Bankruptcy

Lionel Struggles to Get Back on Track

Toy-train maker seeks to extend its time for emerging from Chapter 11, and continues its showdown against rival Mike's Train House.
Stephen TaubJune 20, 2007

Lionel LLC wants more time to file its own plan to emerge from bankruptcy.

The storied maker of toy trains, in Chapter 11 since late 2004, filed a reorganization plan last month, according to the Associated Press. The wire service added that it is now seeking its fifth exclusivity extension to retain control of its bankruptcy process.

If it is approved, the 107-year-old Lionel will receive an additional 120 days, through Oct. 16, to file its reorganization proposal. That would give it Dec. 17 to gain creditors’ approval. One exclusivity period ended Monday, according to AP, with another scheduled to run out on Aug. 17.

Privately-held Lionel is currently owned by the estate of former Paramount Communications Inc. chairman Martin Davis and rock star Neil Young.

Lionel’s efforts are designed to prevent creditors and rivals filing their own plans for it. In this case, it is trying to fend off Mike’s Train House, a long-time legal adversary. The AP said out that Mike’s has been claiming that Lionel owes it millions of dollars for stealing toy-train technology assets more than seven years ago. According to the report, in 2004 a Michigan jury awarded Mike’s $40.8 million, forcing Lionel to file for bankruptcy.

“The size and weight of this judgment is just too much for what is essentially a small business to bear,” said Jerry Calabrese, Lionel’s chief executive, Bloomberg reported at the time. “Bankruptcy will not only allow us to pursue an eventual reversal of this unfair decision, it will enable us to create, manufacture and ship our products in our normal and usual way.”

“Lionel’s own misconduct in stealing a competitor’s trade secrets has led to its downfall,” Robert Swift, a lawyer for Mike’s Trains, was quoted as saying then. “Good businessmen do not operate the way Lionel did.”

In December 2006, however, the U.S. Court of Appeals overturned the verdict against Lionel and ordered a new trial. Mike’s has appealed that decision to the Supreme Court.

The AP noted in its recent report that Lionel has asked bankruptcy Judge Burton R. Lifland to estimate the claims filed by Mike’s. “The debtors intend to resolve or estimate Mike’s claims timely and efficiently, as shown by their filing of the estimation motion. In order to do so, however, the debtors need the protection of continued exclusivity,” Lionel reportedly said.

The wire service pointed out that under bankruptcy law a company may ask a bankruptcy judge to estimate a disputed creditor claim blocking its exit from Chapter 11.

The latest bankruptcy filing is Lionel’s second in 25 years. After a 1991 filing, Neil Young took his stake in the company, according to Bloomberg.