U.S. Supreme Court Says Tribune Creditor Suit May Be RevivedBy and
Highest court may lack the six-justice quorum needed to act
Second Circuit may choose to reconsider its previous ruling
The U.S. Supreme Court offered a ray of hope for Tribune Co. creditors who are seeking to claw back money from the media company’s former shareholders.
In an unusual statement, two justices said without explanation that the Supreme Court might lack the six-justice quorum needed to act in the case. Justices Anthony Kennedy and Clarence Thomas, however, suggested the lower courts might revisit a ruling that threw out the case. The two justices pointed to a recent Supreme Court ruling that cast doubt on the lower court decision.
The creditors are looking to get money back from shareholders who sold Tribune for more than $8 billion in 2007. Less than a year later, the company filed for bankruptcy. Bondholders sued, arguing that the takeover by billionaire Sam Zell and the company’s own employees was so ill-conceived as to leave Tribune unable to pay its debts.
The Supreme Court’s quorum problem might have stemmed at least in part from the justices’ stock ownership and the long list of companies involved in the case as onetime Tribune shareholders.
Justice Samuel Alito’s most recent financial disclosure form, for example, shows he owned shares in PNC Financial Services Group Inc., which is involved in the case. Alito is one of three justices, along with Chief Justice John Roberts and Justice Stephen Breyer, who own stock in a number of individual companies.
The Second Circuit threw out the case, citing a legal provision known as a safe harbor that protects banks, securities firms and other intermediaries from having transactions undone by a bankruptcy trustee. The Tribune creditors said in their appeal that the safe harbor didn’t apply, in part because they were trying to get money back from shareholders, not from intermediaries the shield was designed to protect.
The creditors argued that the safe harbor provision doesn’t protect transfers where a financial institution merely acted as a conduit for a transaction. The Tribune sale amounted to an intentional “fraudulent transfer” of assets, they said.
In February, the Supreme Court ruled in a separate but similar case known as Merit Management Group v. FTI Consulting that the safe harbor provision doesn’t protect transfers where a financial institution merely acted as a conduit for a transaction.
The case is Deutsche Bank Trust Co. Americas v. Robert R. McCormick Foundation, 16-317.