A large junior creditor in Tribune Co.’s bankruptcy case asked the judge to appoint a Chapter 11 trustee to administer potential legal claims surrounding the company’s ill-fated 2007 leveraged buyout.

Contending that the debtor, its management and lawyers for the committee of unsecured creditors face too many conflicts of interest, Aurelius Capital Management  said appointing an independent third party would be the only way to make sure potential claims get a fair hearing.
Aurelius, a large distressed debt investor based in Greenwich, Conn.,  owns pre-buyout Tribune Co. bonds that became junior to more than $8 billion in bank debt when Chicago real estate magnate Sam Zell orchestrated the 2007 deal to take the media conglomerate private.

As such, it stands to benefit from claims that the Zell deal was an example of “fraudulent conveyance,” meaning the transaction rendered Tribune Co. insolvent and was therefore open to legal challenge.

The Official Committee of Unsecured Creditors has  raised fraudulent conveyance claims against the banks that financed the buyout, as well as other claims involving a breach of fiduciary duty against Tribune Co.’s directors and officers,  Zell and the large shareholders who sold into the deal. In a separate filing Monday, the committee asked the judge for standing to prosecute those claims.

But Aurelius contended in its request for a trustee that the committee’s ability to press any legal action against the senior lenders has been compromised by the fact its lead counsel, Chadbourne & Parke, does other business with those lenders. The hedge fund also contended that Tribune Co.’s directors and officers, which have the first right to press these sorts of claims on behalf of the bankruptcy estate, have their own conflicts since members of the group, including Zell, may be named as defendants in legal action.

The debtor and the committee, it said, have been “highly conflicted fiduciaries” that have “already spent 21 months (and counting) ignoring or downplaying” the claims and have thereby protected the senior lenders from legal exposure that could shrink their claims against the estate.

Chadbourne wouldn’t comment on the claims, but it has  taken steps in the past to isolate itself from conflicts. The committee, meanwhile, has  hired a “special” counsel  for investigating and pressing the claims against the banks.

Tribune Co. has stepped down from pressing the claims.

Monday’s dueling filings from the creditors committee and Aurelius came against the backdrop of an upcoming court-ordered mediation process, further highlighting the challenge faced by the mediator, U.S. Bankruptcy Judge Kevin Gross of Delaware.

By Sept. 20, each side is supposed to submit to Gross a short document outlining what it thinks is a fair settlement of the legal issues. Gross will then try to broker a solution all sides can support at a pair of mediation sessions Sept. 26 and 27.

The committee and Aurelius said in their filings that they support the mediation process but are preparing for the worst: a breakout of litigation in the case. Both pointed out that the statutory deadline for bringing fraudulent conveyance and breach of fiduciary duty claims is Dec. 8, or two years from the start of the Tribune Co. case. So, Aurelius asked the judge for an expedited hearing to consider the appointment of a trustee to give him or her time to assess the claims and file them before the deadline.