A U.S. federal judge rejected Idearc creditors' $9 billion
lawsuit against Verizon (VZ) for spinning off its debt-laden
yellow-pages business.
Judge A. Joe Fish of the U.S. District Court in Dallas Tuesday
rejected creditors' claim that Verizon's 2006 spinoff of the yellow
pages business was intended to defraud Idearc's creditors.
The creditors have not "presented specific direct evidence of
the defendants' fraudulent intent, nor has it pointed to any such
evidence that it may yet present," Judge Fish wrote in a 22-page
decision.
Earlier this year, Judge Fish determined Idearc was solvent when
it transferred $9.1 billion in cash and debt to Verizon. The judge
said the yellow pages company had a total enterprise value of at
least $12 billion on the date of the spinoff and was both "solvent
and received reasonably equivalent value" for the cash and debt it
sent to its former parent.
Creditors, via a litigation trust created as part of Idearc's
2009 exit from bankruptcy, had argued the deal constituted a
fraudulent transfer that could be undone in bankruptcy court. In
bankruptcy proceedings, a judge can find certain transactions to be
fraudulent transfers if a company was insolvent when taking on new
liabilities.
But Judge Fish's earlier decision effectively gutted the
creditors claim that the spinoff left the company with so much debt
it was destined to collapse. The new ruling dispatches with what
remained.
"The constructive fraudulent transfer claims obviously fail on
the merits, however, in light of the court's findings as to
Idearc's value and solvency," said Judge Fish. "None of the
plaintiff's claims can be maintained without a favorable finding on
Idearc's value and solvency."
U.S. Bank (USB), the litigation trustee, declined to comment,
citing pending litigation. However, a lawyer for the trustee said
it intends to appeal the decision.
Yellow-pages publisher Idearc Inc. emerged from bankruptcy
protection on the last day of 2009 under the control of its lenders
with a new name--SuperMedia--after erasing more than two-thirds of
its multibillion-dollar debt.
SuperMedia merged with North Carolina-based Dex One earlier this
year. The two companies filed for Chapter 11 protection in April
after failing to get enough stakeholder support to complete the
merger out of court.
Dex One, the former R.H. Donnelley Corp., also emerged form
bankruptcy protection in 2010. The new company is now known as Dex
Media Inc. (DXM). Dex One shareholders received about 60% of the
combined company, while SuperMedia shareholders got about 40%. The
merged firm is based in Dallas.
-Marie Beaudette contributed to this story.
Write to Patrick Fitzgerald at patrick.fitzgerald@dowjones.com.
Follow him on Twitter @WSJBankruptcy
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