In re Adelphia Commc'n Corp.

• Decision Date: 18 November 2010
• Docket Number: No. 02-41729 (REG),02-41729 (REG)
• Citation: 441 B.R. 6
• Parties: In re ADELPHIA COMMUNICATIONS CORP., et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

441 B.R. 6

In re ADELPHIA COMMUNICATIONS CORP., et al., Debtors.

No. 02-41729 (REG).

United States Bankruptcy Court,

S.D. New York.

Nov. 18, 2010.

Hennigan, Bennett & Dorman LLP, By: Bruce Bennett, Esq. (argued), James O. Johnston, Esq., Joshua D. Morse, Esq., Los Angeles, CA, By: A. Brent Truitt, Esq., New York, NY, for the Ad Hoc Committee of ACC Senior Noteholders.

White & Case LLP, By: J. Christopher Shore, Esq. (argued), Gerard Uzzi, Esq., New York, NY, By: Thomas E. Lauria, Esq., Richard S. Kebrdle, Esq., Miami, FL, for the Ad Hoc Committee of Arahova Noteholders and Appaloosa Management L.P.

Kramer Levin Naftalis & Frankel LLP, By: Kenneth H. Eckstein, Esq., Jeffrey S. Trachtman, Esq. (argued), Amy D. Caton, Esq., New York, NY, for the FrontierVision Ad Hoc Committee.

Pachulski Stang Ziehl Young Jones & Weintraub LLP, By: Dean Ziehl, Esq. (argued), New York, NY, By: Richard M. Pachulski, Esq., Jeremy V. Richards, Esq., Los Angeles, CA, for Ad Hoc Bondholders' Committee (a/k/a Committee II).

Brown Rudnick Berlack Israels LLP, By: Edward S. Weisfelner, Esq., New York, NY, to Ad Hoc Committee of Holdco Trade Claims and Ad Hoc Adelphia Trade Claims Committee.

Latham & Watkins LLP, By: Robert J. Rosenberg, Esq., New York, NY, By: Peter P. Knight, Esq., Chicago, IL, By: Steven D. Pohl, Esq., Boston, MA, for the Olympus Parent Noteholders.

Sidley Austin LLP, By: Lee S. Attanasio, Esq. (argued), New York, NY, By: Larry J. Nyhan, Esq., Chicago, IL, for the Fort Myers Noteholders.

Goodwin Procter LLP, By: Allan S. Brilliant, Esq., Gina Lynn Martin, Esq., Brian W. Harvey, Esq., New York, NY, for Highfields Capital Management and Tudor Investment Corporation.

Schulte Roth & Zabel LLP, By: Jeffrey S. Sabin, Esq., Adam C. Harris, Esq., New York, NY, for OZ Management, L.L.C.

Fried Frank Harris Shriver & Jacobson LLP, By: Bonnie Steingart, Esq., Gary Kaplan, Esq., New York, NY, for W.R. Huff Asset Management Co., L.L.C.

Kasowitz, Benson, Torres & Friedman LLP, By: David M. Friedman, Esq. (argued), Adam L. Shiff, Esq., New York, NY, Office of the United States Trustee, By: Tracy Hope Davis, Esq., Alicia M. Leonard, Esq. (argued), New York, NY, for the Official Committee of Unsecured Creditors.

DECISION AND ORDER ON ESTATE'S PAYMENT OF NON-FIDUCIARIES' PROFESSIONAL FEES

ROBERT E. GERBER, Bankruptcy Judge.

In this contested matter in the jointly administered chapter 11 cases of reorganized debtors Adelphia Communications Corporation and its subsidiaries, 14 ad hoc committees and individual creditors (collectively, the "Applicants") ¹ seek reimbursementfor their legal fees and other professional expenses (collectively, the "Fees") under a provision of the Debtors' now confirmed and effective Chapter 11 Plan.² The provision authorizes payment of the Applicants' Fees subject only to reasonableness, and without requiring the Applicants—all but one of whom are unsecured creditors, or ad hoc committees of such ³—to make the traditional showing of "substantial contribution" to the case under section 503(b)(3)(D) of the Code. Very possibly responding to reservations the Court expressed in its decision on confirmation ⁴ as to the authority for such payments in the absence of a substantial contribution showing,⁵ the United States Trustee ("UST") has objected to the payment of the Fees on this basis.⁶

Though the wisdom of a statutory scheme that authorizes estates to absorb the legal fees, even "reasonable" ones, of entities advancing their own private interests without benefit to the estate is subject to fair policy debate, ⁷ the Court must determine this issue under the existing Code and caselaw. The Court concludes, in this matter of first impression,⁸ that under the Code and the caselaw (to the extent the latter exists), reasonable fees may be paid where, as here, the provision for fees is an element of a chapter 11 reorganization plan. The Court does not today need to decide, and does not decide, whether a provision for payment of unsecured creditors' professional fees without satisfying section 503(b)(3)(D) would be appropriate under any other circumstances.

