Adelphia Recovery Trust v. Goldman, Sachs & Co., et al.

11-1858-cv
Adelphia Recovery Trust v. Goldman, Sachs & Co., et al.
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
August Term, 2011 3
4
(Argued: April 25, 2012 Decided: April 4, 2014) 5
Docket No. 11-1858-cv 6
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ADELPHIA RECOVERY TRUST, AKA THE ADELPHIA CONTINGENT VALUE 8 VEHICLE, 9 Plaintiff-Counter-Defendant-Appellant, 10
11 ADELPHIA COMMUNICATIONS CORP., AND ITS AFFILIATED DEBTORS AND 12 DEBTORS IN POSSESSION, OFFICIAL COMMITTEE OF EQUITY SECURITY 13 HOLDERS OF ADELPHIA COMMUNICATIONS CORP., OFFICIAL COMMITTEE OF 14 UNSECURED CREDITORS OF ADELPHIA COMMUNICATIONS CORP., 15 Plaintiffs-Counter-Defendants, 16
17 v. 18
19 GOLDMAN, SACHS & CO., 20 Defendant-Appellee, 21
22 HARRIS NESBITT CORP., DEUTSCHE BANK AG, BANK OF NEW YORK COMPANY, 23 INC., DAI-ICHI KANGYO BANK, LTD., THE INDUSTRIAL BANK OF JAPAN, 24 LIMITED, IBJ WHITEHALL FUNDING 2001 TRUST, MIZUHO CORPORATE BANK, 25 LTD., J.P. MORGAN SECURITIES, INC., MOUNTAIN CAPITAL CLO I, 26 MOUNTAIN CAPITAL CLO II, UBS AG, MELLON BANK, N.A., J.P. MORGAN 27 SECURITIES, INC., DEUTSCHE BANK AG, J.P. MORGAN CHASE BANK, N.A., 28 NATIONWIDE LIFE INSURANCE COMPANY, NATIONWIDE LIFE AND ANNUITY 29 INSURANCE COMPANY, NATIONWIDE MUTUAL INSURANCE COMPANY, MARATHON 30 SPECIAL OPPORTUNITY MASTER FUND, LTD., SPRUGOS INVESTMENTS IV, 31 L.L.C., BNP PARIBAS, FIRST HAWAIIAN BANK, NON-AGENT LENDERS, 32 PUTNAM DIVERSIFIED INCOME TRUST, PUTNAM HIGH YIELD ADVANTAGE 33 FUND, PUTNAM HIGH YIELD TRUST, PUTNAM MASTER INCOME TRUST, PUTNAM 34 MASTER INTERMEDIATE INCOME TRUST, PUTNAM PREMIER INCOME TRUST, 35 PUTNAM VARIABLE TRUST—PVT DIVERSIFIED INCOME FUND, PUTNAM 36 VARIABLE TRUST—PVT HIGH YIELD FUND, PUTNAM FLOATING RATE INCOME 37 FUND, PUTNAM FUNDS TRUST-PUTNAM HIGH YIELD TRUST II, PUTNAM HIGH 38 YIELD FIXED INCOME FUND, PUTNAM HIGH YIELD MANAGED TRUST, PUTNAM 39
1

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MANAGED HIGH YIELD TRUST, PUTNAM STRATEGIC INCOME FUND, TRAVELERS 1 SERIES FUND, INC.-PUTNAM, KZH HOLDING CORPORATION III, KZH 2 CYPRESS TREE-1 LLC, KZH III LLC, KZH ING-2 LLC, KZH LANGDALE 3 LLC, KZH PONDVIEW LLC, KZH SHOSHONE LLC, KZH WATERSIDE LLC, KZH 4 CNC LLC, KZH HIGHLAND-2 LLC, KZH ING-1 LLC, KZH ING-3 LLC, KZH 5 PAMCO LLC, KZH SOLEIL-2 LLC, KZH STERLING LLC, KZH RIVERSIDE LLC, 6 KZH SOLEIL LLC, MERRILL LYNCH PIERCE, FENNER & SMITH 7 INCORPORATED, MERRILL LYNCH CREDIT PRODUCTS LLC, MIZUHO GLOBAL 8 LIMITED, APEXTRIMARAN-CDO I, LTD., CARAVELLE INVESTMENT FUND, 9 L.L.C., CARAVELLE INVESTMENT FUND II, L.L.C., GOLDMAN SACHS 10 CREDIT PARTNERS, L.P., SEI INSTITUTIONAL INVESTMENTS TRUST AND 11 THE SEI INSTITUTIONAL MANAGED TRUST, FIFTH THIRD BANK, FLEET 12 NATIONAL BANK, BANK OF TOKYOMITSUBISHI TRUST COMPANY, N/K/A BANK 13 OF TOKYO-MITSUBISHI UFJ TRUST COMPANY, MITSUBISHI UFJ TRUST AND 14 BANKING CORPORATION, HALCYON FUND, L.P., EXIS HOLDING LTD., RBS 15 CITIZENS, N.A., KZH ENTITIES, DEUTSCHE BANK AG NEW YORK BRANCH, 16 HCM/Z SPECIAL OPPORTUNITIES LLC, PHOENIX-GOODWIN HIGH YIELD FUND, 17 BNY MELLON CAPITAL MARKETS, LLC, CITIGROUP GLOBAL MARKETS INC., 18 BANK OF TOKYOMITSUBISHI TRUST COMPANY, MITSUBISHI TRUST AND 19 BANKING CORPORATION, CIBC WORLD MARKETS INC., CREDIT SUISSE, NEW 20 YORK BRANCH, SUNTRUST ROBINSON HUMPHREY, INC., CREDIT SUISSE 21 CAPITAL FUNDING, INC., THE BANK OF NEW YORK MELLON, SOCIETE 22 GENERALE, COWEN AND COMPANY, LLC, BMO CAPITAL MARKETS CORP., SUN 23 TRUST BANK, BANK OF AMERICA SECURITIES LLC, 24 Defendants, 25
