It’s strike two for the banks who were supposed to fund the 26.7 billion bucks buyout of Clear Channel Communications. A federal judge has rejected an attempt by the banks to move the case to federal court, bouncing it back to the Texas state judge in San Antonio who had already issued an order that essentially required the banks to fulfill their loan commitments. Wall Street remains cautious, with Clear Channel’s stock ending down a bit yesterday.
US District Judge Orlando Garcia said in his order that the preference is to leave lawsuits in state courts so the defendants, the six banks, faced a heavy burden to prove that CC Media, the Delaware company created to acquire Clear Channel, was fraudulently joined to Clear Channel as a plaintiff in the Texas case, thus blocking the effort by the banks to have the case heard in federal court. “Defendants have not met their heavy burden of showing that CC Media Holdings, Inc. was fraudulently joined as a plaintiff in this action,” Judge Garcia wrote. He ordered the case remanded to Bexar County, Texas and noted that his order is not appealable.
Bexar County Judge John Gabriel had already issued a temporary restraining order barring the banks from interfering with closing the Clear Channel buyout. He has set a hearing of next Tuesday, April 8th, on whether to grant a permanent injunction.
The banks, meanwhile, are trying to get Clear Channel added as a party to another lawsuit in the New York state courts, where the lenders were sued by Thomas H. Lee Partners and Bain Capital, the private equity firms sponsoring the buyout deal.
RBR/TVBR observation: Hang onto your hats! Things could start moving fast. The banks do not want to risk a trial in Texas, where Clear Channel’s lawsuit is seeking damages well in excess of 26 billion bucks. The Financial Times notes that a jury in Texas back in 1985 awarded Pennzoil 10 billion bucks from Texaco for interfering with Pennzoil’s attempt to merge with Getty Oil. We would not be surprised to see a settlement by Monday, before Judge Gabriel’s scheduled hearing on Tuesday.