In re Adelphia Communications Corp.

• Decision Date: 30 March 2004
• Docket Number: Bankruptcy No. 02-41729-REG.,Adversary No. 03-6967(REG).
• Citation: 307 B.R. 404
• Parties: In re ADELPHIA COMMUNICATIONS CORP., et al., Debtors. Buena Vista Television, et al., Plaintiffs, v. Adelphia Communications Corp., et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

307 B.R. 404

In re ADELPHIA COMMUNICATIONS CORP., et al., Debtors Buena Vista Television, et al., Plaintiffs, v. Adelphia Communications Corp., et al., Defendants.

Bankruptcy No. 02-41729-REG.

Adversary No. 03-6967(REG).

United States Bankruptcy Court, S.D. New York.

March 30, 2004.

COPYRIGHT MATERIAL OMITTED

Stinson Morrison Hecker LLP, by Darrell W. Clark (argued), Gregory O. Olaniran (argued), Michael E. Tucci, Washington, DC, Sargoy, Stein, Rosen & Shapiro, by Harvey Shapiro (argued), New York City, for Buena Vista Television, Metro-Goldwyn-Mayer Studios, Inc., Paramount Pictures Corp., and Sony Pictures Entertainment Inc.

Arnold & Porter, LLP, by Robert Alan Garrett, Hadrian R. Katz, Michael L. Bernstein (argued), Christopher Winters, Washington, DC, for Major League Baseball and Chicago White Sox.

Willkie Farr & Gallagher, LLP, by Roger Netzer (argued), Eilish M. Cahalan, New York City, Cole, Raywid & Braverman, LLP, by John D. Seiver, Wesley R. Heppler, Maria C. Moran, Washington, DC, for Adelphia Entities.

Kasowitz, Benson, Torres & Friedman, LLP, by Michelle L. Fivel, New York City, for Unsecured Creditors' Committee of Adelphia Communications Corp.

DECISION ON MOTION FOR ORDER, PURSUANT TO 28 U.S.C. § 157(b)(3), FOR DETERMINATION AS TO WHETHER THIS ADVERSARY PROCEEDING IS A CORE PROCEEDING, AND REPORT TO DISTRICT COURT WITH RESPECT TO THAT ISSUE

ROBERT E. GERBER, Bankruptcy Judge.

In this adversary proceeding under the umbrella of a case under chapter 11 of the Bankruptcy Code, the district court (Hon. Jed Rakoff, U.S.D.J.) has requested this Court's views, in the context of a pending motion to withdraw the reference, with respect to whether the claims asserted by the plaintiffs in this action are "core," within the meaning of 28 U.S.C. § 157(b). The defendants have also moved, pursuant to 28 U.S.C. § 157(b)(3),¹ for a determination by the bankruptcy court with respect to this issue.

Upon consideration of that question, this Court determines that the plaintiffs are plainly incorrect in their assertion, in paragraph 29 of their motion to withdraw the reference,² when they say "[t]his action is a non-core matter." To the contrary, this Court finds that the claims are without question core, under 28 U.S.C. § 157(b) and as interpreted in the relevant caselaw, discussed below.³

Facts

The facts relevant to this Court's views — which in most respects are the issues to be determined in the adversary proceeding or the claims process; the legislative scheme under which the plaintiffs and defendants operate; and certain historical facts, such as the filing of a proof of claim in the bankruptcy court — are largely undisputed. The plaintiffs in this adversary proceeding (the "Copyright Owners") distribute television programming (such as movies, syndicated series and sports) subject to copyright protection. The defendants in this adversary proceeding — Adelphia Communications Corporation and a number of its operating subsidiaries (the "Adelphia Entities"), all debtors in chapter 11 cases in this Court — are cable television providers, retransmitting to their customers programming provided by the Copyright Owners. It is undisputed, on this state of the record, that the Copyright Owners do own the copyrights in question, and that the Adelphia Entities have retransmitted the Copyright Owners' programming.

However the Adelphia Entities, like cable systems generally, have been permitted by law to retransmit the Copyright Owners' programming, under a compulsory license, subject to the Adelphia Entities' compliance with the federal nonbankruptcy law that grants licenses of this character and requires payments for their use. Under section 111 of the Copyright Act, 17 U.S.C. § 111, cable systems engaged in the retransmission of television programming do not need the consent of the copyright owners to transmit that programming, and are not guilty of copyright infringement, so long as the cable systems pay semiannual royalties to the Copyright Office, which distributes the royalties to copyright owners. However, if a cable system fails to make the required royalty payment (which is due in arrears, after the retransmissions that caused the royalty payment to become due and payable), the cable system's previously authorized retransmission of the copyright owner's programming — assuming that such retransmission was "willful or repeated" — is actionable as an act of copyright infringement.