26 THE FUJI BANK, LIMITED, THE TORONTO-DOMINION BANK, 27 Defendants-Consolidated-Defendants, 28
29 TORONTO DOMINION (TEXAS) LLC, THE BANK OF NOVA SCOTIA, CREDIT 30 SUISSE (USA), INC., TD SECURITIES (USA) LLC, 31 Defendants-Consolidated-Defendants-Counter-Claimants, 32
33 BANK OF AMERICA, N.A., INDOSUEZ CAPITAL FUNDING IIA, LTD., LCM I 34 LIMITED PARTNERSHIP, CALYON NEW YORK BRANCH, CALYON SECURITIES 35 (USA), INC., LIMITED AND INDOSUEZ CAPITAL FUNDING VI, LTD., BANK 36 OF NEW YORK CAPITAL MARKETS, INC., HSBC BANK USA, NATIONAL 37 ASSOCIATION, BANK OF MONTREAL, CITIBANK, N.A. AND CITICORP USA, 38 INC., BARCLAYS BANK PLC, PNC BANK, N.A., DEUTSCHE BANK TRUST 39 COMPANY AMERICAS, SOCIETE GENERALE, S.A., MERRILL LYNCH & CO., 40 INC., MERRILL LYNCH CAPITAL CORP., BANK OF NEW YORK, ABN AMRO 41 BANK, N.V., COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., 42 “RABOBANK NEDERLAND” NEW YORK BRANCH, MORGAN STANLEY SENIOR 43 FUNDING, INC., 44 Defendants-Counter-Claimants, 45
46 WACHOVIA BANK, NATIONAL ASSOCIATION, 47 Defendant-Bankruptcy-Movant-Counter-Claimant, 48
49
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WACHOVIA CAPITAL MARKETS LLC, CITIGROUP GLOBAL MARKETS HOLDINGS, 1 INC., COWEN & CO., LLC, SCOTIA CAPITAL (USA), INC., 2 Consolidated-Defendants-Counter-Claimants, 3
4 CITIGROUP FINANCIAL PRODUCTS, INC., 5 Consolidated-Defendant, 6
7 ABN AMRO INC., DEUTSCHE BANK SECURITIES, INC., FLEET SECURITIES, 8 INC., CIBC WORLD MARKETS CORP., MORGAN STANLEY & CO. 9 INCORPORATED, BARCLAYS CAPITAL INC., SUNTRUST CAPITAL MARKETS, 10 INC., BANC OF AMERICA SECURITIES LLC., PNC CAPITAL MARKETS LLC, 11 CIBC INC., BMO CAPITAL MARKETS FINANCING, INC., SUNTRUST BANK, 12 THE ROYAL BANK OF SCOTLAND PLC, 13 Counter-Claimants. 14
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17 B e f o r e: WINTER, WALKER, and CABRANES, Circuit Judges. 18
19 Appeal from a judgment of the United States District Court 20
for the Southern District of New York (Lawrence M. McKenna, 21
Judge) granting summary judgment to defendant-appellee Goldman, 22
Sachs & Co. and dismissing Adelphia Recovery Trust’s fraudulent 23
conveyance claim brought pursuant to 11 U.S.C. § 548(a)(1)(A). 24
We affirm on grounds of judicial estoppel. 25
DAVID M. FRIEDMAN (Michael C. Harwood & 26 Howard W. Schub, on the brief), 27 Kasowitz, Benson, Torres & Friedman, 28 LLP, New York, NY, for Plaintiff- 29 Counter-Defendant-Appellant. 30
31
MELVIN A. BROSTERMAN (Claude G. Szyfer 32 and Francis C. Healy, on the brief), 33 Stroock & Stroock & Lavan LLP, New York, 34 NY, for Defendant-Appellee. 35
36 WINTER, Circuit Judge: 37
38 The Adelphia Recovery Trust, an entity created to represent 39
the non-whole creditors of a debtor corporation that is party to 40
a bankruptcy proceeding described below, appeals from Judge 41
McKenna’s grant of summary judgment dismissing its fraudulent 42
conveyance claim against Goldman, Sachs & Co. In such a 43

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fraudulent conveyance claim, the Trust may recover only property 1
