Aurelius founder Mark Brodsky casts himself as the lonely voice of the oppressed junior creditor. His email signature contains a rolling selection of quotations from the 12-volume "Meditations" of the Roman emperor Marcus Aurelius. A favorite: "Pay no attention to the chatter of your critics. ... If it is good to say or do something, then it is even better to be criticized for having said or done it."
Brodsky, who wouldn't comment, is well-respected for his legal intellect. But his critics abound. He is viewed as a tenacious disrupter of Chapter 11 cases, using all legal remedies at his disposal to boost the value of his stake. In the Tribune Co. case, he publicly accused the original lenders of refusing to negotiate. Instead, he said, they were trying to "extort a cheap settlement as the price for allowing Tribune to emerge from bankruptcy" and suggested that company management had supported them to "cover up and gain releases for their own wrongdoing."
Once he bought out Centerbridge, Brodsky hired Aronson's legal team and began building a set of aggressive legal strategies based on the Klee report. They were, for the most part, untested and risky. But they were plausible enough to extend the case for two more years, including an expensive two-week trial on the fraudulent-conveyance issues.
Aurelius lost that battle. Ultimately, Carey blessed a plan that shared some similarities with the one that had fallen apart in 2010. It gave Aurelius and its allies $431 million for their $1.28 billion in claims -- much less than they wanted.
But Brodsky wasn't finished. He also won two other key victories that will allow Aurelius to keep the Tribune Co. case alive in the courts for years to come as the firm seeks to recover the rest of its money.
First, the approved plan contains a litigation trust that gives junior bondholders and holders of the PHONES the right to pursue a wide range of unsettled claims against a variety of defendants, including Zell, Tribune Co.'s former board and management, and the company's advisers.
Exploiting a controversial loophole in the law, Aurelius also won the right to shift the fraudulent-conveyance litigation out of bankruptcy court and into state courts around the country. The firm has filed 47 lawsuits nationwide against 35,000 former shareholders, seeking to recover every cent of the $34 a share they received in the original Zell deal.
The move is without a settled precedent, and Aurelius still has to win a preliminary judgment in federal district court before the cases can proceed. But if it prevails, Aurelius will be able to exert heavy pressure on the largest former shareholders for a major settlement.
Tribune Co. finally emerged from bankruptcy court Dec. 31, 2012, with a clean balance sheet and new prospects. Senior creditors led by Oaktree, Angelo Gordon and JPMorgan collected $3 billion in cash and 98 percent of the company's equity, which was initially valued at $4.5 billion. Aurelius and the other junior creditors, meanwhile, can keep fighting for what they think is rightfully theirs -- as long as they're willing to foot the legal bills.
Legal scholars like Douglas Baird at the University of Chicago Law School acknowledge that the Chapter 11 process is being stretched to the limit by investment funds with seemingly endless resources to fight for competing agendas.
But he and others argue that the system needs to be fine-tuned, not overhauled, to add more transparency and encourage compromise. The biggest problem, said Seton Hall University law professor Stephen Lubben, is that changing the law means involving Congress. Most experts and practitioners, he said, believe that would only make things worse.
One measure of the almost absurd complexity of the Tribune case was that Zell, the architect of the transaction that landed Tribune Co. in bankruptcy court, is both a defendant in the ongoing creditor litigation and a junior creditor himself by virtue of a $225 million piece of debt that was part of his investment.
Zell's attorneys continue to pursue that claim, so far unsuccessfully. And they have aggressively sought to have the creditor allegations thrown out as unfounded, noting that the Klee report largely absolves him of any wrongdoing.
Otherwise, Zell has largely gone silent on the topic of Tribune Co., a clear contrast to his early days with the company when he barnstormed the country confidently predicting his deal's success. Now, when the occasional interviewer asks for his reaction to the bankruptcy, Zell often provides a gruff answer, noting that the deal would have worked if not for a "perfect storm" of unforeseen circumstances.
Then he changes the subject.
(Steve Mills of the Chicago Tribune contributed.)
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