Court Approves Lionel's Bankruptcy Plan and Settlement with MTH by Erol Gurcan

In what should be one of their last court appearances, lawyers for MTH, Lionel and Sanda Kan (Lionel’s principal manufacturer of trains) appeared in a New York Bankruptcy Court on March 27th.

At the end of the hearing, Judge Burton Lifland approved Lionel’s confirmation plan for reorganization. The court also approved Lionel’s settlement with MTH.

Click the link below to read on

Bankruptcy Court Grants Lionel 7th Extension: MTH Motion to Extend TRO Granted by Erol Gurcan

There was some model train litigation involving Lionel and MTH in two different courts on 1/10/08.

Firstly, in the New York City Bankruptcy Court, Lionel’s motion for a 7th extension of the exclusive period in which to file its reorganization plan, was granted by Judge Lifland. MTH’s lawyer, Alec Ostrow did not oppose the motion. The court’s order gives Lionel the exclusive right until March 31 file its plan with the court. Others including MTH may file alternative plans after that up and until May 30.

Click on the link below to read on

MTH Attempts To Collect $$$ From Korea Brass by Erol Gurcan

In my last legal article, (written at the request of the Coil Couplers web site), I stated that in MTH’s fraudulent transfer of assets lawsuit against Korea Brass aka Hagye Trading/Model Korea Trading (MKT), the court on November 20, 2007 issued a temporary restraining order (TRO) and entered an order directing all monies paid by Lionel to Korea Brass were to be deposited into a court approved interest bearing escrow account. The practical effect of this was, Lionel, which is not a party in MTH’s lawsuit against Korea Brass, will not be able to take delivery of trains that it paid for and which were manufactured by KB, since the money is going into a court escrow account rather than directly to KB. Ultimately, we hobbyists will not be able to purchase the trains which are affected in these legal proceedings, at least for now.

Click on the link below to read on

Legal Explanation of Latest Coil Couplers Posts

Over the last two days, there have been a few posts on the Coil Couplers of America website stating that MTH has cut off Lionel’s supply of locomotives, including some of the new Legacy models, from its supplier Model Korea Trading Company (aka MKT, the company named in the Coil Couplers post of the last two days) due to the court ordered stoppage of payments by Lionel.

Click on the link below to read on

Current Status Of MTH, Lionel Lawsuits Settlement By Erol Gurcan

My goal is to keep this report short and sweet (a novel concept for a lawyer). Here is the current status of the MTH Lionel settlement as of this morning.

MTH's and Lionel's lawyers were back in bankruptcy court on October 25th. Lionel CEO Jerry Calabrese and Mrs. Martin Davis were present. MTH's Mike Wolf was not. It was not necessary for him to be. I also attended the proceedings.

Click on the link below to read on

Lionel And MTH Making Progress In Trade Secrets Case By Erol Gurcan

It's been about 2 months since I have written anything substantive about the Lionel MTH Trade secrets case or about the status of Lionel's bankruptcy. That's because there was little going on in the proceedings during this period of time. As you may recall, on August 13, MTH filed an appeal concerning Judge Lifland's August 2 rulings in favor of Lionel. On August 2, Judge Lifland ruled that any future trial (the Bankruptcy Code 502(c) damages estimation hearing) in the trade secrets case would be held before him, instead of in the Federal District Court in Detroit Michigan, and granted a fifth extension of time to Lionel to file an exclusive bankruptcy plan with the court. MTH had opposed Lionel's motion for exclusivity and proposed three alternative plans which were rebuffed by Judge Lifland.

Click on the link below to read on

Model Train Author Paul V. Ambrose Sues Train Collectors Association by Erol Gurcan

Model train author Paul V. Ambrose has sued the national Train Collector's Association (TCA) and also its Eastern Division, the entity that hosts the yearly York meets in April and October. Although there was a lot of discussion about the lawsuit, little was said about the basis and details of it.

