Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.Á.R.L., 651693/2010

• Decision Date: 16 September 2014
• Docket Number: 651693/2010
• Citation: 2014 N.Y. Slip Op. 24268,996 N.Y.S.2d 476,47 Misc.3d 544
• Parties: CORTLANDT STREET RECOVERY CORP., Plaintiff, v. HELLAS TELECOMMUNICATIONS, S.Á.R.L., Hellas Telecommunications Finance, S.C.A., Hellas Telecommunications I, S.á.r.l., Apax Partners, LLP and TPG Capital, L.P., Defendants. Cortlandt Street Recovery Corp. and Wilmington Trust Company, as Trustee, Plaintiffs, v. David Bonderman, et al., Defendants. Index No. 653363/2011 Mot. Seq. 001 [Summary Judgment in Lieu of Complaint] Wilmington Trust Company, as Trustee and Cortlandt Street Recovery Corp., Plaintiffs, v. Hellas Telecommunications Finance, S.C. A. and Hellas Telecommunications I S.á.r.l., Defendants. Index No. 653181/2011 Mot. Seq. 003, 004, 006, 007 [Sub Notes Action] Cortlandt Street Recovery Corp., Plaintiff v. Hellas Telecommunications II, S.C.A., et al., Defendants, and Margaret Elizabeth Mills, et al., Additional Defendants.
• Court: New York Supreme Court

47 Misc.3d 544

996 N.Y.S.2d 476

2014 N.Y. Slip Op. 24268

CORTLANDT STREET RECOVERY CORP., Plaintiff

v.HELLAS TELECOMMUNICATIONS, S.Á.R.L., Hellas Telecommunications Finance, S.C.A., Hellas Telecommunications I, S.á.r.l., Apax Partners, LLP and TPG Capital, L.P., Defendants.

Cortlandt Street Recovery Corp. and Wilmington Trust Company, as Trustee, Plaintiffs

v.David Bonderman, et al., Defendants. Index No. 653363/2011 Mot. Seq. 001 [Summary Judgment in Lieu of Complaint]

Wilmington Trust Company, as Trustee and Cortlandt Street Recovery Corp., Plaintiffs

v.Hellas Telecommunications Finance, S.C. A. and Hellas Telecommunications I S.á.r.l., Defendants. Index No. 653181/2011 Mot. Seq. 003, 004, 006, 007 [Sub Notes Action]

Cortlandt Street Recovery Corp., Plaintiff

v.Hellas Telecommunications II, S.C.A., et al., DefendantsandMargaret Elizabeth Mills, et al., Additional Defendants.

651693/2010

Supreme Court, New York County, New York.

Sept. 16, 2014.

David S. Mandel, Mandel & Mandel LLP, Miami, FL, for Plaintiff Cortlandt Street.

Jared B. Stamell, Stamell & Schager LLP, New York, for Plaintiff Cortlandt Wilmington.

Douglas E. Spelfogel, Foley & Lardner LLP, New York, for Plaintiff Wilmington Trust.

Dwight E. Healy, White & Case LLP, New York, for Defendants Hellas.

Robert S. Fischler, Ropes & Gray LLP, New York, for Defendants Apax.

Paul M. O'Connor III, Kasowitz, Benson Torres & Friedman LLP, New York, for Defendants TPG.

Opinion

MARCY S. FRIEDMAN, J.

These four related actions seek payment of principal and interest on notes issued in public offerings. Three of the actions were brought to recover on PIK Notes (PIK Notes or Notes). Plaintiffs in these actions are Cortlandt Street Recovery Corp. (Cortlandt), an assignee for collection, and/or Wilmington Trust Co. (WTC), the indenture trustee. The fourth action was brought by Cortlandt to recover on Subordinated Notes (Sub Notes or Notes). All of the actions allege that the Hellas entities which issued and guaranteed the Notes transferred the proceeds of the Notes by means of fraudulent conveyances to the Apax/TPG defendants and their principals. Defendants move, pursuant to CPLR 3211, to dismiss the actions.

The first of the PIK Note actions (Index No. 651693/10) (Cortlandt I ) was commenced solely by Cortlandt, suing as “the assignee and agent for collection” of approximately €102 million of PIK Notes. (Cortlandt I Compl., ¶ 22.) The defendants in this action are the issuer of the PIK Notes, Hellas Telecommunications Finance, S.C.A. (Hellas Finance or Issuer); the guarantor of the PIK Notes, Hellas Telecommunications I, S.a.r.l (Hellas I or Guarantor); and Hellas Telecommunications, S.a.r.l. (Hellas). Hellas is the parent of Hellas Finance and Hellas I and the general partner of Hellas Finance. As general partner of the Issuer, Hellas is allegedly liable, along with the Issuer and Guarantor, for payment on the Notes. (Id., ¶¶ 6–7, 25.) The complaint in Cortlandt I also names as defendants Apax Partners, LLP (Apax) and TPG Capital, L.P. (TPG).

