New Tribune Co. lawyer spat breaks out

By Michael Oneal
Posted Nov. 12, 2010 at 7:42 p.m.

A new side-imbroglio has broken out in the Tribune Co. bankruptcy, highlighting the often incestuous world occupied by big-time bankruptcy attorneys.

Let’s see if we can sort it all out …

Two of Tribune Co.’s biggest senior creditors — Oaktree Capital Management and Angelo, Gordon & Co. — filed a motion Friday afternoon seeking to disqualify New York law firm Akin Gump, Strauss, Hauer & Feld from representing their fiercest adversary in the case — junior bondholder Aurelius Capital Management.

The issue: Oaktree and Angelo, Gordon are also Akin Gump clients, having employed the firm to provide counsel on how to gain permissions from the Federal Communications Commission that would allow a restructuring of the media company to continue, the motion said.

Oaktree and Angelo say they’re worried Aurelius will now challenge those strategies as it tries to undermine their restructuring plan while pushing another one that directly competes with it. In other words, the motion says, Akin Gump attorneys are now representing a firm that may contest key strategies other Akin Gump attorneys helped formulate for Oaktree and Angelo, Gordon.

As obvious as that conflict sounds, similar conflicts are not uncommon in bankruptcy court, where a relatively small group of law firms specializing in arguing the complex cases act as hired guns, often allied in one case and bitterly opposed in another.

Aurelius itself recently pressed the U.S. Bankruptcy Court in Delaware to disqualify Chadbourne & Parke, one of the law firms representing the Official Committee of Unsecured Creditors. In other contexts, Chadbourne also represents various banks among the senior creditor group, even though the banks are the committee’s natural adversaries in the Tribune Co. That disqualification motion has since been withdrawn.

Complicating matters when it comes to Akin Gump is that earlier in the 2-year-old Tribune Co. case, the firm represented a junior bondholder called Centerbridge Partners, which aggressively opposed Oaktree and Angelo until it sold its stake to Aurelius. Akin Gump then began to represent the new owner.

E-mails included in the motion show that Akin Gump at first believed Oaktree and Angelo had waived the conflicts since the two senior creditors didn’t complain about the Centerbridge relationship. But Oaktree and Angelo said they gave no such waiver and are raising the issue now because, “Having Aurelius as an adversary is a vastly different proposition than having Centerbridge as an adversary…” Aurelius, they said, “is known for litigation at all costs and to all ends” as it tries to “extract hold-up value from other stakeholders.”

The e-mails indicate Aurelius has hired a separate law firm to represent it when it comes to FCC issues related to Tribune Co., which owns the Chicago Tribune. And Akin Gump has erected an “ethical barrier” between the Aurelius lawyers and the FCC lawyers. But Oaktree and Angelo said that’s not good enough.

Representatives for Akin Gump and Aurelius weren’t immediately available for comment.

Note:  This story has been corrected. It originally said a motion filed by Aurelius Capital to disqualify Chadbourne & Parke as counsel for the Official Committee of Unsecured Creditors was still pending. The motion has been withdrawn by Aurelius with prejudice.


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One comment:

  1. jack (me) Nov. 15, 2010 at 9:11 a.m.

    However, what Oneal tries to gloss over is that one firm is trying to represent both sides IN THE SAME CASE. Exchange of client confidences is then presumed, sometimes conclusively. So, unless the bankruptcy court does not follow traditional legal ethics, Aurelius has to get new counsel. The “China Wall” (sorry spammers) does not apply to concurrent representation, but only successive ones.

    Of course, Zell should have turned over the keys long ago, as he has no interest in this.