owned by the parent-company debtor. The various schedules and 2
Chapter 11 plan, which were consummated with the agreement of 3
appellant and its predecessors in interest in the bankruptcy 4
proceeding, all treated the property transferred as owned by a 5
separate subsidiary. We, therefore, affirm on grounds of 6
judicial estoppel. 7
BACKGROUND 8
Adelphia Communications Corp. (“ACC”) was the parent company 9
of some 200 holding and operating subsidiaries (collectively, 10
“Adelphia”). At its peak, Adelphia formed the fifth-largest 11
cable company in the United States. ACC, at all relevant times a 12
publicly traded company, was founded by John Rigas in 1986, and 13
members of the Rigas family held several top positions at ACC. 14
After ACC disclosed that it had several billion dollars in 15
fraudulently concealed, off-balance-sheet debt, Rigas family 16
members were forced to resign from their positions and faced 17
various civil and criminal actions. See, e.g., United States v. 18
Rigas, 490 F.3d 208 (2d Cir. 2007). 19
On June 25, 2002, ACC and its subsidiaries entered 20
bankruptcy under Chapter 11. Pursuant to an ensuing plan of 21
reorganization, substantially all assets of ACC and its 22
subsidiaries were liquidated, and all secured creditors of ACC 23
and its subsidiaries were paid in full. In addition, all 24
unsecured debt of the subsidiaries was also paid in full with 25
interest, and a portion of ACC’s unsecured debt was paid. Those 26
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creditors of ACC who were not paid in full received an interest 1
in any remaining assets that appellant can recover. 2
In July 2003, appellant’s predecessor in interest filed suit 3
against over 400 lenders, investment banks, and other financial 4
institutions, seeking damages for their alleged participation in 5
the Rigas family fraud. This action included the present action 6
against Goldman, Sachs & Co. (“Goldman”). 1
7
Appellant’s action against Goldman alleges a fraudulent 8
conveyance under 11 U.S.C. §§ 548(a)(1)(A) and 550(a). It arose 9
out of a 1999 multi-million margin loan that Goldman had extended 10
to Highland Holdings II LLP (“Highland”), an entity owned by the 11
Rigas family (a Rigas family entity, or “RFE”) unconnected to 12
Adelphia. The loan, which was secured by ACC stock owned by 13
Highland, was allegedly used by the Rigases to purchase 14
additional ACC stock and thereby to maintain their control over 15
Adelphia. As ACC’s stock price decreased following the 16
disclosure of the fraudulent concealment of debt in 2002, Goldman 17
issued several margin calls to Highland. The complaint alleged 18
that the Rigases caused ACC to make cash payments of $63 million 19
to cover these margin calls. 20
1 On June 17, 2008, the claims asserted on behalf of ACC subsidiary
debtors, who had already been paid in full, were dismissed for lack of
standing. Adelphia Recovery Trust v. Bank of Am., N.A., 390 B.R. 80, 97
(S.D.N.Y. 2008). The remaining claims were ultimately settled or dismissed
against all defendants other than Goldman, Sachs & Co. Although Goldman had
also moved for dismissal of the claim against it, the district court allowed
the claim to continue to summary judgment to determine whether the source of
the payments to Goldman was ACC or a subsidiary.
