In re Adelphia Communications Corp.

• Court: U.S. Bankruptcy Court — Southern District of New York
• Writing for the Court: Robert E. Gerber
• Citation: In re Adelphia Communications Corp., 330 B.R. 364 (Bankr. S.D.N.Y. 2005)
• Decision Date: 30 August 2005
• Docket Number: Bankruptcy No. 02-41729 (REG).,Adversary No. 03-04942 (REG).
• Parties: In re ADELPHIA COMMUNICATIONS CORP., et al., Debtors. Adelphia Communications Corp. and its Affiliated Debtors and Debtors in Possession and Official Committee of Unsecured Creditors of Adelphia Communications Corp., Plaintiffs, v. Bank of America, N.A., et al., Defendants.

330 B.R. 364

In re ADELPHIA COMMUNICATIONS CORP., et al., Debtors Adelphia Communications Corp. and its Affiliated Debtors and Debtors in Possession and Official Committee of Unsecured Creditors of Adelphia Communications Corp., Plaintiffs, v. Bank of America, N.A., et al., Defendants.

Bankruptcy No. 02-41729 (REG).

Adversary No. 03-04942 (REG).

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

August 30, 2005.

COPYRIGHT MATERIAL OMITTED

Kasowitz, Benson, Torres & Friedman LLP, by David M. Friedman, Esq. (argued), Andrew K. Glenn, Esq., Adam L. Shiff, Esq., Jonathan E. Minsker, Esq., Sean C. Shea, Esq., New York, NY, Klee, Tuchin, Bogdanoff & Stern LLP, by Edward T. Attanasio, Esq. (argued), David M. Stern, Esq., Martin R. Barash, Esq., Los Angeles, CA, for Plaintiff Official Committee of Unsecured Creditors.

Willkie Farr & Gallagher LLP, by Marc Abrams, Esq., Brian E. O'Connor, Esq., Paul Shaloub, Esq., Morris J. Massel, Esq., New York, NY, Boies, Schiller & Flexner LLP, by Philip C. Korologos, Esq. (argued), Eric Brenner, Esq., Armonk, NY, by George F. Carpinello, Esq., Albany, NY, for Plaintiff Debtors and Debtors in Possession.

Bragar Wexler Eagel & Morgenstern, P.C., by Peter D. Morgenstern, Esq., Gregory A. Blue, Esq. (argued), Debra Kramer, Esq., Kate Webber, Esq., New York, NY, for Plaintiff Official Committee of Equity Security Holders.

Simpson Thacher & Bartlett LLP, by Peter V. Pantaleo, Esq. (argued), John J. Kerr, Jr., Esq., William T. Russell, Jr., Esq. (argued), Sean Thomas Keely, Esq., Elisha D. Graff, Esq., New York, NY, for Defendants Wachovia Bank, N.A. and Wachovia Capital Markets, LLC.

Haynes and Boone, LLP, by Robin E. Phelan, Esq. (argued), Richard D. Anigian, Esq. (argued), Thomas E. Kurth, Esq., Dallas, TX, by Judith Elkin, Esq., New

York, NY, for Defendant Bank of America, N.A.

White & Case LLP, by Howard S. Beltzer, Esq., Glenn M. Kurtz, Esq. (argued), Karen M. Asner, Esq., New York, NY, for Bank of America, N.A.

Milbank, Tweed, Hadley & McCloy LLP, by Luc A. Despins, Esq. (argued), Scott A. Edelman, Esq., Brian D. Hail, Esq. (argued), New York, NY, for Citibank, N.A. and Citicorp USA, Inc., as Administrative Agent for the Century TCI Facility.

Milbank, Tweed, Hadley & McCloy LLP, by James C. Tecce, Esq. (argued), Dennis F. Dunne, Esq., David R. Gelfand, Esq., Thomas A. Arena, Esq., Jeffrey L. Nagel, Esq., New York, NY, for Defendant JPMorgan Chase Bank, as Administrative Agent for the FrontierVision Lenders.

Mayer, Brown, Rowe & Maw LLP, by J. Robert Stoll, Esq., Robert J. Ward, Esq., Jean-Marie L. Atamian, Esq., Kenneth E. Noble, Esq. (argued), Scott E. Mortman, Esq., New York, NY, by Robert F. Finke, Esq., Chicago, IL, for Defendants Bank of Montreal and Harris Nesbitt Corp.

Luskin, Stern & Eisler LLP, by Michael Luskin, Esq. (argued), Trevor Hoffmann, Esq., New York, NY, for The Bank of Nova Scotia.

Chadbourne & Parke LLP, by Andrew P. Brozman, Esq. (argued), Janice A. Payne, Esq., Jennifer C. DeMarco, Esq., New York, NY, for Defendants Credit Lyonnais New York Branch, Credit Lyonnais Securities (USA) Inc., and LCM I Limited Partnership.

Clifford Chance, by Margot Schonholtz, Esq., Scott T. Talmadge, Esq. (argued), New York, NY, for Defendants CIBC, Inc. and CIBC World Markets.

Gibson, Dunn & Crutcher LLP, by Marshall R. King, Esq. (argued), Jonathan M. Landers, Esq., Robert F. Serio, Esq., Michael J. Passante, Esq., Michael J. Riela, Esq., New York, NY, for Merrill Lynch & Co., Inc.

Duane, Morris & Heckscher LLP, by Lawrence J. Kotler, Esq., Philadelphia, PA, for Defendant SG Cowen Company, LLC (f/k/a SG Cowen Securities Corp.).

