The government wants lawyers to keep their hands off Polaroid while it determines whether the firm was "propped up by fraud."
Some companies and investors are challenging a court-ordered freeze on civil lawsuits against Polaroid Corp. in the wake of the $3 billion fraud case against Minnesota businessman Tom Petters.
The sideshow to the criminal case against Petters played out Friday in Minneapolis before U.S. District Judge Ann Montgomery, with attorneys arguing that she should lift the stay she imposed on lawsuits against a number of Petters' companies so that they can pursue their ongoing individual disputes with Polaroid, a Petters subsidiary.
Montgomery put the brakes on such civil complaints in late October because so many people were suing Petters and his myriad companies that the actions threatened to overwhelm the receiver she appointed to manage the companies.
Montgomery also heard a motion Friday to fine-tune language describing the role of receiver Doug Kelley. She's expected to rule on the motions soon.
Petters, 51, of Wayzata, has been jailed since his arrest Oct. 3 and faces charges of running one of the largest Ponzi schemes in U.S. history. The complicated investor fraud case is playing out simultaneously in criminal, civil and bankruptcy courtrooms. Although Polaroid is not among the 10 Petters companies in Chapter 11 bankruptcy, it is part of the receivership and was always meant to be -- a point that Montgomery emphasized Friday.
Those seeking to lift the stay on civil lawsuits include South Korea-based LG Electronics Inc. and subsidiary Zenith Electronics, which have ongoing patent disputes with Polaroid concerning its flat-screen televisions. Acorn Capital Group, a hedge fund in Greenwich, Conn., that lent Petters $300 million, also wants the stay lifted, because $25 million of the investment went to Polaroid, which recently defaulted. The funding was secured by Polaroid's inventory and receivables, according to Acorn.
The electronics companies argued that Polaroid is an independent company that hasn't been accused of wrongdoing, and that their patent cases should be treated differently from the mountain of purely financial claims against Petters. Acorn argued that the Fifth Amendment to the Constitution protects their property rights regarding the Polaroid collateral.
Terry Fleming, an attorney for receiver Kelley, who is in charge of managing Petters' bevy of companies, called attempts to lift the stay premature. Kelley's office has been on the job just two months and needs more time to gain control of Petters' estate, he said.
The U.S. Attorney's office agreed.
"At this point we don't know if Polaroid was propped up by fraud," assistant U.S. Attorney Robyn Millenacker told Montgomery.
The judge also considered a motion filed by Kelley last month to clarify her original receivership orders. Among other things, Kelley proposed tweaking the language to say that, while the bankruptcy code governs matters in the bankruptcy court, government claims of forfeiture or restitution for victims can still proceed.
Jennifer Bjorhus • 612-673-4683