In a scathing rebuke, the judge overseeing the bankruptcy of Philadelphia Newspapers L.L.C. yesterday described the investigation of an unauthorized taping of a meeting between the company and its senior lenders as a "fine mess."
The investigation of the taping, done by one of the officers of the largest creditor, was directed by a committee of the unsecured lenders, or second-tier creditors. By failing to take sworn depositions and seek key e-mails, the committee left its interim report on the taping open to questions and criticism, Superior Bankruptcy Court Judge Stephen Raslavich said.
That report found that the taping incident was not significant enough to warrant action against any senior lenders.
While criticizing the investigation, Raslavich said he was not ready to grant the company's request to pursue its own probe. Saying he needed to study the issue further, Raslavich suggested that one solution might be to allow Philadelphia Newspapers to investigate with its present bankruptcy attorneys - the firm of Dilworth Paxson L.L.P.
The company has been seeking permission to hire another firm for its investigation of the taping.
The taping has become an important side issue in the bankruptcy case of Philadelphia Newspapers, the company that owns The Inquirer, the Philadelphia Daily News, and Philly.com.
It stems from a meeting between the company's senior lenders and its top managers at Philadelphia Newspapers' offices at 400 N. Broad St. on Nov. 17, 2008. Vincent DeVito, a managing director of CIT Group Inc., was found taping the meeting without the knowledge or permission of everyone in the room, a violation of Pennsylvania law.
Philadelphia Newspapers, in court filings, contends that its relationship with its senior lenders deteriorated dramatically after its officials made an issue of the taping. The company has asked the court for permission to hire the firm of Elliott, Greenleaf & Siedzikowski P.C. to investigate the incident to see if its interests had suffered.
That request was initially rebuffed by the court, which appointed the committee of unsecured creditors to conduct the investigation. The company asked the court to reconsider, given what it contended were inadequacies in the investigation directed by former Pennsylvania Superior Court Judge Robert A. Graci, who now works for the firm that represents the unsecured creditors' committee.
Yesterday, Raslavich made it clear that he shared those concerns, dressing down Graci for failing to take sworn depositions and issuing his interim report before seeing key e-mail files requested from DeVito.
Despite those failings, Raslavich said, he found the conclusions of Graci's report - that the taping had not been the source of the breach between the lenders and the company - "fairly persuasive and articulate." He described the taping dispute as having the quality of a "schoolyard sandbox fight."
He also said he found the company's "motivation" in seeking another firm for the investigation "suspect."
Christie Comerford of Dilworth Paxson said the company was seeking to use Elliott Greenleaf for the investigation because its attorneys were fully occupied by the other aspects of the bankruptcy.
In a related matter, the company and its senior lenders have agreed to mediation in a dispute over who will provide the company with short-term financing while in bankruptcy, known as debtor-in-possession financing. The sides are to meet tomorrow.