered the 2007 leveraged buyout that sunk Tribune. The potential litigation targets include JPMorgan Chase, Citigroup, Merrill Lynch, and other banks that financed the transaction. Tribune's initial plan would have handed significant control of the company to some of those entities, including JPMorgan, in exchange for their debt holdings, according to our prior reporting. Klee's report raised the possibility of suing those banks and invalidating their debt claims. 

So it was back to the drawing board for Tribune. And on Tuesday, they produced a new reorganization plan first pitched by the investment funds Oaktree Capital Management and Angelo, Gordon & Co., according to court records and The Associated Press. The plan would set aside potential claims related to the buyout and place them in a litigation trust, allowing Tribune to exit Chapter 11 without first resolving those claims, the AP and The Wall Street Journal say. It would hand substantial control over the Tribune to senior lenders, including Angelo, Gordon, and Oaktree, the AP reports. Other senior bondholders and junior bondholders would receive about 23 cents on the dollar. 

Bad news for Tribune, which backed the plan Tuesday: Several major creditors, including the creditors committee itself, don't support it, according to a statement the committee issued via e-mail last night. The WSJ speculates that JPMorgan likely isn't a fan of the plan, perhaps because it keeps open the possibility of a lawsuit against the bank. That's significant in our world, because Chadbourne's relationship with JPMorgan has drawn criticism from other creditors, who claim Chadbourne might be likely to put JPMorgan's interest above those of other creditors on the committee. That's why several junior creditors have raised questions about Chadbourne's conflicts and even asked the court to disqualify the firm. 

Judge Kevin Carey rejected those requests last week, ruling Chadbourne could continue to represent the committee.

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