The Court further concludes, in another matter of first impression, that "reasonable" in the context of fees so awarded permits payment for fees (otherwise reasonable) that have been incurred solely to increase the applicant's personal recoveryon a long position in claims against the estate (even without benefit to the estate), but does not permit payment for fees to advance interests unrelated to recovering on claims (such as short positions or competitive advantage), or for activities that go beyond normal advocacy or negotiation, that represent scorched earth tactics, or that are abusive, irresponsible, or destructive to the estate.

Facts

Familiarity with the history of this case—described, in this Court's Confirmation Decision as among the most contentious in bankruptcy history ⁹—is presumed. The Court here limits its discussion to those facts bearing directly on this controversy.

Prior to their June 2002 chapter 11 filings, the Debtors were the fifth largest operator of cable television systems in the United States. After successfully stabilizing the company and maximizing value following the departure of the Rigases, the Debtors announced their intention to pursue a dual-track process to determine whether to emerge on a stand-alone plan or through a sale. After a marketing process, they entered into definitive sale agreements in April 2005 to sell substantially all of their assets to the highest bidders, Time Warner Cable and Comcast, for a combination of cash and Time Warner Cable stock that this Court ultimately valued at $19.1 billion (the "Sale").

To their credit, the Debtors proposed to effect the Sale under a reorganization plan, as contrasted to section 363. But the Sale documents required that the plan be implemented on or before a stated deadline. Intercreditor feuding as creditors jockeyed to get incremental shares of the pie under the ultimate plan escalated to such a point that meeting the Sale documents' deadline would be difficult or impossible, jeopardizing the entire deal.

Responding to the frightful risk that the intercreditor feuding would crater the entire deal, risking the loss of $19.1 billion in Sale consideration (or, at the least, provide Time Warner Cable and Comcast the ability to renegotiate the deal), the Debtors proposed that the sale be restructured as a 363 sale, getting the Sale proceeds into the estate with the creditors thereafter to fight over their shares of the proceeds. But this, while understandable, did nothing to eliminate the intercreditor feuding, and reduced the downside to continuing it. Though some were more litigious and aggressive than others, most of the Applicants were antagonists in the intercreditor disputes, as each tried to increase its incremental share of the pie. The costs of their feuding were enormous.¹⁰

With no consensual resolution in sight, the Court granted a "Motion in Aid of Confirmation" (the "MIA"), filed by the Debtors to establish a framework to resolve the intercreditor disputes (the "MIA Litigation"). The MIA Litigation framework was divided into 6 phases to address specific creditor issues. After about 3 months of the MIA Litigation, the Court approved a request by the Debtors to establish a mechanism by which a settlement might be achieved, and asked another judge of this Court to serve as a Monitor to aid in the negotiations. After lengthy negotiations, the Applicants came to a settlement (the "Global Settlement"), including a plan support agreement, which would lead to revisions of the previously proposed plan, and ultimate confirmation of the Plan.

As part of the Global Settlement, the parties agreed that the Adelphia estate would bear the Applicants' fees, including those for litigating the MIA (which needed to be prosecuted in any event, to address the underlying interdebtor and intercreditor disputes, if they were not otherwise resolved), and, in addition, all of the other fees they incurred in the course of their fighting, negotiating an end to their fighting, and otherwise in participating in the case.

In that connection, Section 6.2(d) of the Plan ("Section 6.2(d)"), implementing one of the elements of the Global Settlement, governed fee claims. It provided that the Applicants "shall receive reimbursements of their reasonable fees and expenses incurred in connection with the Chapter 11 Cases as Administrative Claims ... [and] shall comply with any procedures required by the Bankruptcy Court in connection with seeking reimbursement...." ¹¹

Troubled by the notion that the estates should have to subsidize creditor efforts to augment their individual recoveries, and the possibility that innocent creditors would have to bear the costs of other creditors' fighting with each other and, in particular, shameful behavior in that regard, this Court stated in the Confirmation Decision:

there is no basis in the Bankruptcy Code of which I'm now aware that authorizes fees of this character to be paid to creditors or their professionals without satisfying the requirements of the Code for fee awards—which include application to the Court and at least seemingly satisfying the requirements of section 503(b), and particularly sections 503(b)(3) and (4).¹²

However, this Court continued that it was willing to "keep an open mind" regarding the basis for awarding the requested fees.¹³ It directed the Applicants to file fee applications "in the manner that fee applications are customarily submitted" ¹⁴ and, if they chose, to "make such arguments as they wish to support their contentions that they should be reviewed under standards other than those under sections 503(b)(3) and (b)(4)." ¹⁵

The Applicants submitted their fee applications as directed. They were supported by the Creditors' Committee, which argued, among other things, that fee reimbursements of this character were permissible under the Code and not...