Click the link below to read on

MTH Lionel Update: Parties In Settlement Talks by Erol Gurcan

Attorneys for both MTH and Lionel were back in a New York Bankruptcy Court on July 10th. Both MTH's Mike Wolf and Lionel's Jerry Calabrese were present. I was present for part of the day.

On the docket were several items, including Lionel's motions seeking court approval to pay its lawyers and accountants etc. the fees earned between January 1, 2007 to April 30, 2007. These motions were unopposed. Judge Lifland approved all of them and entered an order to that effect.

Click on the link below to read on

MTH Proposes Alternative Reorganization Plans To Bankruptcy Court by Erol Gurcan

In my last article, I summarized that Lionel and MTH were in court on June 27th, with Lionel’s attorneys were attempting to convince Bankruptcy Judge Burton Lifland that he should try the trade secrets and separate $17.5 million dollar patent infringement case to expedite their exit from bankruptcy. MTH’s attorneys had cross-moved to send the trade secrets case back for trial to the Federal District Court in Michigan, the court where a jury awarded them $40.7 million dollars in June 2004.

Click on the link below to read on

Bankruptcy Court Judge Begins Hearing Motions on Future Trial Venue by Erol Gurcan

Lionel and MTH’s attorneys were back in a New York bankruptcy court on June 27th before Judge Burton Lifland. Interestingly, the courtroom was crowded since a lot was potentially riding on the hearing. Lionel’s CEO and President Jerry Calabrese, and Chief Financial Officer Scott Turkington were present in court. They were scheduled to testify and later did. More about that later. Mrs. Martin Davis was present as well. MTH’s Mike Wolf was not.

Click on the link below to read on

Lionel and MTH Motions Adjourned to June 27:Lionel Looses $1.25 million in May by Erol Gurcan

In my last article, I stated that Lionel's motion for the damages estimation hearing (which would actually be a trial on this issues of potential liability and damages in the trade secrets case) and MTH's cross-motion to have the trial take place in the Federal District Court in Michigan (the court where the jury awarded MTH $40.7 million dollars on June 7, 2004) were scheduled to be heard in the New York Bankruptcy Court today. However, both motions were adjourned to June 27, 2007. Thus, nothing occurred in court today on this matter.

Click on the link below to read on

A Review Of Lionel's Bankruptcy Reorganization Plan by Erol Gurcan

Lionel filed its bankruptcy reorganization plan with the court on May 21. This was an important and necessary step in moving the trade secrets and patent infringement litigation forward, and in beginning the process to exit from bankruptcy.

I recently reviewed Lionel’s bankruptcy reorganization plan filed with the court. It contains some surprising and interesting legal, financial and hobby related information. Is Lionel opening a new office, now much does Lionel spend a year on new tooling, how much does it earn a year in royalties based on its trademark, and what are MTH’s annual sales based on Lionel’s estimates? If you would like to know the answers to these questions and more, then read on. The information for this post was obtained from Lionel’s reorganization plan filed with the bankruptcy court.

Lionel Files Reorganization Plan: Parties Unable To Settle Legal Disputes by Erol Gurcan

Lionel and MTH's attorneys were back in a New York bankruptcy court 5/22/07. Lionel CEO Jerry Calabrese was present in court. MTH's Mike Wolf was not.

Lionel's lawyer, Adam Harris quickly informed Judge Lifland that Lionel filed their bankruptcy reorganization plan with the court yesterday. Among the items in the plan is payment in full of all unsecured claims with interest. The plan is necessary in order for Lionel to begin their exit from bankruptcy. Lionel has been in bankruptcy since November 15, 2004, a period of over 2 1/2
years.

Click on the link below to read on

MTH Lionel trade secrets case: Headed to US Supreme Court? by Erol Gurcan

As you may recall, on April 19, 2007, the Sixth Circuit Court of Appeals denied MTH's petition for a rehearing of its December 14, 2006 decision in the trade secrets case. That earlier decision vacated the jury's $40.8 million dollar judgment against Lionel and codefendant Korea Brass, and remanded the case to the District Court in Detroit, Michigan for another trial. Bankruptcy Judge Burton Lifland in New York has stated in the past he will hold a damages estimation hearing in the trade secrets case rather than let another trial take place in Detroit. The two model train rivals were recently holding mediation talks in New York in both the trade secrets case and patent infringement case. The next court date in the bankruptcy court is May 22.