According to the complaint, Apax and TPG are private equity firms which “placed ownership of Hellas shares in a consortium of private equity investment funds affiliated with, advised and managed by Apax and TPG.” (Id., ¶ 12.) Apax and TPG caused Hellas to distribute over €1.5 billion to the Hellas shareholders, including the proceeds from the issuance of the PIK Notes. (Id., ¶¶ 9, 51.) The PIK Notes were issued on or about December 21, 2006 (id., ¶ 37), and are governed by an indenture of the same date.¹ Hellas owned Hellas I securities consisting of convertible preferred equity certificates (CPECs) and preferred equity certificates (PECs). In December 2006, Hellas I redeemed CPECs held by Hellas for nearly €974 million. (Id., ¶¶ 39–42.) As alleged in more detail in the complaint in a later action brought on the same PIK Notes (see infra at 3), Hellas distributed the loan proceeds to Hellas' “consortium shareholders” (i.e., the Apax/TPG entities), and over €974 million “was used to redeem CPECs.” (id., ¶ 51.) the complaint further alleges that the redemption of the CPEcs was a payment of dividends, not a redemption of shareholder debt (i.e., shareholder loans) (id., ¶¶ 44–45), and was unlawful because it reduced Hellas I's equity “into a deficit” on December 31, 2006, “leaving Hellas, Hellas I and Hellas Finance unable to pay their creditors, including holders of the PIK Notes.” (Id., ¶ 55.) The redemption allegedly both “violated statutory limitations on distributions to shareholders and violated fraudulent conveyance law.” (Id., ¶ 53.) In 2009, the trustee under the PIK Note indenture declared an event of default based on the insolvency of a related Hellas entity, Hellas Telecommunications II, S.C.A. (Hellas II). It is undisputed that the PIK Notes have not been paid.

Cortlandt I alleges that “defendants are liable to plaintiff for amounts due on the PIK Notes” of over €102 million. (Id., ¶ 59.) However, the complaint does not in terms plead a cause of action against the Hellas defendants for breach of contract based on failure to pay the PIK Notes. Rather, it pleads a first cause of action for violation of prohibitions on redemptions and distributions to shareholders, based on the terms of the CPECs (and PECs); a second cause of action for violation of statutory prohibitions on such distributions under the laws of Luxembourg, the place of the Hellas defendants' incorporation, and New York law, the law that governs the construction of the PIK Note indenture; and a third cause of action for fraudulent conveyance based on the redemption of the CPECs (and also PECs) by the Hellas defendants.

The second of the Cortlandt actions on the PIK Notes (Index No. 653357/11) (Cortlandt II ) was brought by Wilmington Trust Co., as trustee under the PIK Note indenture, and by Cortlandt, as “assignee [of approximately €130 million] of the PIK Notes with full rights under the assignments to collect principal and interest due and to pursue all remedies in its own name or in the name of all owners of the PIK Notes.” (Cortlandt II Compl., ¶ 9.) The complaint does not name any of the Hellas entities from Cortlandt I as defendants. Instead, the caption names Hellas II and two other Hellas entities as defendants, although the definition of the Hellas defendants in the complaint includes the unnamed defendants from Cortlandt I –Hellas, Hellas Finance and Hellas I. (Id., ¶ 16.) The complaint also names as defendants numerous affiliates of Apax and TPG, which are denominated the “private equity defendants,” and their individual principals. The complaint alleges that the Hellas defendants and affiliates are a group of interrelated companies that were organized in 2005 to acquire a Greek telecommunications company (id., ¶ 16), and are wholly owned by the private equity defendants. (Id., ¶ 26.) Apax and TPG allegedly control the private equity defendants, which in turn controlled, managed, and funded the Hellas defendants and were transferees of fraudulent conveyances. (Id., ¶¶ 28, 29.) In particular, the complaint alleges that Hellas II issued CPECs and PECs to Hellas I, Hellas I issued CPECs and PECs to Hellas, and Hellas issued CPECs and PECs to the private equity defendants. (Id., ¶ 114.) In December 2006, Hellas II redeemed the CPECS for €979 million, Hellas I redeemed the CPECs for over €973 million, and Hellas redeemed the CPECs held by the private equity defendants for over € 973 million. (Id., ¶ 137.) All of the redemptions were allegedly made at substantially overvalued rates (id., ¶¶ 140–141), and at a time when the Hellas defendants were already insolvent. (Id., ¶ 129.)

The Cortlandt II complaint pleads a first cause of action against Hellas Finance, Hellas I and Hellas to recover on the PIK Notes. As noted above, these Hellas entities were named as defendants in Cortlandt I but are not named in this action.² The second cause of action in the Cortlandt II complaint is pleaded against all defendants for breach of contract, based on the allegation that defendants breached the PIK Notes and PIK Note indenture by redeeming the CPECs and PECs without paying or providing for payment of the Notes. (Id., ¶ 167.) The third cause of action alleges that the redemptions violated New York and Luxembourg laws prohibiting distributions to shareholders where a corporation is insolvent or would be made insolvent by the distribution. The fourth cause of action alleges that the private equity defendants are the alter egos of the Hellas defendants and are liable for payment of the PIK Notes.

The fifth through eighth causes of action against all defendants allege fraudulent conveyances under the New York Debtor and Creditor Law, based on the alleged transfer of the proceeds of the PIK Notes among the various Hellas entities for no consideration and ultimate transfer of such proceeds to the private equity defendants “in exchange for CPECs, a security that imposed no obligation on Hellas to repay anything at any time.” (Id., ¶ 190.) The tenth cause of action against the private equity defendants is for unjust enrichment.

The third PIK Note action, involving the same PIK Notes as in Cortlandt I and II, is a motion for summary judgment in lieu of complaint (Index No. 653363/11). This motion-action is brought by WTC, as trustee under the PIK Note indenture, and by Cortlandt, as assignee, against Hellas Finance and Hellas I, as issuer and guarantor, to recover on the PIK Notes.

The fourth action is an action on the Sub Notes (Index No. 653181/11). This action was brought only by Cortlandt against Hellas II and against the Hellas and Apax/TPG entities named as defendants in Cortlandt I and II. The complaint alleges a first cause of action against Hellas II as issuer, Hellas I as guarantor, and Hellas as general partner, for payment of the Sub Notes. The remaining causes of action are substantially similar to the causes of action in Cortlandt II. Defendants moved to dismiss each of the four...