The following was posted on the O Gauge Railroading Forum (OGR Forum) by Erol Gurcan, a laywer who follows these things.
MTH and Lionel Appear in Bankruptcy Court Today
Judge Directs the Parties to Mediate and Attempt Settlement of Their Legal Matters
January 9, 2006 - For the first time since December 14, 2006, when an appeals court vacated MTH’s $40.7 million dollar trade secrets verdict against Lionel, and remanded the case for another trial, attorneys for the two rival model train makers appeared in the Bankruptcy Court for the Southern District of New York today.
My summary of today’s legal proceedings will be a little different this time, compared with the past. I was present in court today to observe the proceedings, (as was Stuart Rankin aka OGR forumite Lionel LLC). In the past, my information was based on conversations with the party’s principals or their attorneys, or by reviewing the legal documents filed with the court.
Today’s legal proceedings were significant enough that both MTH’s Mike Wolf and Jerry Calabrese were present in court today. The two men shook hands upon seeing each other.
After making several applications for interim compensation on behalf of the attorneys and other professionals representing Lionel, which were quickly approved by Judge Lifland, their attorney Adam Harris, represented to the court that although the appeals court decision was very favorable to Lionel, they were still interested in settling the outstanding trade secrets case, and separate patent infringement lawsuit brought by MTH in June. Mr. Harris proposed to the court that a neutral third party mediator be agreed to by the parties so they could discuss settlement. Not surprisingly, he stated he expects the appeals court to deny the petition for reconsideration of its December 14 decision, filed by MTH with the appeals court on December 28. He also stressed it was in Lionel’s best interest to exit from bankruptcy as soon as possible as there are companies that will not do business with them until that occurs.
Mr. Alec Ostrow, representing MTH, then addressed the court. His proposal was that Lionel be directed to pay their other creditors in full, so they would not be prejudiced, and that the parties continue to litigate the legal matters between them. As Mr. Ostrow was discussing continuing the litigation between the parties, Judge Lifland, politely but firmly interrupted, and inquired why there was no response to Lionel’s proposed offer of settlement talks between the companies, or agreement to mediate their differences with a neutral third party. Mr. Ostrow requested a short adjournment so that he could confer with MTH’s Mike Wolf. Judge Lifland granted the request. Both Jerry Calabrese and Mike Wolf exited the courtroom to discuss matters with their attorneys.
After re-entering the courtroom, Mr. Ostrow informed Judge Lifland that MTH would agree to mediate the remaining legal issues between the parties.
Judge Lifland informed both sides they have 7 days to agree to a mediator. Mr. Harris proposed that one of the other bankruptcy judges be appointed, rather than selecting one through a private mediation company. Mr. Ostrow agreed this would be acceptable. Judge Lifland stated he would make an inquiry to some of his judicial colleagues, and would notify the parties if one of them would agree to do it. Judge Lifland noted that a “retrial of the trade secrets case would not be palatable to either side, and the lawyers should get out of the way.” In other words, he told the attorneys that they are not to be present when Mr. Wolf and Calabrese discuss settlement of the case between themselves or with a mediator.
Judge Lifland also informed the parties that if the legal issues are not resolved through settlement within one month, he would conduct a Bankruptcy Code section 502c estimation hearing on damages. This procedure allows the court to make a determination of any potential damages MTH would be entitled to for both the trade secrets lawsuit and separate patent infringement lawsuit (the patent infringement lawsuit was filed in the bankruptcy court since Lionel’s bankruptcy was already pending there). Mr. Ostrow stated an estimation hearing would be inappropriate if the case is not resolved through mediation. I suspect his rational for this is he would prefer to allow a jury to decide damages in the trade secrets case, as it did once before (prior to it later being vacated by the appeals court). Judge Lifland responded by stating he would not allow the bankruptcy to continue indefinitely. Lionel has been in bankruptcy since November 15, 2004 a period of over two years.
Both parties were also directed to work out scheduling orders for each litigation matter, even if it looks like the legal matters will settle.
Hopefully, the apparent willingness of both sides to discuss resolution of the various legal matter s between them, coupled with the judge’s directives, will result in a settlement of their legal disputes. Stay tuned
Please, let’s keep all follow-up posts civil, and avoid rude comments and speculation. Thanks.
Erol Gurcan