Click on the link below to read on

Appeal's Court Denies MTH's Petition For Rehearing by Erol Gurcan

On April 19, The Sixth Circuit Court of Appeals denied MTH's petition for a rehearing of its December 14, 2006 decision. That earlier decision vacated the jury's $40.8 million verdict in favor of MTH in the trade secrets case, and remanded it to the Eastern District of Michigan for another trial. While the above news is certainly important, it is not unexpected. I stated in a post in January that MTH's chances of prevailing on the petition were small. Additionally, MTH's Attorney Alec Ostrow stated at least twice at the bankruptpcy court conference on January 9, 2007 that is was unlikely MTH would prevail on the petition.

The more important question now becomes, what is going to happen now that the appeals process is over. Where do we go from here?

Click on the link below to read on

Court Grants Lionel's Motion; Mediation Begins by Erol Gurcan

Lionel and MTH's attorneys were back in bankruptcy court the morning of February 22nd for both a motion and status conference. Lionel CEO/President Jerry Calabrese and MTH owner Mike Wolf were not in court today. It was not necessary for them to be present. Both attended the last bankruptcy court conference on January 9 when both sides agreed to mediation. I attended today's court proceedings.

Click on the link below to read on

Lionel Files Request to Extend Deadline for Chapter 11 Reorg Plan by Erol Gurcan

On February 9, 2007, Lionel filed a motion (an application for a court order) with the bankruptcy court seeking an extension to file a chapter 11 reorganization plan. The motion seeks an exclusive 75 day period in which it be allowed a to file a plan after the appeals court either denies, or issues a final decision regarding MTH's petition for a rehearing of the trade secrets case appeal. On December 14, 2006, the Sixth Circuit Court of Appeals reversed the trial court jury's $40.7 million dollar verdict ($38.6 million directly against Lionel) rendered in June 2004, and remanded the case to the trial court for another trial.

Click on the link below to read on

Lionel and MTH Sign Agreement for Mediation by Erol Gurcan

On January 30, 2007, the attorneys for both Lionel and MTH signed a stipulation (legalese for agreement) agreeing to mediate MTH's separate trade secrets and patent infringement claims against Lionel. Bankruptcy Judge Burton Lifland "so-ordered" (approved) the stipulation on February 1, 2007. When the parties were last in the bankruptcy court on January 9, 2007, Lionel's attorney suggested mediation, MTH's lawyer agreed, and Judge Lifland directed the parties to do it.

Click on the link below to read on

Appeals Court Orders Lionel To Respond To MTH's Petition by Erol Gurcan

On January 18, 2007, the Sixth Circuit Court of Appeals posted on its PACER web site that a letter was sent to Lionel's lawyer, Walter Dellinger, notifying him to respond MTH's petition (filed with the court on December 28, 2006)for an en banc hearing. Lionel's response is due by February 1, 2007. An en banc hearing means that the full court will consider it, which could be a group of anywhere from 15-20 judges (in other words all the judges of the court), instead of the 3 that orginally heard the appeal on June 7, 2006.

Click on the link below to read on

MTH and Lionel Appear in Bankruptcy Court by Erol Gurcan

January 9, 2006-For the first time since December 14, 2006, when an appeals court vacated MTH’s $40.7 million dollar trade secrets verdict against Lionel, and remanded the case for another trial, attorneys for the two rival model train makers appeared in the Bankruptcy Court for the Southern District of New York today.

