Announcements

Second Circuit Summarily Dismisses Appeal from Rulings Favoring Chapter 11 Telecom and Parent

March 10, 2009

The U.S. Court of Appeals for the Second Circuit, on March 10, 2009, summarily dismissed an appeal by a group of securities law shareholder plaintiffs seeking to overturn bankruptcy and district court rulings favorable to SRZ clients Leucadia National Corp. and Wiltel Communications Group LLC. Leucadia had acquired control of Wiltel under a Chapter 11 reorganization plan in 2002.

The plan provided that the plaintiff shareholders' disputed securities law claims, if eventually allowed by an Oklahoma federal court, would be satisfied from a fund consisting of directors and officers ("D&O”) insurance proceeds and Leucadia stock. SRZ had negotiated and drafted a consent order to this effect in 2003, explicitly providing that the insurance
proceeds had to be “first utilized” before resorting to the stock. To the extent the insurance satisfied any judgment the plaintiffs obtained, the stock would revert to Leucadia and the reorganized company's creditors, who had contributed it during the reorganization process.

Two years later, in 2005, while the Oklahoma securities litigation was still pending, the plaintiff shareholders asserted in a bankruptcy court dispute over the terms of the consent order, that they were entitled to the Leucadia stock before resorting to the insurance proceeds. Agreeing with Leucadia and Wiltel, however, the bankruptcy court, and the district court on appeal, held that the plain language of the consent order required the plaintiffs to exhaust the available D&O insurance proceeds first and that the Leucadia stock was a backstop.

The shareholders appealed the Southern District’s decision to the Second Circuit, but in 2007, after the Oklahoma federal court dismissed the shareholders' suit, SRZ convinced the Second Circuit to hold the appeal in abeyance pending a decision on the shareholders’ appeal from the Oklahoma decision. When the Tenth Circuit affirmed the dismissal in February 2009, SRZ moved in the Second Circuit to dismiss as moot the appeal from the consent order rulings, which the court summarily granted in a two-page opinion. Partner Michael Cook represented Leucadia and Wiltel in this litigation.