As noted earlier here and here, the crunch in the credit markets has Houston-based Landry’s Restaurants Inc scrambling to refinance about $400 million in bond debt this week.
Well, that scramble took an interesting turn on Wednesday of this week as Landry’s sued the bondholders. Based on that lawsuit, U.S. District Judge Sam Kent of Galveston approved a temporary restraining order against the representatives of the bondholders that ordered the Indenture Trustee of the bonds to withdraw the notice of acceleration of the maturity of the bonds and not to take any action based on that acceleration pending a preliminary injunction hearing on August 16. The following is the alleged basis for the TRO and proposed injunctive relief straight from Landry’s complaint:

This action arises from an attempt by opportunistic hedge funds to distort the plain language of Landry’s Indenture to manufacture grounds for a technical default that would allow them to reap an extraordinary and umnerited windfall from Landry’s good faith effort to provide its stockholders and noteholders with accurate financial information.
From the outset, [the bondholders] have embarked on a scheme designed solely to maximize their short-term financial gain at the expense of Landry’s, its stockholders, and the investing public. [The bondholders’] plan appears to be an effort to improperly accelerate the Senior Notes so that they and those working with them could ultimately sell their Senior Notes at a substantial profit in the open market, once they extort “renegotiated” interest payments and other concessions from the Company.
The Trustee’s defective notices of default and acceleration notwithstanding, Landry’s has made every required payment due under the Indenture. There has been no material breach of any of Landry’s obligations under the Indenture. Despite this fact, the Trustee, apparently at the urging of [the bondholders], served a notice claiming that Landry’s was in default because Landry’s allegedly failed to provide reports that are required for “information purposes only.”
The Indenture requires that Landry’s furnish to the Trustee-within the time periods specified by the Securities and Exchange Commission’s (the “SEC” or the “Commission”) rules and regulations-all quarterly and annual financial information required to be contained on Forms 10-Q, 10-K, and 8-K. The Indenture does not impose on Landry’s any independent requirement that it file those reports or abstain from seeking additional time to file its financial reports.
Landry’s properly delayed the filing of its Form 10-K by submitting a Form 12b-25 with the SEC on March 16,2007. Form 12b-25 bestows an automatic 15-day extension on filers who would not otherwise be capable of filing without unreasonable effort or expense. Accordingly, while a delayed SEC filing may have consequences for Landry’s under SEC rules, it would not comprise a default under the Indenture.
Despite the fact that Landry’s had neither missed a single payment nor committed any material breach of the Indenture, and despite the further fact that the 15-day extension period allowed by the filing of the Form 12b-25 had not expired, the Trustee, by letter agreement dated March 20, 2007, issued a Notice of Default. The Trustee’s basis for asserting a default was that Landry’s had failed to timely file its Form 10-K annual report for the fiscal year 2006 (the “10-K”). This Notice of Default was defective, however, because it was sent during the time period allowed by the Rule 12b-25 extension. Nevertheless, relying on its defective Notice of Default, the Trustee purported to accelerate the entire debt by notice dated July 24, 2007.
On information and belief, the Trustee has taken this unreasonable position at the behest of [certain bondholders], eager to void the bargain struck with Landry’s in the 2004 Indenture so as to take advantage of tightening credit market conditions.
To get to this result, Defendants have intentionally and materially breached the terms of the Indenture or, in the alternative, tortiously interfered with Landry’s business relations, disparaged the Company, and attempted to saddle the Company with new obligations in violation of the Trust Indenture Act of 1939.
As a result, Landry’s continues to suffer irreparable economic harm from Defendants’ continuing threats of future improper actions. Therefore, Landry’s respectfully seeks immediate and temporary injunctive relief to preserve the status quo while this litigation ensues. Among other things, the requested injunction would afford the Company a measure of relief from the uncertainty and controversy that presently exist with respect to the parties’ respective rights and obligations under the Indenture.

A copy of the TRO is here and a copy of the complaint (sans exhibits) is here.
Meanwhile, the filing of the case in the Galveston Division of the Southern District is raising more than a few eyebrows, particularly given that the lead lawyer for Landry’s in obtaining the TRO was plaintiffs’ lawyer Anthony Buzbee, who knows a thing or two about filing cases in favorable forums. Landry’s and most of its other lawyers involved in the case (the firms of Andrews & Kurth and Haynes & Boone) are Houston-based. Also, Landry’s general counsel, Steven Scheinthal, gave an interview to the Houston Chronicle earlier this week that resulted in this rather interesting article in which he was quoted as saying that “We do not believe the bondholders are nice people. We’re a Houston-based company, and the bondholders have no regard for anybody other than themselves. They strictly see this as an economic opportunity to take advantage of.” Nevertheless, the Chronicle’s business columnist, Loren Steffy, thinks that Landry’s lawsuit is a loser.
Round 2 is coming up shortly.