Click on the link below to read on

MTH Files Petition For Rehearing with Appeals Court by Erol Gurcan

Those of us following the legal proceedings in the MTH Lionel trade secrets case know that on December 14, 2006, a three judge panel of the Sixth Circuit Court of Appeals unanimously reversed the district court jury’s $40.7 million dollar verdict, and granted Lionel’s motion for a new trial, and remanded the case to the district court for that purpose.

Click on the link below to read on

Lionel Earns $2.8 Million Profit in November 2006 by Erol Gurcan

On December 14, 2006, Lionel filed its monthly operating report for November 2006, with the bankruptcy court. For the month of November, Lionel posted a profit, or net income of $2,868,000. Its monthly disbursements were $6,818,000. The report was affirmed to by its Chief  Financial officer, Scott Turkington. Lionel is required to file a monthly operating report since it is in bankruptcy. November’s numbers were obtained directly from its profit and loss summary filed with the court.

Click on the link below to read on

Summary of Appeals Court Ruling in MTH v Lionel Trade Secrets Case by Erol Gurcan

On June 7, 2004, the jury in the trade secrets case ruled in favor of MTH and awarded them $40.7 million dollars as follows; $11,978,887 for PAST lost profits, $13,794,518 for FUTURE lost profits, and $12,834,820 against Lionel, and $2,167,440, against codefendants Korea Brass and Yoo Chan Yang for UNJUST ENRICHMENT. Lionel filed for bankruptcy in November, 2004, and filed a notice of appeal, in January 2005. Korea Brass did not appeal.

In a nutshell, overall, today's appeals court's decision is favorable to Lionel, and not to MTH.

Click on the link below to read on

Insights Into The MTH Union Pacific Settlement by Erol Gurcan

November 8, 2006 - As some of you know by now, MTH and Union Pacific issued a joint press release late this afternoon stating UP’s trademark infringement case against MTH  has been amicably resolved.   However, the settlement has broader beneficial implications for both the other model train manufacturers and hobbyists alike. First, the agreement  means that UP’s case against MTH has been resolved and will be discontinued in the near future without anymore money being spent on lawyers. Thus, more money for research and development, new tooling and electronics.  Secondly, the agreement is significant in that it  means all model train manufacturers will be allowed to use UP logos and trademarks forever without having to pay a royalty. Mike Wolf confirmed to me today that this agreement also applies to Lionel despite its  settlement and licensing agreement entered into almost two months ago. More about that later.

Click on the link below to read on

Coil Couplers Continues To Distort The Legal Facts by Erol Gurcan

November 1, 2006-O gauge hobbyists who regularly read the Coil Couplers Of America web site, know it is  pro-Lionel, and funded by rock singer Neil Young, who is also a 20% owner of the company. The web site is also independent of Lionel LLC and does not speak for them on an official level, but does occasionally cite un-named sources within the company for its information.   

However, the Hi-Rail Times section of the Coil Couplers web site continues to distort the truth regarding the legal proceedings between MTH and Lionel, thereby possibly confusing O gauge hobbyists interested in the various legal proceedings. It has once again become necessary to set the record straight regarding their latest post.

UPDATE 11/3 - Hi-Rail Times responds to Erol's article.

Click on the link below to read on

Jerry Calabrese Comments on Union Pacific Trademark Infringement Settlement and Lionel’s Recent Sales By Erol Gurcan

September 16, 2006-On September 13, 2006, I wrote an article stating Lionel had settled the trademark infringement lawsuit brought against it by Union Pacific and had entered into a licensing agreement with them. The next day, Lionel CEO Jerry Calabrese posted a statement on its web site confirming the licensing agreement and thanking UP for working with Lionel to resolve the situation.
Earlier today, I talked with Mr. Calabrese and discussed the trademark infringement settlement and Lionel’s recent sales. He wanted me to pass along a few comments about our conversation.

