In re Adelphia Communications Corp.
| Citation | 345 B.R. 69 |
| Decision Date | 26 June 2006 |
| Docket Number | Bankruptcy No. 02-41729(REG).,Adversary No. 06-01528. |
| Parties | In re ADELPHIA COMMUNICATIONS CORP., et al., Debtors. Adeiphia Communications Corp., et al., Plaintiffs, v. The America Channel, LLC, Alioto Law Firm and Gray, Plant, Mooty, Mooty & Bennett, P.A., Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Willkie Farr & Gallagher LLP, by Brian E. O'Connor (argued), Michael D. Maimin, New York, NY, for Plaintiff Debtors and Debtors in Possession.
Kasowitz, Benson, Torres & Friedman LLP, by Jonathan E. Minsker, New York, NY, for Official Committee of Unsecured Creditors.
Morgenstern Jacobs & Blue, LLC, by Gregory A. Blue, New York, NY, for Official Committee of Equity Security Holders.
Gray, Plant, Mooty, Mooty & Bennett, P.A., by Daniel Shulman (argued), Minneapolis, MN, Alioto Law Firm, by Joseph M. Alioto, San Francisco, CA, for Defendants The America Channel, Alioto Law Firm, and Gray, Plant, Mooty, Mooty & Bennett, P.A.
DECISION ON MOTION FOR PERMANENT INJUNCTION (THE AMERICA CHANNEL)
In this adversary proceeding under the umbrella of the approximately 230 jointly administered chapter 11 cases of Adelphia Communications Corporation and its subsidiaries (the "Debtors"), the plaintiff-Debtors move, pursuant to sections 362(a)(3) and 105(a) of the Bankruptcy Code, for a declaratory judgment holding that the automatic stay was violated, and for a permanent injunction1 enjoining the prosecution of an antitrust action in Minnesota — in which the prayers for relief include, as a prominent feature, an injunction restraining the now-pending sale to Time Warner Cable and Comcast of the Debtors' assets that will be the key element of the Debtors' reorganization in this Court. The defendants are The America Channel ("TAC," a cable channel, not yet in operation, that is aggrieved, inter alia, by the failure of Time Warner, Comcast and Adelphia to agree to carry The America Channel on their cable systems), and TAC's lawyers, who, until the entry of a TRO by this Court restraining their conduct, had been trying to enjoin Adelphia's pending sale in the United States District Court for the District of Minnesota.
For the reasons that follow, the Court finds that the defendants' effort to enjoin the sale of Adelphia's assets in Minnesota — even though denominated as an effort to enjoin the "purchase," and even though effected by not naming Adelphia as a defendant in the suit to achieve that end — is a classic, and egregious, violation of section 362(a)(3) of the Bankruptcy Code. Thus the Court will issue the requested declaratory judgment. The Court will also issue a permanent injunction, enjoining the defendants from taking any steps to exercise control over the Debtors' property in any forum other than this Court. But the injunction will be in a form narrower than the original TRO, and will permit the defendants alternatively to proceed with their action in Minnesota if they seek damages only, or seek equitable relief that does not interfere with the upcoming sale.
The following are the Court's Findings of Fact, Conclusions of Law and bases for the exercise of its discretion in connection with this determination.
As facts the Court finds as follows:2
The Sale to Time Warner and Comcast
Most of the Debtors in these cases filed for relief under chapter 11 of the Bankruptcy Code on June 25, 2002. In April 2004, the Debtors announced their decision to pursue a sale of substantially all of the Debtors' assets, and began a court-supervised, multi-phase auction process in which the Debtors were advised by UBS Securities, Allen & Company, and Sullivan & Cromwell. The Debtors considered numerous methods of sale and bids. After careful consideration and significant negotiation, the Debtors entered into definitive sale agreements (the "Purchase Agreements") with Time Warner and Comcast (the "Purchasers"), pursuant to which the Purchasers agreed to purchase substantially all of the Debtors' assets, for aggregate consideration of approximately $17.6 billion. The Purchasers' offer represented a substantial premium above the next-best offer.
Failure to close under the Purchase Agreements by the dates set forth therein would trigger certain termination rights, including the Purchasers' right to seek a $440 million break-up fee. It was so important that the Debtors close their deal in a timely way that when intercreditor disputes in this case created risks to the timely confirmation of the pending reorganization plan, the Debtors had to restructure the transaction to accomplish it by a court-approved section 363 sale, to preserve the critically important economic benefits associated with the sale.
