In re Adelphia Communications Corp.

• Decision Date: 25 September 2007
• Docket Number: No. 02-41729(REG).,02-41729(REG).
• Citation: 376 B.R. 87
• Parties: In re ADELPHIA COMMUNICATIONS CORPORATION, et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

376 B.R. 87

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

No. 02-41729(REG).

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

September 25, 2007.

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Joanne B. Wills, Esq., Klehr, Harrison, Harvey, Branzburg & Ellers LLP, Philadelphia, PA, for Adelphia Communications Corp. et al.

Eduardo J. Glas, Esq., Joseph Lubertazzi, Esq., McCarter & English, LLP, Newark, NJ, for Lucent Technologies, Inc.

MEMORANDUM DECISION ON MOTION OF ADELPHIA COMMUNICATIONS CORPORATION FOR SUMMARY JUDGMENT

CECELIA G. MORRIS, Bankruptcy Judge.

This is a contested matter concerning the objection by Debtor Adelphia Communications Corp. ("Adelphia" or "ACC") to the proof of claim of Lucent Technologies, Inc. ("Lucent") in the amount of $44,721,519.78. Lucent's claim is based upon several legal theories, but primarily Section 17-303 of Delaware's Revised Uniform Limited Partnership Act, found in Title 6, Chapter 17 of the Delaware Code (hereafter, "Section 17-303"). Under Section 17-303 Lucent seeks to hold Adelphia liable for the debts of Devon Mobile Communications, L.P. ("Devon"), a limited liability partnership, under an October 19, 2000 agreement between Devon and Lucent.

At the heart of this proceeding is Adelphia's contention that, under Section 17-303(a), a third party's actual knowledge of limited partnership status automatically defeats a claim of de facto general partnership liability. Section 17-303(a), captioned "Liability to third parties," states:

A limited partner is not liable for the obligations of a limited partnership unless he or she is also a general partner or, in addition to the exercise of the rights and powers of a limited partner, he or she participates in the control of the business. However, if the limited partner does participate in the control of the business, he or she is liable only to persons who transact business with the limited partnership reasonably believing, based upon the limited partner's conduct, that the limited partner is a general partner.

(emphasis added). This Court holds that for the purposes of Section 17-303(a), only the limited partner's conduct is relevant because the statute specifically directs in determining a third party's reasonable belief, the analysis must be "based upon the limited partner's conduct." Summary judgment is denied because material issues of fact exist as to whether the conduct of ACC would support a reasonable belief that ACC was a general partner.

JURISDICTION

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Standing Order of Reference signed by Acting Chief Judge Robert J. Ward dated July 10, 1984. The allowance or disallowance of claims against a bankruptcy estate is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(B). By order dated April 11, 2006 (ECF Docket No. 10399), Bankruptcy Judge Robert E. Gerber transferred certain issues in the Adelphia bankruptcy cases, including the Lucent claims objection, to this Court for hearing and determination.

BACKGROUND

On June 25, 2002, Adelphia and various affiliates commenced cases under Chapter 11 of the Bankruptcy Code.¹ Lucent Technologies, Inc. ("Lucent") filed proof of claim No. 135800, dated September 9, 2003 in the amount of $44,721,519.78 for "telecommunication products" (the "Proof of Claim"). The Proof of Claim noted: "Collateral is in the possession of Devon Mobile Communications, L.P." In a four-page statement annexed as part of its Proof of Claim, Lucent alleged the following relevant facts:

— Adelphia is indebted to Lucent in connection with a General Agreement for Personal Communications Service Systems executed October 19, 2000 (the "General Agreement").

— Adelphia is responsible for payment for all equipment and services Lucent provided to Devon.

— By letter dated August 7, 2002 Lucent terminated the General Agreement effective August 8, 2002.

— Adelphia owes Lucent $16,800,516.27 in connection with unpaid invoices for products that were, as of the date of the Proof of Claim, installed in Devon's network.

— Adelphia also owes Lucent at least $12,363,341.31 in connection with products that were, as of the date of the Proof of Claim, installed in Devon's network but not invoiced by Lucent.

— Adelphia owes Lucent $15,557,622.20 in connection with orders placed for equipment by Devon which had not, as of the date of the Proof of Claim, been invoiced by Lucent and was located in a Lucent-controlled warehouse.

Adelphia objected to Lucent's Proof of Claim as part of its "First Omnibus Objection to the Allowance of Certain Claims" (ECF Docket No. 6087; hereafter, the "Claims Objection"). On December 10, 2004, Lucent filed a Response to the Claims Objection (ECF Docket No. 6584; hereafter, the "Response"). The Response alleges the following relevant facts:

— Lucent has conducted business with ACC and its affiliates since at least 1997.