Click on the link below to read on

Union Pacific and Lionel Settle Trademark Infringement And Enter Into Trademark Licensing Agreement

September 13, 2006-Lionel has settled the trademark infringement lawsuit brought against it by UP. Additionally, the two have also entered into a trademark licensing agreement. However, the court where Lionel’s bankruptcy has been pending since November 15, 2004, must approve the deal since they are in bankruptcy. To that end, Lionel’s attorney’s filed two motions (an application for a court order) in the United States Bankruptcy Court for the Southern District of New York on September 13, 2006, requesting, 1) the court approve the agreement entered into by the two parties, and 2) requesting the court make some of the terms of the agreement confidential. The motions are currently scheduled to be heard on October 11, 2006. The information for this article was obtained from the two motions.

It is expected the motion requesting the court to approve the lawsuit settlement and

Click on the link below to read on

A Summary Of The Union Pacific MTH Trademark Infringement Case by Erol Gurcan

August 11, 2006-Over the last several months, there has been a lot of discussion on the OGR on line forum about the validity (or lack thereof) of Union Pacific’s three trademark infringement lawsuits (against Lionel, MTH and train photographer Nils Huxtable), but little information concerning the specifics in each lawsuit. There was also plenty of discussion last week because of a UP press release on its web site regarding its trademark licensing program. That memo stated in part;  Click on the link below to read on

Bankruptcy Court Approves Lionel’s Motion to Extend its Time to File For Reorganization by Erol Gurcan

July 25, 2006-In my article dated July 21, 2006, I stated Lionel’s attorneys had recently filed a motion (an application for a court order)  with the bankruptcy court seeking to extend its time to file a plan of reorganization. The motion specifically requested that Lionel be given 120 days to file a plan of reorganization with the court once there is a decision in the MTH-Lionel trade secrets appeal heard on June 7, 2006. A decision in that case is expected late this year or early next year. Lionel’s motion also sought an additional 60 days to allow other interested parties, such as Lionel’s creditors (like MTH) to file their own plan with the court, once Lionel’s plan was filed. In my July 21 article, I stated I expected the motion to be granted.  Click on the link below to read on.

A Status On Lionel's Bankruptcy; How Long Will It Last? By Erol B. Gurcan

Those of us following the various legal proceedings in the 3 rail world know that Lionel has been in bankruptcy since November 15, 2004, now a period of 20 months. While that may not sound like a long time to some, by comparison,  K-Line’s bankruptcy was over and done with in 8 months, and they did not emerge from it. (K-Line’s tooling and assets were purchased by its principal manufacturer Sanda Kan in April 2006, who in turn, licensed them to Lionel as part of a licensing and marketing agreement).   Click on the link below to read on.

Jerry Calabrese and Mike Wolf Comment On June 7’s Trade Secrets Appeal by Erol B. Gurcan

June 13, 2006 - Those who have been following the legal proceedings in MTH’s trade secrets case against Lionel, know that each side’s lawyers squared off in the Sixth Circuit Court of Appeals in Cincinnati, Ohio on June 7. OGR forumite BOB (Bob Baritzek) attended the oral argument of the appeal and wrote an article on the OGR on line three rail forum summarizing what took place. Bob’s report noted that Lionel’s CEO Jerry Calabrese, and MTH’s owner, Mike Wolf,  attended the oral argument of the appeal. Since that time, neither side has publicly commented about the appeal on their respective web sites or other media, until now.

MTH Files Patent Infringement Lawsuit Against Lionel By Erol B. Gurcan

June 12, 2006-On June 7, 2006,  I reported that Lionel had filed a motion in its bankruptcy court, requesting it be allowed to obtain discovery with respect to MTH’s 17 million dollar patent infringement claim involving synchronized puffing smoke and sounds effects in relation to the speed of the model train. Specifically, the discovery sought involved infringement related documents from both MTH and Train America Studios, and depositions of persons from both companies. (A deposition occurs when a witness, who has first been sworn in, is asked questions by an opposing party’s attorney, and the questions and answers are recorded by a stenographer.  A written record in the form of a booklet is then prepared by the stenographer and can be used at trial to impeach the witness). The depositions of MTH persons would at least involve owner Mike Wolf and David  Kriebiehl, its Vice President of Research and Development, as both are allegedly listed as inventors according to Lionel’s motion. On June 12, 2006, MTH filed opposition papers to Lionel’s motion, and more importantly, has now sued Lionel for patent infringement.

