United States District Court, S.D. New York
October 6, 2004.
IN RE CABLEVISION S.A. DEBTOR IN A FOREIGN PROCEEDING.
The opinion of the court was delivered by: SHIRLEY KRAM, Senior District Judge
OPINION AND ORDER
SHL Company LLC ("SHL") moves to withdraw this matter from the
Bankruptcy Court pursuant to 28 U.S.C. § 157(d). For the reasons
set forth below, the motion is granted.
Defendant Cablevision is a cable television company that
provides cable and Internet services in Argentina. It is the
largest multi-system operator in Argentina, based on the number
of subscribers served. See Cablevision's Memorandum of Law In
Opposition To Motion of SHL Company LLC For Withdrawal of The
Reference, dated September 23, 2004 ("CV Opp."), at 3. However,
Cablevision is apparently owned by two U.S. entities: a Texas
buyout firm and a Colorado cable firm. See Transcript of Oral
Argument before Honorable Shirley W. Kram, September 29, 2004
("Tr.") at 5. Cablevision has also issued $800 million of debt in
the United States. Id.
Plaintiff SHL is a U.S. investment group whose members include
pension funds and charitable institutions representing
approximately six million U.S. pensioners and retirees. SHL claims that it is among the largest of Cablevision's noteholders,
holding approximately 35% of the Cablevision securities at issue.
See Respondent SHL's Memorandum of Law in Support of Its Motion
to Withdraw The Reference of This Matter From The Bankruptcy
Court Pursuant to 28 U.S.C. § 157(d), dated September 13, 2004
("SHL Memo"), at 5.
The dispute between these parties arises from notes issued by
Defendant Cablevision in four series (Series 5, 9, 10 and 11)
(the "Notes"). Plaintiff's Statement of Undisputed Facts Pursuant
to Local Rule Civil Rule 56.1, dated August 27, 2004 ("56.1
St."), at 1. Plaintiff SHL purchased interests in each of the
four series of Notes. Id. The Series 5 and Series 10 notes were
registered with the SEC in 1999 and 2000, respectively. Id. at
Cablevision ceased making interest and principal payments on
its U.S. dollar-denominated debt, including the Notes, beginning
in February 2002. CV Opp. at 4. According to its own Memorandum
for the Tender of Existing Notes, the outstanding principal
amount on the Notes is $725 million. See Declaration of
Jennifer R. Scullion, dated September 13, 2004 ("Scullion"),
Exhibit 17, at 87.
The Notes are governed by an Indenture, dated August 11, 1998.
Importantly, the Indenture contains the following statement: Notwithstanding any other provision in this Indenture
or the Notes, any Noteholder shall have the absolute
and unconditional right to receive payment, as
provided herein . . . and to institute suit for the
enforcement of any such payment, and such rights
shall not be impaired without the consent of such
Declaration of William J. Connors, dated August 30, 2004, Exhibit
B at ¶ 28.
The Notes are governed by substantive U.S. and New York law,
including the mandatory provisions of the Trust Indenture Act,
15 U.S.C. § 77aaa, (the "TIA"). Scullion Exhibit 16. Among the
governing TIA provisions is Section 316, which provides that "the
right of any holder of any indenture security to receive payment
of the principal and interest on such indenture security . . .
shall not be impaired or affected without the consent of such
holder." 15 U.S.C. § 77ppp(b).
In September 2003, Cablevision announced a proposal to cancel
all of the Notes and exchange them for roughly 50% of their value
under a recently enacted extrajudicial procedure of Argentine law
known as an Acuerdo Preventivo Extrajudicial ("APE"). SHL Memo at
6. The primary objective of the APE is to enable Cablevision to
restructure substantially all of its outstanding debt. CV Opp. at
5. According to Cablevision, an APE proceeding is similar to a
prepackaged (or pre-arranged) case under the Bankruptcy Code. CV
Opp. at 1. On September 2, 2003, Cablevision announced a tender offer for
the Notes in a written solicitation distributed to U.S.
Noteholders. 56.1 St. at 8. On May 14, 2004, Cablevision filed a
petition with an Argentine court stating that Cablevision would
not count SHL's vote for purposes of calculating the Principal
Majority and would exclude SHL's notes from the calculation. 56.1
St. at 4.
On May 25, 2004, SHL filed an action ("SHL Action") in federal
district court for the District of New Jersey claiming that
Cablevision's debt restructuring violated the tender offer rules
under the Williams Act, 15 U.S.C. § 78n, and the TIA,
15 U.S.C. § 77aaa. SHL Memo at 1-2.
On August 3, 2004, the SHL Action, by stipulation of the
parties, was transferred to the Southern District of New York.
The case was assigned to this Court on August 19, 2004.
On August 27, 2004, SHL filed a motion for summary judgment and
injunctive relief, seeking, inter alia: (1) a declaration that
Cablevision may not restructure the Notes without the unanimous
consent of SHL and all other Noteholders; (2) enjoining
Cablevision from taking any further action in violation of the
TIA; and (3) requiring Cablevision to halt its tender offer,
issue new disclosures, and return all Notes previously tendered.