Wilmer Cutler Pickering Hale & Dorr, LLP, by John A. Valentine, Esq. (argued), Theresa Titolo, Esq., Washington, D.C., by Phillip D. Anker, Esq., New York, NY, for Defendants Credit Suisse First Boston (USA), Inc. and The Royal Bank of Scotland PLC.

Cleary Gottlieb Steen & Hamilton LLP, by Lindsee P. Granfield, Esq. (argued), Jennifer L. Kroman, Esq. (argued), Mitchell A. Lowenthal, Esq., Thomas J. Moloney, Esq., David Bober, Esq., Jane Kim, Esq., New York, NY, for Defendants Thirteen Investment Banks.

Winston & Strawn LLP, by James A. Beha II, Esq., Steven M. Schwartz, Esq. (argued), New York, NY, for Defendant J.P. Morgan Securities, Inc.

Stroock & Stroock & Lavan LLP, by Brian Cogan, Esq., Lewis Kruger, Esq., New York, NY, for Defendants D.E. Shaw & Co., LLC and D.E. Shaw Laminar Portfolios, LLC.

Bingham McCutchen LLP, by Alexis Freeman, Esq., New York, NY, for Defendant GECC.

Greenberg Traurig, LLP, by Douglas A. Amedeo, Esq., Richard Miller, Esq., for Defendant Barclays Bank.

DECISION ON MOTIONS BY CREDITORS' COMMITTEE AND EQUITY COMMITTEE TO PROSECUTE CLAIMS ON BEHALF OF THE DEBTORS' ESTATES

ROBERT E. GERBER, Bankruptcy Judge.

By motion brought in this adversary proceeding under the umbrella of the jointly administered cases of Adelphia Communications Corporation and its subsidiaries (collectively, the "Debtors" or "Adelphia") under chapter 11 of the Bankruptcy Code, Adelphia's Official Committee of Unsecured Creditors (the "Creditors' Committee") seeks leave of this Court — what is colloquially referred to in this Circuit as "Housecraft" authority¹ — to prosecute claims, as a co-plaintiff with Adelphia, on behalf of the Debtors' estates. The Creditors' Committee's motion is opposed by the defendants in the action to be prosecuted — numerous commercial banks and their investment bank affiliates (the "Defendants") — who are charged with wrongdoing in their dealings with Adelphia's former management, John, Timothy, Michael and James Rigas (the "Rigases"), against whom Adelphia brought suit for the looting of the company. The Creditors' Committee's claims against the Defendants, which are numerous, include, inter alia, fraudulent conveyance claims and claims for aiding and abetting the Rigases' breaches of fiduciary duty in connection with "co-borrowing" facilities under which Adelphia became liable to repay the banks for billions of dollars that went to or for the benefit of the Rigases.

Adelphia's Official Committee of Equity Security Holders (the "Equity Committee," and together with the Creditors' Committee, the "Committees"), which has intervened in this action, has joined in the bulk of the claims made by the Creditors' Committee — all but those premised on insolvency — and, by a supplemental intervenor complaint, wishes to assert additional claims as well. By a separate, similar motion, the Equity Committee moves for STN authority² to assert those additional claims on behalf of the Debtors' estates. The Defendants likewise oppose the Equity Committee's motion.

Perhaps significantly, neither of the Committees' motions is opposed by anyone other than the Defendants in the litigation to be prosecuted. Those with an interest in maximizing the value of the estate — as contrasted to those with an interest in defeating the claims to be asserted here — do not seem to be troubled by the Committees' proposed use of estate resources for the litigation the Committees wish to prosecute.³

Though the words used by the Second Circuit in each of the cases in the STN Trilogy differ slightly, they share a common underpinning requiring the bankruptcy court to satisfy itself that the prosecution of the proposed litigation by the Committee concerned would be in the best interests of the estate. With the Court having concluded that the Creditors' Committee easily meets those requirements, and that the Equity Committee, though the matter is closer, does so as well, both motions are granted. The following are the Court's Findings of Fact, Conclusions of Law, and bases for the exercise of its discretion in this regard.

Facts

The Court considers the Creditors' Committee motion in the context of a complaint that the Creditors' Committee has already filed and served — to meet a deadline that had been imposed upon it under Adelphia's DIP financing order — with a stipulation that the Defendants' threshold opposition to standing, and substantive 12(b)(6) motions addressed to the Creditors' Committee complaint, would be considered together.⁴ The Court likewise considers the Equity Committee's motion in the context of the supplemental complaint in intervention that the Equity Committee also has already filed and served, with similar understandings. The factual terrain includes the 12(b)(6) motions that the Defendants have filed, and the foreseeable outcomes on those motions.

The Court also has the benefit of evidentiary matter, submitted by the Committees and the Defendants, principally in the form of documents and deposition testimony taken under Fed. R. Bankr.P.2004. But for reasons discussed more fully below, it was inappropriate for the Court to conduct a "mini-trial" or evidentiary hearing on the Housecraft or STN issues, and it has not made factual findings on disputed issues of fact. While the Court has engaged in some review of disputed facts, it has done so (perhaps in an excess of caution, as language in STN suggests that factual review is not required)⁵ only to satisfy itself that there is some factual support for the Committees' allegations — without determining whether those allegations are true — and to satisfy itself that the proposed litigation would be a sensible application of estate resources.

The two Committees' complaints are lengthy and detailed — in each case about 250 pages. Without getting into all of the detail that characterizes the allegations of the complaints and the factual record on this motion, the Court notes the most important allegations, and matters the Committees may be able to show, below.

A.

The Rigases are the largest shareholders of Adelphia, which was founded by John Rigas, but they are not its only ones. Much of Adelphia's equity securities are held by the investing public. Adelphia also has billions of dollars in public unsecured debt. Until May 2002, John Rigas, and his sons Timothy, Michael and ...