Caesars Creditors Seek Answers Cloaked by Attorney Privilegeby
Company says testimony from co-owner's lawyer is confidential
Bondholders fight casino giant over $7 billion debt guarantee
Creditors want a Caesars Entertainment Corp. attorney to explain why the company abandoned a $7 billion debt guarantee at the heart of a court battle that may land the casino giant in bankruptcy.
Noteholders said their unusual request is justified, in part, because a top official for Caesars and its co-owner, Apollo Global Management LLC, waived the right to keep the information secret under the attorney-client privilege.
Attorney Gregory Ezring should be forced to testify because Caesars’ lead witness in a lawsuit invoked the lawyer’s name repeatedly to avoid answering questions, noteholders said in Delaware Chancery Court papers.
The noteholders want details about an April 2014 presentation made to the Caesars board by an attorney who worked with Ezring, a partner at law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP who represents asset managers including Apollo.
“Time and again, CEC witnesses who were present for that presentation would not provide any information regarding what transpired,” the noteholders’ trustee said in the filing, which was unsealed at the request of Bloomberg News. The papers were filed Oct. 23 but not made public until Thursday.
Last year, noteholders sued Caesars and top executives of Apollo in New York and Delaware, claiming their actions made it impossible for creditors to collect what they are owed. The noteholders want the Caesars parent to be responsible for debt owed by its bankrupt unit, Caesars Entertainment Operating Co.
Caesars denies wrongdoing. The company guaranteed debt owed by its operating division, but was entitled to cancel that repayment promise once it sold a small stake, Caesars claims. Las Vegas-based Caesars has said that if it’s ordered to honor the guarantee, it would be forced to join its operating unit in bankruptcy.
A trustee for second-tier noteholders asked a Delaware judge to force Caesars to produce documents currently protected from disclosure under the attorney-client privilege. The privilege shields most conversations a company has with its lawyers as well as documents those lawyers produce on a client’s behalf.
The main witness defending Caesars’ actions is Apollo executive David Sambur. He joined the Caesars board after Apollo and TPG Capital took control of the company in a $30.7 billion leveraged buyout in 2008.
When Sambur testified, Caesars warned him not to reveal any information he learned about the debt guarantee from company lawyers, according to court papers. Caesars invoked the same privilege in shielding Ezring from questions about the debt guarantee.
Noteholders want access to Ezring and his work on the debt guarantee. They said Caesars sacrificed its attorney-client privilege when Sambur filed a declaration in court papers using protected information to defend the guarantee cancellation.
Caesars’ operating unit filed for bankruptcy in January, after the parent transferred some of the unit’s most valuable assets away and dropped its guarantee to repay some of the unit’s debts. Sambur has been negotiating with creditors of the bankrupt unit.
The documents and witness interviews could bolster noteholder claims, the trustee, Wilmington Savings Fund Society, said in court filings. Citing previous submissions in the case, noteholders claimed that most of what Sambur knows about the debt guarantee came from lawyers, especially Ezring.
“Mr. Sambur does not clearly recall ever reading the parent guarantee, nor discussing its termination provisions with anyone except counsel,” according to court papers.
The two sides will be in Delaware Chancery Court this month to argue over whether the information can be kept secret.
Caesars denies that anything it filed in the case, including Sambur’s written testimony, was covered by the attorney-client rule. Delaware courts have ruled that the entire privilege is lost if a defendant makes some attorney-client information public for its own benefit.
Stephen Cohen, a Caesars spokesman, said he couldn’t immediately comment on the Delaware filing. Sambur didn’t immediately respond to a phone call and e-mails seeking comment. Ezring and Charles Zehren, a spokesman for Apollo, didn’t immediately return e-mails seeking comment.
The Delaware suit is Wilmington Savings Fund Society FSB v. Caesars Entertainment Corp., CA NO. 10004, Delaware Chancery Court (Wilmington). The bankruptcy is In re Caesars Entertainment Operating Co. Inc., 15-01145, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).