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Appellant’s allegations against Goldman were amended several 1
times at the suggestion of the district court. The court was 2
concerned that “[t]he Amended Complaint does not identify which 3
fraudulent conveyances came from ACC and which came from the 4
[subsidiaries]. This omission is significant because [appellant] 5
lacks standing to pursue claims to recover for fraudulent 6
conveyance on behalf of the [subsidiaries].” Adelphia Recovery 7
Trust v. Bank of Am., N.A., No. 05-civ-9050, 2009 WL 1676077, at 8
*2 (S.D.N.Y. June 16, 2009). The district court, therefore, 9
directed appellant to “submit a revised version of paragraph 1359 10
of the Amended Complaint. The revised paragraph should identify 11
which payments to [Goldman] came from ACC.” Id. 12
Pursuant to this order, appellant submitted a revised 13
version of the complaint that alleged, in relevant part: 14
[T]he Rigases caused ACC to commingle funds 15 in the concentration account that it 16 controlled, in the name of [a subsidiary] 17 Adelphia Cablevision LLC, from such sources 18 as customer receipts, liquidation of 19 overnight investment accounts, and transfers 20 from various subsidiary entities . . . in 21 order to satisfy these margin calls. On each 22 date identified in the following charts, the 23 Rigases caused ACC to direct that the funds 24 it had gathered in the concentration account 25 be distributed by Adelphia Cablevision LLC 26 directly to the Margin Lenders or to the RFE 27 for immediate payment over to the Margin 28 Lenders. 29
30 Rev. Second Am. Compl. ¶ 1359. 31
It appears from this allegation and the record that the 32
pertinent payments were made either: (i) directly to Goldman 33
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from a particular account (the “Concentration Account”), which 1
contained most of the funds in the cash management system through 2
which the collective cash of ACC and its subsidiaries was 3
managed; or (ii) indirectly from the Concentration Account 4
through an RFE and then to Goldman. Appellant seeks in this 5
action to recover $63 million. 6
In the district court, and here, appellant faced the problem 7
that the payments to Goldman were made in the name of the 8
subsidiary, Adelphia Cablevision LLC, that held the Concentration 9
Account and that has paid all its scheduled creditors, which did 10
not include ACC, in full. Accordingly, appellant lacked standing 11
to sue the subsidiary. It therefore argued, based on the amended 12
allegation quoted above, that ACC was the real owner of, and 13
payor from, the Concentration Account. Adelphia Recovery Trust 14
v. Bank of Am., N.A., No. 05-cv-9050, 2011 WL 1419617 at *2 15
(S.D.N.Y. Apr. 7, 2011). The district court disagreed and 16
granted Goldman’s motion for summary judgment. Id. The court 17
stated, “it is admitted by [appellant’s] own revised pleading 18
that the margin loan payments were not made by ACC but by 19
Adelphia Cablevision LLC, an ACC subsidiary on whose behalf 20
[appellant] does not have standing to sue.” Id. 21
This appeal followed. 22
DISCUSSION 23
We review de novo whether Goldman was entitled to summary 24
judgment as a matter of law. See, e.g., Miller v. Wolpoff & 25
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Abramson, L.L.P., 321 F.3d 292, 300 (2d Cir. 2003); Mario v. P&C 1
Food Mkts., Inc., 313 F.3d 758, 763 (2d Cir. 2002). 2
The sole issue is whether the amended complaint states a 3
valid claim of a fraudulent conveyance under 11 U.S.C. 4
§§ 548(a)(1)(A) and 550(a). Section 548(a)(1)(A) provides, in 5
relevant part: 6
The trustee may avoid any transfer . . . of 7 an interest of the debtor in property . . . 8 that was made or incurred on or within 2 9 years before the date of the filing of the 10 [bankruptcy] petition, if the debtor 11 voluntarily or involuntarily . . . made such 12 transfer . . . with actual intent to hinder, 13 delay, or defraud any entity to which the 14 debtor was or became, on or after the date 15 that such transfer was made[,] . . . 16 indebted. 17
18 11 U.S.C. § 548(a)(1)(A). The avoidance power thus applies only 19
to “transfers of property of the debtor,” Begier v. IRS, 496 U.S. 20
53, 58 (1990), which includes “all legal or equitable interests 21
of the debtor in property as of the commencement of the case,” 11 22
U.S.C. § 541(a)(1). Whether the margin loan payments to Goldman 23
