Judge faults probe of recording in newspapers' Ch. 11 case

NOTE: This story has been clarified..

A federal bankruptcy judge yesterday expressed strong misgivings about the quality of an investigation that was supposed to help resolve a lingering issue in the reorganization of the Inquirer and Daily News - the unauthorized recording of a private meeting last year between publisher Brian Tierney and the newspapers' biggest creditors.

A former state Superior Court judge, Robert Graci, now working for the law firm Eckert Seamons Cherin & Mellott LLC, spent two months and close to $100,000 looking into the taping incident.

The firm submitted an interim report this week, apparently concluding that no further legal action is advisable.

But Graci did not take sworn statements from the 18 people he interviewed, relying instead on his own handwritten notes.

Lawyers representing the newspaper company were not invited to sit in.

And Graci asked only last week to see the e-mails of the man who admitted taping the meeting - Vincent DeVito, a managing director of CIT Group Inc. So far, no DeVito e-mails have been provided.

"You've made a fine mess of it," chief bankruptcy judge Stephen Raslavich told Graci at a hearing yesterday.

To make its investigation as transparent as possible, the judge told Graci, "you should have taken sworn statements . . . A lot of this conversation could have been rendered unnecessary."

Raslavich postponed ruling on a motion from the newspapers' bankruptcy attorneys, asking again that the court allow the law firm Elliott, Greenleaf & Siedzikowski P.C. to investigate the taping incident.

Under Pennsylvania law, it's a felony to record conversations without permission of all parties involved.

Since filing for bankruptcy protection last February, the newspaper company has been pushing for the Elliott firm to probe the taping incident.

It occurred several months earlier, on Nov. 17, when Tierney was negotiating privately with the newspapers' biggest creditors over about $300 million in debt - the bulk of the money that Tierney and other investors used to buy the newspapers in 2006.

The Eckert Seamans firm, which represents unsecured creditors, was picked by another bankruptcy judge, Jean K. FitzSimon, to explore the taping incident.

Its 92-page "interim report" was filed under seal, and so far has not been made public.

But in a companion filing, the Eckert firm opposed a new investigation by Elliott's firm and warned of a "litigation war" that would consume the newspapers' resources with legal expenses.

Several of the newspapers' creditors have characterized the taping controversy as a sideshow with no significance to the Chapter 11 efforts to restructure and reduce the newspapers' debt.

"The debtors have yet to identify any damage . . . which resulted either from the taping incident or from the lenders' actions after the taping incident," another Eckert Seamans lawyer, Gary Schildhorn, advised the court. "Apparently, the tape was not played, transcribed, or otherwise utilized in a manner detrimental to the interests of these debtors or their estates."

But Tierney apparently hopes that CIT Group and possibly other creditors could be penalized financially for their role in the taping.

Christy Callahan Comerford, an attorney with the Dilworth law firm, representing the newspaper owners, said in court yesterday that Brad Pattelli, an executive with Angelo, Gordon & Co., the company's biggest creditor, had recently given a deposition in which he acknowledged having talked to DeVito about the practice of recording meetings, before the November meeting occurred.

Pattelli could not be reached for comment.