Accordingly, on May 26, 2006, the Debtors filed a motion seeking, inter alia, approval of the sale under section 363 of the Bankruptcy Code. At a hearing on Friday, June 16, 2006, this Court approved modified bidding procedures in connection with the sale, to accommodate the modifications in the transaction necessary to achieve the required closing within the necessary time constraints. The hearing to consider final approval of the sale is scheduled on June 27, 2006.
The sale represents an extraordinary achievement, and the loss of it would be a corresponding disaster. To date it has not been disputed that the sale will generate the maximum possible recoveries for the Debtors' creditors and other constituents. Despite a multitude of other disputes amongst themselves in these cases, the creditors in this case have consistently expressed their approval of the sale and its benefits, and their recognition of the importance of the sale's closing.
On May 31, 2006, the Defendants in this adversary proceeding filed an action in the United States District Court for the District of Minnesota, 06-CV-2175 (the "TAC Action"). It was assigned to Hon. Donovan Frank, U.S.D.J. The TAC Action seeks, as an important element of its requested relief, an order preliminarily and permanently enjoining the Purchasers from purchasing Adelphia's assets, based on alleged antitrust violations. The Debtors are not named as defendants in the TAC Action.
The TAC Action is apparently the latest step in a series of unsuccessful attempts to secure carriage of The America Channel on the cable systems run by Time Warner, Comcast and Adelphia. TAC has sought carriage by Adelphia for years without success. After failing to persuade the Debtors to carry its programming, TAC aired its concerns regarding the Debtors' denial of carriage and the sale to both the FCC and FTC. However, the FTC has closed its investigation into the sale. Although the FCC has not yet approved the sale, the Debtors expect it to do so.
It is neither necessary nor appropriate, in this Court's view, for the Court to analyze the TAC Action claims in depth. But the general nature of the TAC Action claims, and in particular the claims for relief, requires discussion. The Court understands TAC's principal grievance to be the failure of Time Warner, Comcast, and Adelphia to carry TAC on their cable systems. And TAC complains of that in its complaint,3 though surprisingly, it does not seem explicitly to ask for the one kind of relief that would flow from that, an order requiring Time Warner and Comcast to carry TAC. But the complaint is broader than that. It charges Time Warner and Comcast with bid rigging in formulating their joint bid for Adelphia's assets,4 and for monopolization and divisions of markets (including swapping of their franchises in Minneapolis and St. Paul), in alleged violation of the Sherman Act.5 For relief, TAC seeks damages, and if the acquisition closes over its objection, a divestiture by Time Warner and/or Comcast of cable properties they might acquire. And as particularly relevant here, TAC seeks to enjoin, under section 7 of the Clayton Act, the acquisition by Time Warner and Comcast of Adelphia's assets, and performance under related contracts that were entered between Time Warner and Comcast as part of the complex arrangement under which they would collectively make this $17.6 billion acquisition.
Faced with a threat to the closing of a sale that has been years in the making, the Debtors sought a TRO from this Court, blocking the defendants from prosecuting the TAC action, on June 1, 2006. This Court set the hearing for the following day, and directed that notice be served immediately, with word that the Court would hear the defendants in opposition, either in person or telephonically. But after initially saying they would appear in opposition, and asserting a variety of jurisdictional and other procedural objections in e-mails addressed to the Debtors (with copies e-mailed to the Court),6 the defendants declined to appear. After an on-the-record hearing, the Court issued a TRO, enjoining any prosecution of the TAC Action,7 setting forth the reasons in summary form, and advising those present that more extensive findings would be issued later that day. The Debtors promptly provided notice of the TRO to the defendants.
The defendants likewise declined to participate by phone when, later in the afternoon on that Friday, the Court dictated its more extensive Findings of Fact and Conclusions of Law in connection with its issuance of the TRO. However, still later that day, the defendants moved in the Minnesota District Court to "quash service and vacate order of United States Bankruptcy Court for the Southern District of New York" — in other words, to collaterally attack and vacate this Court's TRO in Minnesota.
At the opening of the Court on the following Monday, the Debtors moved in this Court for an order finding the defendants in contempt, noting the obvious fact that the defendants' motion to collaterally attack this Court's TRO in the very Minnesota action whose prosecution had been enjoined...
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...(16th ed. 2020), and courts routinely grant injunctive relief to ameliorate their effect. In re Adelphia Communs. Corp. v. The American Channel, LLC, 345 B.R. 69, 83-84, 86 (Bankr. S.D.N.Y. 2006). In addition, under certain circumstances monetary sanctions may be warranted for such violatio......
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