Erol’s Legal Update on MTH’s Patent Infringement Claim Against Lionel

June 7, 2006-As some of you may recall from my legal articles published in April, the appeal in the Lionel MTH trade secrets case is scheduled to be heard in the Sixth Circuit Court of Appeals today. Some are hoping that once there is a decision by the appeals court, which is expected late this year, that this will end the six years of litigation between the two train companies, and once again allow them to focus on making quality O gauge trains.    

However, unfortunately, there remains another legal issue between the two, which will most likely be around  long after the trade secrets case is decided. Specifically, this involves a patent infringement claim against Lionel, alleging it  infringed an MTH patent involving its “use of a microprocessor controlled system for the synchronization of puffing smoke and sound effects with the speed of the model train.”

Bankruptcy Court Approves Change In Attorneys Representing Lionel

May 19, 2006 - On May 15, 2006, United States Bankrutpcy  Judge Burton Lifland signed an order granting Lionel's motion to have the law firm of Schulte, Roth and Zabel represent them in future bankruptcy proceedings.  Although the order was approved by the court on May 15, it directed the rentention and compensation of Schulte Roth and Zabel became effective as of April 17, 2006.

By way of background, on April 24, 2006, I reported that Lionel's attorneys filed a motion (an application for a court order)   in the court where

Lionel and MTH Legal Recap By Erol B. Gurcan

April 26, 2006 - Last  week, I posted several  articles concerning  the current state  of Lionel’s  legal matters. However, last week was also a vacation week since it was right after Easter, and  many kids were off  from school. Thus, many O gauge enthusiasts may have been away with their kids  or grandchildren,  and not read some or any of my legal posts. Many also  went to the York meet and  may not have read the on line forums  in the few days before it. This article will bring you up to speed  as there were several important and interesting legal matters last week that directly affected Lionel and/or MTH. Even if you read my posts last week, I think you will learn something new in this article.    

1)    I reported on April 17  the Sanda Kan K-Line sale of assets agreement  was scheduled to be signed and completed in a couple of days. The deal was completed last

The Latest on Lionel's TMCC 2.0 Train Control System

The much anticipated debut of Lionel's newest version of the Train Master Command Control system, TMCC 2.0, was announced by Jerry Calabrese in his presentation at the TCA's Open House last week.  Below is Erol B. Gurcan's latest update on the legal proceedings surrounding the development of TMCC 2.0.

April 25, 2006-On April 19, 2006, OGR on line forumite Lionel LLC correctly pointed out, that pending bankruptcy court approval, Lionel was going to enter in to joint venture limited liability agreement with Creative Trains for the development of TMCC 2.0. I followed up by stating Lionel’s attorneys had made a motion for this relief (an application for a court order), and it was scheduled to be argued in its bankruptcy court on April 25, 2006 at 10 am.  I called the court today just before noon. I was informed Lionel’s motion was approved by  Judge Lifland. I also checked the federal judiciary’s PACER website to confirm this. It is true an order has  been signed by the judge allowing Lionel to enter into the joint venture agreement with Creative Trains for the development of TMCC 2.0.  The signed order  is also already on the  PACER web site.

Practically speaking, this allows Lionel to continue  funding, and Creative Trains to continue developing,  the long rumored TMCC 2.0. Neil Young is one of the principals in Creative Trains (and 20% owner of Lionel and is one of three persons  on its board). The agreement between Lionel and Creative Trains  was an exhibit to Lionel’s motion papers. It calls for a Creative Trains “to develop, implement and deliver” TMCC 2.0  by October 31, 2006 (just over six months from now).  Lionel is expected to show a working prototype at the LCCA ‘s Denver Convention in late July (three months from now).   

As of this writing, there is nothing on the Hi-Rail Times of the Coil Couplers website about the court approving the deal. You heard it hear first! DANG. 

