January 24, 2019
On January 23, 2019, Weil secured a significant victory for Morgan Stanley in a long-running, $4 billion dispute arising out of the 2007 Tribune Co. leveraged buy-out (LBO) and the company’s subsequent bankruptcy. In a 95-page decision, the U.S. District Court for the Southern District of New York granted a motion to dismiss claims brought against Morgan Stanley and the other financial advisors on the LBO, including for aiding and abetting breaches of fiduciary duty and professional malpractice for their roles as advisors in the LBO that ultimately resulted in Tribune’s bankruptcy. The Weil team took the lead on drafting the motion to dismiss on behalf of all of the financial advisors.
This lawsuit was commenced by Tribune Co.’s litigation trustee, and names as defendants, among others, the officers and directors of Tribune, all of the financial advisors who advised with respect to the LBO, as well as thousands of shareholders of Tribune, and seeks to recover billions of dollars in LBO proceeds for the benefit of Tribune’s creditors. Morgan Stanley served as financial advisor to a Special Committee of the Board of Tribune in connection with the LBO.
In the decision granting the motion to dismiss, Judge Cote (who was recently assigned the case after Judge Sullivan was elevated to the Second Circuit), agreed with Weil’s arguments that the trustee’s claims were barred by the “in pari delicto” defense, which prohibits the trustee from pursuing claims against third parties such as Morgan Stanley when the trustee alleges that the company itself – through its management and directors – engaged in the very wrongdoing that caused Tribune to fall into bankruptcy. Specifically, Judge Cote dismissed claims against Morgan Stanley and the other financial advisors for aiding and abetting breaches of fiduciary duty by the officers and directors, professional malpractice, and unjust enrichment, for which the trustee had been pursuing billions in damages.