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A Boca Raton, Fla.-based investment group has filed a lawsuit claiming it lost the bidding to purchase a profitable South Carolina steel mill in a bankruptcy auction last year as the result of a conspiracy between the winning bidder and the creditors’ committee. In its Palm Beach Circuit Court lawsuit filed last week, Liberty Acquisition Corp. alleges that its $73 million bid for the plant was rejected by the mill’s creditors’ committee and that, as a consequence, the U.S. Bankruptcy Court in the Western District of North Carolina was deceived into approval of a significantly lower offer from Greenville, S.C.-based Midcoast Industries LLC. Liberty claims that Midcoast conspired with members of the creditors’ committee for Georgetown Steel Co. to fraudulently prevent it from purchasing the plant. Liberty is controlled by Joseph Wortley, who also owns Audio Intelligence Devices in Deerfield Beach, a manufacturer of surveillance equipment. The steel plant was owned by the bankrupt Georgetown Steel Co. of Georgetown, S.C. Midcoast is a Delaware corporation owned by New York City financier and environmentalist Daniel Thorne, who is active in development and historic preservation in South Carolina. The lawsuit alleges civil conspiracy to defraud, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty. The plaintiff says the actions of the defendants were a fraud on the bankruptcy court. Besides Midcoast, other named defendants include Liberty’s investment banker, CIT Group in Livingston, N.J.; Liberty’s financial adviser, CRT Capital Group in Stamford, Conn.; and the law firm that represented Liberty in the bankruptcy auction, Hamilton Gaskins Fay & Moon in Charlotte, N.C. The suit asks for compensatory damages, reserving the right to amend and add claims for punitive damages. Allan Libow, a managing partner at Libow & Muskat in Boca Raton who is representing Liberty, says the alleged conspiracy arose because creditors such as SCANA, South Carolina’s main electric company, wanted the steel mill to remain in local hands. “Thorne is a very politically involved guy,” Libow said. “There were people who had motive to ensure his company got control [of Georgetown Steel].” Acting as co-counsel for Libow is Miami attorney Arthur Tifford. All but one of the named defendants declined to comment on the lawsuit. Brett Miller, a member at Otterbourg Steindler Houston & Rosen in New York City who served as counsel to the creditors’ committee, reacted to news of the suit with an expletive. He called the claim “the sour grapes of a losing bidder.” The Georgetown plant is a mini-mill, specializing in the production of steel wire rod. It was built in the late 1960s near Georgetown’s 270-year-old seaport. Georgetown Steel was a wholly owned subsidiary of GS Industries, a Charlotte, N.C.-based company with $1 billion in annual revenues. Like many U.S. steel manufacturers, GS Industries struggled to compete against lower-cost steel from foreign countries. In February 2001, GS Industries filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court for the Western District of North Carolina. Rather than appoint a trustee, the court designated GS Industries chief executive officer Mark Essig to serve as debtor in possession. Essig is a named defendant in the Liberty suit. The sale of the Georgetown steel plant was part of GS Industries’ bankruptcy reorganization. In February 2002, GS Industries approved Liberty’s $45 million offer for Georgetown Steel Co. Just prior to the May 20 auction, however, Midcoast submitted a bid of $47.25 million. At the auction, Liberty countered with an offer of $72.9 million — $30 million in cash, the balance as a promissory note to be paid out of future Georgetown Steel Co. revenues. The creditors’ committee refused the offer, saying the note lacked sufficient backing. Liberty then offered $47.5 million in cash plus assumption of Georgetown’s $8 million debt to its workers’ union pension fund. Midcoast raised its bid to $53 million, which GS Industries accepted — and the bankruptcy court approved on May 31, 2002. The Liberty complaint alleges numerous irregularities before and during the auction. It says Liberty’s investment banker CIT Group, which also acted as lender to Midcoast, made confidential information about the Liberty bid available to Midcoast. Libow said he plans to file a federal 60(b)(3) motion in the bankruptcy court asking that the court vacate its earlier rulings on the Georgetown sale due to alleged fraud on the court. Lawrence Schantz, a senior bankruptcy attorney at Adorno & Yoss in Miami who is not involved in the case, said that the Liberty suit was too broad. “It’s very creative but it won’t fly,” he said. Schantz said that Liberty’s legal and financial advisers could conceivably be found liable for civil claims in Palm Beach Circuit Court, but that the creditors’ committee and Midcoast were reachable only in bankruptcy court.

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