Erol Gurcan, ESQ.

Thanks for the update Erol! 

Erol B. Gurcan, an O Gauge industry legal expert, is a regular contributor to OGaugeWatch.com.

Latest Legal News In Lionel's Bankruptcy Proceedings From Erol B. Gurcan

The latest update on Lionel's bankruptcy proceedings written by Erol B. Gurcan:

I checked the federal judiciaries PACER web site today for the bankruptcy court in the Southern District of New York,  which is  where Lionel's bankruptcy is pending. Today, Lionel's attorneys filed a motion (an application for a court order)  with the court  asking it to allow them to have the law firm of Schulte, Roth and Zabel represent Lionel in future "bankruptcy and general corporate counsel" matters, in place of their current attorneys, O'Melvney and Myers. That office has represented Lionel since they filed for bankruptcy  on November 15, 2004. The main reason for the motion, is the principal attorney representing Lionel in the bankruptcy proceedings, Adam Harris, withdrew as a partner from O'Melvney and Myers on April 17, 2006, and joined the firm of Schulte, Roth  and Zabel.   O'Melvney and Myers will continue to handle litigation, appellate and intellectual property (trade secrets, trademark, copyright and patent law) matters. Thus, O'Melvney's office will  still argue Lionel's appeal in the MTH trade secrets case on June 7 in the Sixth Circuit Court of Appeals in Cincinnati , Ohio.  The motion in the bankruptcy court will be heard on May 8.

The point of the information provided above is to assure all O gauge enthusiasts not to read too much into the change of attorneys on Lionel's behalf. It does not indicate there any problems etc. I want to emphasize that  it is not uncommon for an attorney to leave one law firm and go to another, and take some clients with him. My goal was to post the above information first and let you have all the facts, so as to  avoid any baseless speculation  as to what is really occurring.

Thanks for the update Erol!

Legal Matters Update

Erol Gurcan posted his latest update on several legal matters within the O Gauge industry on the OGR Forum.  Check it out here.

UPDATE: Here is another update from Erol:

Hi,Dave-here is the latest on the K-Line Sanda Kan deal. You can post it on ogaugewatch.com

In my legal article yesterday, I stated the asset purchase agreement between Sanda Kan and K-Line was scheduled to  be signed the same day (April 17). I also stated the closing should occur in a couple of days. I can now confirm based on my two sources closely involved with the deal that both the asset purchase agreement was signed  today (April 18) and the closing also took place today. The closing involved Sanda Kan paying K-Line and Merrill Lynch. Thus, the agreement is now a done deal.  It will be interesting to see when Lionel makes a formal announcement that they have obtained the licensing rights pursuant to its agreement with Sanda Kan now that they own the assets.    

On a related matter, some have asked about the K-Line products which are still in their  possession for repair and have not been returned. I have been informed that beginning last week, a former K-Line employee began making repairs, and the items are being sent back to their owners. However, this will take a little time. It is expected that most or all items will be repaired before they are returned. Concerning parts for K-Line products, I was not able to find out what will happen with this.   

Erol B. Gurcan

Please note that I normally will post Erol's articles on OGaugeWatch.com in their entirety but due to a glich with my email I didn't receive a copy of Erol's original article that he posted on OGR so I linked to the OGR version. Dave

The Latest on the newest MTH v. Lionel "Lawsuit" from Erol B. Gurcan

By way of background, on Saturday, March 11, 2006, D. Railer posted on the Hi Rail Times of the Coilcouplers web site,  that according to their inside sources at Lionel, "MTH recently sued Lionel for patent infringement", involving  synchronized smoke, and asking for $15,000,000 in damages.  This information  made its way on to the OGR forum under a thread called "guess what,  another lawsuit."   I posted a response to this thread, stating that no one had seen the lawsuit papers, namely a complaint, which must be filed with the court to start  a legal action. This would need to occur before a defendant is served with the complaint, usually by a process server.  I also stated I asked Charlie of Nassau Hobbies to get a copy of the complaint and that I would publish a summary of it in a few days.