— On or about November 3, 1995, Devon G.P., Inc. and ACC, both Delaware corporations, entered into an Agreement of Limited Partnership to create Devon, a Delaware limited partnership.²

— Under the General Agreement with Devon, Lucent received hundreds of purchase orders to deliver products and licensed materials to various locations where Devon operated its business. The vast majority, if not all, of these purchase orders, were on a form indicating the identity of the entity issuing the purchase orders as "Adelphia."

— At all times, Lucent looked to "Adelphia" for payment of the invoices for product and licensed materials delivered to Devon. In fact, ACC asked Lucent to forward all Devon Invoices, to Adelphia at an address in Coudersport, Pennsylvania.

— Lucent asserts that none of the Devon invoices were paid by Devon. To the extent that Devon invoices were paid, Lucent received payment from ACC or from another ACC affiliate at ACC's direction.

— From the inception of the partnership with Devon, Lucent alleges that ACC was Devon's sole source of operating capital and caused Devon to be undercapitalized to conduct the business for which it was formed. All monies necessary to operate Devon's business and pay Devon's creditors were provided by ACC.

— According to. Lucent: "Devon operated merely as a front for ACC, and ACC so controlled Devon's business as to make it inequitable for ACC not to pay the debts it caused Devon to incur to Lucent. Because Devon was operated as the alter ego or mere instrumentality of ACC, ACC is liable to Lucent for the entire amount of all unpaid Devon Invoices."

— Lucent claims that, due to the manner in which ACC caused the Devon partnership to be created and operated, ACC should be deemed to have acted in the capacity of a general partner of Devon, and should therefore be liable for the Devon's debts to Lucent. Specifically, Lucent contends: "In light of its course of business with Lucent, ACC should be held liable for all unpaid Devon Invoices pursuant to the doctrines of implied contract, quasi contract and quantum meruit."

At the Court's request, on March 14, 2007 Lucent filed a "Preliminary Pre-Trial Submission" setting forth the facts and law that it would rely upon at trial. (ECF Docket No. 13263; hereafter, the "Preliminary Pre-Trial Submission"). In the Preliminary Pre-Trial Submission, Lucent argues that Adelphia is liable to Lucent under the following legal theories: (1) Section 17-303, (2) alter ego, (3) contract implied in fact, (4) quasi contract, and (5) quantum meruit.

On June 15, 2007, Adelphia moved for summary judgment (ECF Docket No. 13633), contending that Lucent had actual knowledge of Adelphia's status as a limited partner of Devon. Adelphia argues that Lucent's actual knowledge defeats a claim under Section 17-303. Moreover, Adelphia argues that Lucent's equitable and breach of contract claims should fail, because: "There is no room within the plain language of Section 303(a) for Lucent's Equitable Claims or even its new breach of contract claim. If Lucent cannot recover under Section 303(a), it cannot recover at all." ECF Docket No. 13787, p. 31 (emphasis in original).

STANDARDS FOR SUMMARY JUDGMENT

Pursuant to Fed.R.Civ.P. 56(c) (applicable to this contested matter by Fed. R. Bankr.P. 7056 and 9014(c)), summary judgment should be granted to the moving party if the Court determines that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R.Civ.P. 56(c)). A movant has the initial burden of establishing the absence of any genuine issue of material fact. 477 U.S. at 322-23, 106 S.Ct. 2548.

DISCUSSION

I. Partnerships in General

In the usual partnership arrangement, commonly referred to as a general partnership, all partners are personally liable for all of the obligations of their partnership. See, e.g., the discussion in Great Lakes Chem. Corp. v. Monsanto Co., 96 F.Supp.2d 376, 391 (D.Del.2000):

General partnerships in Delaware are formed pursuant to the Delaware Revised Uniform Partnership Act, 6 Del.C. § 15-101 et seq. Each partner has equal rights in the management and conduct of the partnership business and affairs. 6 Del.C. § 15-401(f). In general, all partners are liable jointly and severally for all obligations of the partnership. 6 Del.C. § 15-306(a). Because partners have equal rights in the management of general partnerships, and because they are not protected by limited liability, courts consistently state that partners in general partnerships are unlikely to be passive investors who profit solely on the efforts of others.

A limited liability partnership, such as Devon, differs in the following sense:

Limited partnerships in Delaware are formed pursuant to 6 Del.C. § 17-101 et seq....