Philadelphia Newspapers L.L.C. won a victory in federal court yesterday when Judge Eduardo C. Robreno partially overturned a Bankruptcy Court order and said the company could hire special counsel to represent it in the investigation of an unauthorized recording.
Robreno stopped short, however, of saying the owner of The Inquirer, the Philadelphia Daily News, and Philly.com could hire Blue Bell law firm Elliott, Greenleaf & Siedzikowski P.C. to investigate the Nov. 17 taping of a meeting between the company and its creditors by Vincent DeVito, an executive with CIT Group Inc., a key lender.
The Bankruptcy Court's decision deprived the company "of adequate legal counsel at a critical time in the bankruptcy proceeding and thus removes from the Debtors' quiver an important arrow with which to defend the property of the estate," Robreno wrote.
Philadelphia Newspapers has aggressively pursued this investigation because if it establishes wrongdoing by some of the secured lenders, such as CIT, that stand first in line for payment in a bankruptcy, those lenders could be sent to the back of the line.
"Today is a good day," said Lawrence G. McMichael, a Dilworth Paxson L.L.P. lawyer who represents the media company in bankruptcy proceedings.
Attorneys for the publisher and a group of creditors disagreed over the precise meaning of Robreno's order as it regarded the role of the special counsel. The creditor group was ordered in April by U.S. Bankruptcy Judge Jean K. FitzSimon to investigate the recording.
"The committee still conducts the investigation," said Gary M. Schildhorn, a lawyer with Eckert, Seamans, Cherin & Mellott L.L.C., which represents unsecured, or second-tier, creditors.
The judge's ruling means only that Philadelphia Newspapers, the debtor, may hire Elliott Greenleaf to "consult with the debtor as to whether the results of the investigation give the debtor certain claims and rights" against the lenders, Schildhorn said.
McMichael, on the other hand, said Elliott Greenleaf's task would be to evaluate the "adequacy and the quality of the investigation as conducted by the committee." If Elliott Greenleaf finds the investigation lacking, it would then go into Bankruptcy Court asking for more authority.
John M. Elliott, chairman of Elliott Greenleaf, goes even further, seeing his firm as a participant in the investigation. He has already made up his mind about the adequacy of the work by Eckert Seamans: "Thus far the investigation's been a farce."
Elliott also said the two firms for the creditors' committee - Eckert Seamans and O'Melveny & Myers L.L.P. - had a conflict of interest because they also represented the major lenders in other matters.