Disgruntled Blockbuster Inc.  creditor Lyme Regis Partners LLC  has sued Carl Icahn, alleging that the billionaire investor set the video-rental chain up to fail so he could take it over.

In the lawsuit filed last week in the U.S. Bankruptcy Court in Manhattan, junior bondholder Lyme Regis said Icahn took advantage of his “insider” status, including his approval of a 2009 bond issuance while he served as a Blockbuster board member, to put himself in a position to own the company upon its emergence from Chapter 11.

Icahn and his affiliates used “their position of power and inside information” to know to sell their equity stake in the company this year and to buy into senior notes “with the knowledge that such notes would allow (them)  to gain control” of Blockbuster, Lyme Regis said in the lawsuit.

Icahn was not immediately available to comment Monday.

The investment firm is suing to push the debts Blockbuster owes to Icahn below those of Lyme Regis and other junior bondholders in the payback pecking order. Icahn owns a majority of $675 million in senior bonds Blockbuster issued in 2009, court papers said. Lyme Regis owns about $570,000 of the more junior notes.

If Lyme Regis succeeds, it would turn the company’s proposed restructuring plan on its ear. Blockbuster filed for bankruptcy in September with a deal in hand to make senior note holders, including Icahn, owners of the company while wiping out more junior bondholders and equity holders.

Lyme Regis alleges that Blockbuster’s collapse into bankruptcy stems from the 2009 senior note issuance that was part of a larger debt reshuffling. The decision to issue those notes came when Icahn was a member of the board and a significant owner of Blockbuster stock.

“This financing scheme … provided Mr. Icahn and his affiliates a vehicle to take over the company for a fraction of its value,” the lawsuit said.

The large amount of debt issued and the short time frame to repay it put Blockbuster on shaky financial footing, Lyme Regis said. The investment firm says Icahn’s close relationship with Blockbuster executives and his knowledge of the company allowed the billionaire to realize the company’s looming bankruptcy sooner than most and to take advantage.

In the early part of 2010, Icahn resigned from the board and sold most of his shares in the company. After his resignation, Icahn bought a majority stake in the senior notes “at a price well below the face value,” Lyme Regis said.

If Lyme Regis pushes down Icahn’s debts, it would greatly increase its chances of seeing a recovery from the case because Icahn is one of Blockbuster’s largest creditors.

Lyme Regis has been a thorn in the side of Icahn and Blockbuster nearly since the day the Dallas company sought Chapter 11 protection. The investment firm earlier sought to conduct an investigation into Icahn’s more than six-year relationship with Blockbuster, protested to the $125 million bankruptcy loan Icahn and others are providing to the company, and sought to toss out Blockbuster’s attorneys, law firm Weil Gotshal & Manges, alleging conflicts of interest.