CHICAGO/WILMINGTON, Del Oct 22 One of the top restructuring attorneys in America allegedly misled a judge and should be disqualified from handling parts of the huge Caesars Entertainment casino bankruptcy, according to a court filing by junior bondholders.
The allegation adds to the bitterness of the $18 billion bankruptcy, which has pitted the private equity owners of Caesars Entertainment Corp against the junior creditors of the company's operating unit.
In a late Wednesday court filing, junior creditors said they had unearthed evidence that they said showed James Sprayregen of Kirkland & Ellis, which represents the bankrupt operating unit CEOC, misled the court about potential conflicts.
"It has now come to light that what Kirkland told this court was, at best, incomplete and misleading," said the filing, referring to Sprayregen's testimony earlier this year.
The junior creditors are represented by a team of lawyers from Jones Day, led by Bruce Bennett. Sprayregen and Bennett were adversaries in the bankruptcy of the city of Detroit.
Kirkland, which has handled many of the biggest corporate bankruptcies in recent years, was not immediately available to comment.
Jones Day has asked U. S. Bankruptcy Judge Benjamin Goldgar to address the matter at a hearing on Nov. 18.
Goldgar has already approved the hiring of Kirkland over a previous objection by junior creditors. Goldgar could decline to revisit the issue, or consider the request to disqualify some of Kirkland's retention.
"These disputes are quite rare in this context," said Jonathan Lipson, a professor at Temple University School of Law in Philadelphia. "It's a high-stakes move by Jones Day."
Junior creditors have been trying to prove that the Caesars parent and affiliate transferred the best properties out of the operating unit, which the junior creditors have said amounted to asset stripping.
A special governance committee of the bankrupt operating unit's board investigated the asset transfers and found them "problematic" and "constructively fraudulent," according to the filing by junior creditors.
Rather than taking legal action over those asset transfers, the operating unit's full board authorized a New York lawsuit to have the transfers declared legal. That would protect the parent company that now owns those top resorts at the expense of the operating unit, and the operating unit's creditors.
Junior creditors said new evidence came to light that showed Sprayregen misled the court this year when he testified that Kirkland had nothing to do with the New York lawsuit. (Writing by Tom Hals; Editing by Christian Plumb)
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