Thursday, May 24, 2007

Latest on Lionel bankrupcy and MTH vs. Lionel lawsuits

The following is from the OGR Forum (O Guage Railroading). It was written by a lawyer who has been following these matters.


May 22, 2007-Lionel and MTH's attorneys were back in a New York bankruptcy court this morning. Lionel CEO Jerry Calabrese was present in court. MTH's Mike Wolf was not.

Lionel's lawyer, Adam Harris quickly informed Judge Lifland that Lionel filed their bankruptcy reorganization plan with the court yesterday. Among the items in the plan is payment in full of all unsecured claims with interest. The plan is necessary in order for Lionel to begin their exit from bankruptcy. Lionel has been in bankruptcy since November 15, 2004, a period of over 2 1/2years.

Mr. Harris continued by stating the reorganization plan can be confirmed by the court upon the happening of two conditions, 1)resolution of MTH's separate trade secrets and $17.5 million dollar patent infringement lawsuits and 2)obtaining exit financing to make the payments proposed in the plan. Mr. Harris noted obtaining the financing would be "easy" once the trade secrets and patent infringement cases are concluded.

To resolve the trade secrets and patent infringement cases, Mr. Harris once again requested the court conduct a damages estimation hearing, with the trade secrets case being tried first, or concurrently with the patent infringement case.

The court did not set a trial date for the damages estimation hearing. Mr. Harris stated he would file a motion with the court next week which would address some logistical concerns, and the court could then schedule a trial date. Judge Lifland agreed with Mr. Harris's request.

Lastly, Mr. Harris informed the court that after extensive mediation, the two rival model train makers were unable to settle either the trade secrets or patent infringement case.

MTH's attorney Alec Ostrow then addressed the court. He objected to the court scheduling a damages estimation hearing. Judge lifland, becoming fustrated and annoyed, interrupted and stated, "its time get this case moving, no more dillydallying. Its been mired in mud for a long period." Twice more, Mr. Ostrow persisted, and objected to a damages estimation hearing. Judge Lifland again cut off Mr. Ostrow, stating, "This isn't a debate." Mr. Ostrow then stated he would set forth his objections in papers in response to Lionel's motion.

In addition to today, Mr. Ostrow has objected several times at past court conferences to the court scheduling a damages estimation hearing. His reason for doing this is, the appeals court, in its December 14, 2006 decision in the trade secrets case, remanded it to the trial court. That would be the Federal District Court for the Eastern District of Michigan. This is the court where a jury awarded MTH $40 million dollars on June 7, 2004. Strategically, based on past experience, MTH's attorneys have decided they would fare better in front of a Detroit jury, than a New York bankrutpcy judge who is of the opinion that Lionel's bankruptcy has taken a long time. Of course, Lionel's attorneys want to try the case in front of Judge Lifland, who is already very familar with the details of the trade secrets and patent infringement cases. According to Judge Lifland, the Bankruptcy Code gives him the power to pull the case from the District Court, and try it, in the interests of expediting Lionel's exit from bankruptcy. This essentially takes away MTH's right to a jury trial.

In this and in past articles, I have used the legal term "damages estimation hearing." That term is a little misleading. On its face, the term implies the court will 1) estimate damages only and not possible liability and 2)possibly estimate a numerical range, not a specfic number. In speaking with Mr. Harris following today's court proceedings, he explained that Judge Lifland will try both the trade secrets and patent infringement cases as if they were regular trials, determining first, any POSSIBLE liability (responsibility) on Lionel's part, and upon the finding of any wrongdoing 2)determining the exact of amount of damages MTH would be entitled to. For example, in the trade secrets case, MTH must establish Lionel or its employees were involved in the theft of the locomotive blueprints or design plans, and then establish they were damaged by the theft, such as thorough, lost sales.

According to Mr. Harris, a damages estimation hearing, could take place this summer.

I will continue to keep all updated as necessary.

Erol Gurcan