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Weil Wins Complete Second Circuit Victory for Morgan Stanley in Multi-Billion Dollar Tribune Co. LBO Dispute

On August 20, 2021, Weil won a complete victory before the U.S. Court of Appeals for the Second Circuit that upheld the dismissal of all claims brought against Morgan Stanley in a 10-year-old litigation arising out of the 2007 Tribune Co. leveraged buy-out (LBO), and Tribune’s subsequent bankruptcy. In this case, Tribune’s litigation trustee is seeking to recover billions of dollars for the benefit of Tribune’s creditors from the officers and directors of Tribune, all of the financial advisors who advised on the LBO, as well as thousands of shareholders of Tribune. Morgan Stanley served as financial advisor to a Special Committee of the Board of Tribune in connection with the LBO.

Notably, Morgan Stanley is the only financial advisor in the case to have all claims against it dismissed and the decision then affirmed by the Second Circuit. All the other advisors had certain claims remanded for further proceedings. Moreover, the distinctions drawn by the appellate court between Morgan Stanley and the other financial advisors were based on the court’s precise analysis of the conduct and financial motivations of the advisors, vindicating Morgan Stanley’s reputation and work on the deal.

The Weil team took the lead in developing the main arguments in support of an in pari delicto defense and in drafting the successful motion to dismiss on behalf of all of the financial advisors. We successfully advanced this defense before the Second Circuit, which affirmed the Southern District of New York’s January 2019 dismissal of the trustee’s aiding and abetting breach of fiduciary duty and professional malpractice claims against all of the advisors, including Morgan Stanley, and in the process denied the trustee’s arguments that certain exceptions to in pari delicto applied in this case. 

The Second Circuit permitted certain other claims, including for actual and constructive fraudulent conveyance, to continue against other advisors before the lower court, but not against Morgan Stanley – largely because the court agreed with our arguments that Morgan Stanley was differently situated than the other advisors, based on a number of factors. The Second Circuit also denied the trustee’s requests to seek leave to amend the intentional fraudulent shareholder claims, as well as add a constructive fraudulent transfer claim.

Weil Litigation Department Co-Chair Jonathan Polkes delivered the winning oral argument on behalf of Morgan Stanley. The Weil team also included Appellate practice Co-Head Gregory Silbert, Securities Litigation partner Stacy Nettleton, counsel Amanda Pooler, and associates Gena Gonzales and Colin McGrath