Plaintiff SHL's Memorandum of Law in Support of Its Motion For Summary Judgment and Injunctive Relief,
dated August 27, 2004 ("SHL SJ Memo"), at 4.
Believing that the SHL Action threatened to interfere with the
APE proceeding, Cablevision, four days after being served with
SHL's motion papers, initiated a Section 304 proceeding in the
Bankruptcy Court for the Southern District of New York seeking to
enjoin continuation of the SHL Action. CV Opp. at 9. On September
1, 2004, the Honorable Robert D. Drain of the Bankruptcy Court
held a hearing on Cablevision's Section 304 Case.*fn1 At the
close of the hearing, Judge Drain granted Cablevision's
application and issued a TRO to stay the SHL Action in the
District Court.*fn2 Additionally, the Bankruptcy Court
entered a stipulation and order scheduling the Section 304
Preliminary Injunction Hearing for October 6, 2004. CV Opp. at
On September 13, 2004, SHL filed its Motion to Withdraw the
Reference pursuant to 28 U.S.C. § 157(d).
Cases "arising under," "arising in," or "related to" a case
under the Bankruptcy Code are referred to the Bankruptcy Court under 28 U.S.C. § 157(a) and the "Standing Order of Referral of
Cases to Bankruptcy Judges," issued by the District Court for the
Southern District of New York in 1984.
Section 157(d) however, provides two grounds for withdrawal;
one mandatory, the other permissive. In pertinent part, Section
The district court shall, on timely motion of a
party, so withdraw a proceeding if the court
determines that resolution of the proceeding requires
consideration of both title 11 and other laws of the
United States regulating organizations or activities
affecting interstate commerce.
28 U.S.C. § 157 (d).
Withdrawal is mandatory under 28 U.S.C. § 157(d) in "cases
where substantial and material consideration of non-Bankruptcy
Code federal statutes is necessary for the resolution of the
proceeding." In re Ionosphere Clubs, Inc., 922 F.2d 984, 995
(2d Cir. 1990). Further, matters "must be withdrawn under §
157(d) if they require the bankruptcy court to substantially
interpret federal statutes which affect interstate commerce."
City of New York v. Exxon Corp., 932 F.2d 1020, 1026 (2d Cir.
1991). The "substantial and material" standard is satisfied even
where a non-bankruptcy federal statute only "arguably conflicts"
with the Bankruptcy Code. See Bear, Stearns Sec. Corp. v.
Gredd, No. 01-CV-4379 (NRB), 2001 WL 840187, at *2 (S.D.N.Y.
July 25, 2001). Withdrawal is Mandatory
Despite pleadings that venture from the legislative history of
Section 304 of the Bankruptcy Code to some of the more arcane
provisions of Argentine insolvency law, the issue before the
Court is actually quite narrow: whether the circumstances for
mandatory withdrawal under 28 U.S.C. § 157(d) are present. After
a careful review of the parties' submissions and this Circuit's
precedent, it is obvious that they are.*fn3
In support of its motion, SHL contends that no relief can be
granted to Cablevision in the Section 304 proceeding because,
among other reasons, Cablevision is violating the tender offer
rules and the TIA and because Section 304 does not, and cannot,
override SHL's federal rights, as established by non-bankruptcy
statutes. SHL Memo at 14. In contrast, Cablevision argues that
the issues in the Section 304 case can, and should, be resolved
through the straightforward application of the relevant factors
set forth in Section 304(c) and that no significant application
of non-Bankruptcy Code federal statutes is necessary or required to decide its § 304 P.I. motion. CV Opp. at 16. Cablevision is
The very existence of a dispute as to whether the rights of SHL
under the TIA and Williams Act supersede Section 304 or whether
the Bankruptcy Code overrides the TIA, regardless of the ultimate
resolution of such dispute, mandates withdrawal. In other words,
to determine whether Cablevision or SHL is correct, a court would
be required to substantially and materially consider
non-Bankruptcy code federal statutes; namely, the TIA and the
Williams Act, and the interaction of those statutes with the
Bankruptcy Code. Such consideration, pursuant to Ionosphere,
922 F.2d 984, compels withdrawal.*fn4
The Court also rejects Cablevision's contention that mandatory
withdrawal on these facts would be contrary to public policy
because it would provide an "escape hatch" for the removal of all
non-bankruptcy related claims to a district court and create
"fertile opportunities for mischief by any party seeking to
obtain a jurisdictional transfer." CV Opp. at 27. There is simply no evidence that SHL has engaged in any
jurisdictional mischief in this case.
It may very well be that Section 304 and its deference to
foreign insolvency proceedings overrides the TIA; it may also
well be that extending comity to the APE is the appropriate
course; but that is a determination for an Article III Court, not
the bankruptcy court.*fn5