The Copyright Owners claim that the Adelphia Entities committed such copyright infringement, post-petition, allegedly subjecting the Adelphia Entities to administrative expense liability of sums up to $3 billion, and entitling the Copyright Owners to injunctive relief barring retransmissions going forward, when the Adelphia Entities failed, after the filing date of their bankruptcy cases and before the deadline prescribed in regulations, to make a $7.5 million payment that was either entirely or almost entirely — depending upon a determination of bankruptcy law — on account of pre-petition debt. The Copyright Owners characterize their claim as one only for post-petition infringement and with respect to post-petition liabilities only. But the unpaid royalty obligation became payable in the pre-petition period, and not even the exact amount due changed as a consequence of post-petition events.⁴ The Copyright Owners seek to divorce bankruptcy considerations from the analysis, and the Adelphia Entities seek to invoke them.

The relative timing of the retransmissions that triggered the royalty payment obligation and the duty to pay the Copyright Owners for the resulting royalties, and the filing of the Adelphia Entities' bankruptcy cases, is highly significant for the purposes of this dispute. As noted, the royalty payment was due in arrears. Under the Copyright Act and the regulations implementing it, royalty payments (along with "Statements of Account" — information submissions relevant to the duty to pay the royalties, and to compute the amount payable) are due semiannually, with respect to six-month periods running from January 1 through June 30, and from July 1 through December 31. For the six-month period January 1, 2002 through June 30, 2002 (the "Retransmissions Accounting Period"), the Adelphia Entities' royalty payment was due on or before August 29, 2002. However, five days before the end of the Relevant Retransmissions Accounting Period, the Adelphia Entities filed petitions for relief under chapter 11 of the Bankruptcy Code.

When the royalty payment was due, counsel for the Adelphia Entities submitted the Statements of Account for the Retransmissions Period, but did not send payment. He stated, in that connection:

Please note that with respect to each of these Statements of Account, the entity listed in space B as the owner of the cable system has filed for relief under chapter 11 of the Bankruptcy Code. The royalties reflected on the enclosed forms are not included with these filings consistent with the provisions of the Bankruptcy code and a restraining order issued by the United States Bankruptcy Court for the Southern District of New York. A copy of the restraining order is attached hereto.⁵

A representative of the Copyright Office responded:

We have received five hundred and fifty-seven Statements of Account for the above referenced cable system. You have informed us that Adelphia Communications Corporation/Tele Media Company are currently undergoing bankruptcy proceedings and the royalty reflected on the enclosure was not included.

We will exam[ine] the statements, and request that any errors or omissions detected be corrected. Royalty payments should be remitted to this Office in accordance with the manner which you are required to do so through the bankruptcy proceedings.⁶

It is fundamental as a matter of bankruptcy law that the Adelphia Entities' chapter 11 filing prohibited them from paying the royalty obligation for the Retransmissions Accounting Period if (or to the extent) that obligation represented pre-petition debt. Plainly, 175 of the 181 days of the Retransmissions Accounting Period was pre-petition, and, without dispute, a royalty payment was due and payable on August 29, after the Filing Date, as a consequence of the pre-petition retransmissions during that 175 day period. Copyright counsel for the Copyright Owners stated that the royalty payment due as a consequence of all of the retransmissions during the Retransmissions Accounting Period was the same as the amount due as a consequence of the retransmissions during the pre-petition 175 days.⁷

With respect to all six-month accounting periods prior to the Retransmissions Accounting Period, the Adelphia Entities consistently made all required payments. Similarly, for the retransmissions accounting period for the second half of 2002 (the entirety of which was post-petition), and all retransmissions accounting periods thereafter, the Adelphia Entities made all required royalty payments.

Whether the royalty obligation that was unpaid on August 29, 2002 constituted a single pre-petition claim — or constituted multiple obligations (perhaps, according to the Copyright Owners' logic, 181 of them), one or more of which were post-petition claims — is a matter of sharp dispute. But the parties do not dispute that under Copyright Office pronouncements, the royalty became due, for each and every retransmission made during the Retransmissions Accounting Period, at the time the first retransmission was made.⁸

The royalty that would have been due under the Statement of Account for the entire six-month Retransmissions Accounting Period was approximately $7.5 million. The Copyright owners argue (and it appears to be undisputed) that the same amount was due and owing with respect to the transmissions during the six days constituting the post-petition period, and both sides agree that the same amount was due and owing as of the last day of the pre-petition...