On Sunday, March 12, Charlie forwarded me an e-mail sent to him by MTH president Mike Wolf, stating that a lawsuit had NOT been filed by MTH against Lionel for patent infringement. Charlie posted this information on the AOL message board and I posted it on the OGR forum. Later on Sunday, Mike Wolf,  emailed me directly from China where is presently on business, and again stated MTH had  not sued Lionel, and called the coil couplers post a "lie."      

Thinking there could be a mistake or misinformation  on Coilcouplers end since Mike Wolf was adamant that a lawsuit had not been filed, I emailed them seeking an explanation and asking for proof that a lawsuit had been filed, such as by sending me a copy of the complaint.   I never received a  response.

However, on Monday evening, March 13, 2006,   The Coilcouplers web site posted a "correction" stating "MTH recently filed a 17 million dollar claim against Lionel for patent infringement." It basically altered its earlier "lawsuit"  statement and replaced it with one stating a "claim" had been filed with the court. Specifically, the current statement reads, "There was some confusion caused by our describing the MTH claim as a lawsuit in our previous article which this one replaces. In essence this MTH claim is the same as a lawsuit. Lionel is required to respond and defend against this outrageous MTH claim of 17 million dollars in damages before leaving bankruptcy."    The web site also posted two documents as links which I have reviewed. They are a proof of claim for patent infringement (and not a complaint which starts a lawsuit) filed with the bankruptcy court where Lionel's bankruptcy is pending, on August 3, 2005 (over 7 months ago).

The following is what I have determined from the above facts. Firstly, Mike Wolf was correct that a lawsuit by MTH against Lionel for patent infringement  has not been filed.

Second, the Coilcouplers web site statement that Lionel is "required to defend" the claim in the same way since it is in essence a lawsuit, is not accurate since a defendant must file an answer when a complaint has been filed with the court and served on the defendant.

Moreover, it was Coilcoupers that initiated this whole matter by wrongly stating  MTH had recently sued Lionel, and then having to alter its statement when confronted with the fact it was incorrect. Perhaps it should have better checked it facts before posting its first article, instead of having to later correct it. Tensions in the three rail  run high when lawsuits are involved, and I'm sure Clyde Coil as his associates are well aware of this. MIke Wolf has informed me it is Neil Young, that set up and paid  for the Coilcouplers web site, and  posts some of the material on it. As a 20% owner of Lionel, he should know if a lawsuit has been filed as opposed to a claim being made even though he is not an attorney.    Mike Wolf's proof that Neil Young is involved in the Coilcouplers web site is by way of a copy of a check  he has in his possession, and the web site manager who stated under oath that he gets material to post from Neil via e-mail. Mr. Wolf has offered to send me a copy of the check once he returns from China in two weeks.   

Lastly, the claim is not  that "recent", since it was filed over 7 months ago. If Coilcouplers was so concerned about it, why didn't they mention it earlier? The two documents it linked to its March 13 statement are public documents since they are required to be filed with the court, and have been  for some time.

We will probably  never know if the first Coilcouplers on-line post was an honest mistake or intended to distort the real facts. However, trying to spin  a correction by stating a claim is the same thing as filing a lawsuit or suing, is not accurate.

As a side note, prior to the  Coilcouplers  correction on March 13, Mike Wolf emailed me  the same day  and stated he does not have any plans to file a suit, unless Lionel, who has just threatened to recently sue him for infringing on its patents for TMCC  and speed control, does so. He also claims part of Lionel's goal is to ask the court take DCS (MTH's digital remote control system)  off the market.  If Lionel sues him, MTH plans to counter sue, concerning Lionel allegedly infringing on MTH's patent for  synchronized smoke. Mike's position is MTH  is 100% confident it has all the prior art necessary to defend DCS against Lionel's claim, and they have let Lionel know this.             

Erol Gurcan, ESQ

Thanks for the update, Erol.