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Adelphia Recovery Trust v. Goldman Sachs & Co.

United States Court of Appeals, Second Circuit

April 4, 2014

ADELPHIA RECOVERY TRUST, AKA THE ADELPHIA CONTINGENT VALUE VEHICLE, Plaintiff-Counter-Defendant-Appellant,
v.
GOLDMAN, SACHS & CO., Defendant-Appellee ADELPHIA COMMUNICATIONS CORP., AND ITS AFFILIATED DEBTORS AND DEBTORS IN POSSESSION, OFFICIAL COMMITTEE OF EQUITY SECURITY HOLDERS OF ADELPHIA COMMUNICATIONS CORP., OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF ADELPHIA COMMUNICATIONS CORP., Plaintiffs-Counter-Defendants,

Argued, April 25, 2012

Page 111

[Copyrighted Material Omitted]

Page 112

Appeal from a judgment of the United States District Court for the Southern District of New York (Lawrence M. McKenna, Judge) granting summary judgment to defendant-appellee Goldman, Sachs & Co. and dismissing Adelphia Recovery Trust's fraudulent conveyance claim brought pursuant to 11 U.S.C. § 548(a)(1)(A). We affirm on grounds of judicial estoppel.

DAVID M. FRIEDMAN (Michael C. Harwood & Howard W. Schub, on the brief), Kasowitz, Benson, Torres & Friedman, LLP, New York, NY, for Plaintiff-Counter-Defendant-Appellant.

MELVIN A. BROSTERMAN (Claude G. Szyfer and Francis C. Healy, on the brief), Stroock & Stroock & Lavan LLP, New York, NY, for Defendant-Appellee.

Before: WINTER, WALKER, and CABRANES, Circuit Judges.

OPINION

Page 113

WINTER, Circuit Judge

The Adelphia Recovery Trust, an entity created to represent the non-whole creditors of a debtor corporation that is party to a bankruptcy proceeding described below, appeals from Judge McKenna's grant of summary judgment dismissing its fraudulent conveyance claim against Goldman, Sachs & Co. In such a fraudulent conveyance claim, the Trust may recover only property owned by the parent-company debtor. The various schedules and Chapter 11 plan, which were consummated with the agreement of appellant and its predecessors in interest in the bankruptcy proceeding, all treated the property transferred as owned by a separate subsidiary. We, therefore, affirm on grounds of judicial estoppel.

BACKGROUND

Adelphia Communications Corp. (" ACC" ) was the parent company of some 200 holding and operating subsidiaries (collectively, " Adelphia" ). At its peak, Adelphia formed the fifth-largest cable company in the United States. ACC, at all relevant times a publicly traded company, was founded by John Rigas in 1986, and members of the Rigas family held several top positions at ACC. After ACC disclosed that it had several billion dollars in fraudulently concealed, off-balance-sheet debt, Rigas family members were forced to resign from their positions and faced various civil and criminal actions. See, e.g., United States v. Rigas, 490 F.3d 208 (2d Cir. 2007).

On June 25, 2002, ACC and its subsidiaries entered bankruptcy under Chapter 11. Pursuant to an ensuing plan of reorganization, substantially all assets of ACC and its subsidiaries were liquidated, and all secured creditors of ACC and its subsidiaries were paid in full. In addition, all unsecured debt of the subsidiaries was also paid in full with interest, and a portion of ACC's unsecured debt was paid. Those creditors of ACC who were not paid in full received an interest in any remaining assets that appellant can recover.

In July 2003, appellant's predecessor in interest filed suit against over 400 lenders, investment banks, and other financial institutions, seeking damages for their alleged participation in the Rigas family fraud. This action included the present action against Goldman, Sachs & Co. (" Goldman" ).[1]

Appellant's action against Goldman alleges a fraudulent conveyance under 11 U.S.C. § § 548(a)(1)(A) and 550(a). It arose out of a 1999 multi-million margin loan that Goldman had extended to Highland Holdings II LLP (" Highland" ), an

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entity owned by the Rigas family (a Rigas family entity, or " RFE" ) unconnected to Adelphia. The loan, which was secured by ACC stock owned by Highland, was allegedly used by the Rigases to purchase additional ACC stock and thereby to maintain their control over Adelphia. As ACC's stock price decreased following the disclosure of the fraudulent concealment of debt in 2002, Goldman issued several margin calls to Highland. The complaint alleged that the Rigases caused ACC to make cash payments of $63 million to cover these margin calls.

Appellant's allegations against Goldman were amended several times at the suggestion of the district court. The court was concerned that " [t]he Amended Complaint does not identify which fraudulent conveyances came from ACC and which came from the [subsidiaries]. This omission is significant because [appellant] lacks standing to pursue claims to recover for fraudulent conveyance on behalf of the [subsidiaries]." Adelphia Recovery Trust v. Bank of Am., N.A., No. 05-civ-9050, 2009 WL 1676077, at *2 (S.D.N.Y. June 15, 2009). The district court, therefore, directed appellant to " ...


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