were transfers of the property of ACC, or should be deemed to be 24
so, is the issue on appeal. 25
Appellant argues that we should follow decisions of the 26
Fifth and Tenth Circuits, Matter of Southmark Corp., 49 F.3d 1111 27
(5th Cir. 1995) and In re Amdura Corp., 75 F.3d 1447 (10th Cir. 28
1996), to determine whether ACC was the true owner of the 29
commingled Concentration Account. Together, these cases are said 30
to support a principle of attributing ownership of funds 31
aggregated in a communal account to a parent when the parent 32
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exercises complete dominion over the funds, and has all legally 1
cognizable indicia of ownership. In Southmark, the court 2
determined that because Southmark owned and controlled the cash 3
management account, the subsidiary’s settlement payment from that 4
account to its former president and director could be avoided by 5
Southmark because the funds were part of, and under complete 6
control by, Southmark’s estate. 49 F.3d at 1117. And in Amdura, 7
the court held that funds in a commingled cash management account 8
belonged to the parent Amdura, even though subsidiaries had 9
contributed to the account, because Amdura was listed as the 10
owner and “possessed all other legally cognizable indicia of 11
ownership.” 75 F.3d at 1451. 12
However, neither decision was rendered in a legal context 13
similar to the one before us or involved application of the 14
judicial estoppel doctrine. Throughout the reorganization 15
proceedings here, the Concentration Account was listed as an 16
asset only of two successive ACC subsidiaries, not the property 17
of ACC. The theory that the Concentration Account was actually 18
the property of ACC appeared for the first time late in the 19
present litigation, as described above, and well after 20
consummation of the plan of reorganization. 21
Appellant’s (or its predecessors’ in interest) position in 22
the bankruptcy proceedings regarding ownership of the account is 23
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inconsistent with the claim it makes on appeal. 2 Given the 1
importance to bankruptcy proceedings of determining with finality 2
a debtor’s ownership of particular assets, we hold that 3
appellants are estopped from pursuing a claim that would 4
reattribute asset ownership based on a determination of asset 5
ownership among the various entities agreed to by the pertinent 6
parties, after a plan of reorganization has been confirmed and 7
substantially consummated. 8
a) Principles of Judicial Estoppel 9
In New Hampshire v. Maine, the Supreme Court made clear that 10
the exact criteria for invoking judicial estoppel will vary based 11
on “specific factual contexts,” and that “courts have uniformly 12
recognized that its purpose is to protect the integrity of the 13
judicial process by prohibiting parties from deliberately 14
changing positions according to the exigencies of the moment.” 15
532 U.S. 742, 749-51 (2001) (internal citations and quotation 16
marks omitted). New Hampshire explains that, 17
Courts have observed that the circumstances 18 under which judicial estoppel may 19 appropriately be invoked are probably not 20
2 Attribution of the Concentration Account to ACC required an explicit
claim of ownership by ACC in the bankruptcy proceeding. First, bank
statements listed the account holder’s Taxpayer ID Number as that
corresponding to the ACC subsidiary National Cable Acquisition Associates.
Second, within Adelphia the Concentration Account was referred to as the
Adelphia Cablevision (an ACC subsidiary) account, and Adelphia Cablevision was
the entity that made and received payments involved with the Account.
Finally, any of ACC, its subsidiaries, or RFEs could direct that money be paid
from the Account on their behalf by wire or check regardless of how much they
had contributed to the account, and if at any time the payments on behalf of
these entities exceeded the entity’s contribution to the Account, an
intercompany payable to Adelphia Cablevision by those entities was created.
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reducible to any general formulation of 1 principle. Nevertheless, several factors 2 typically inform the decision whether to 3 apply the doctrine in a particular case: 4 First, a party’s later position must be 5 clearly inconsistent with its earlier 6 position. Second, courts regularly inquire 7 whether the party has succeeded in persuading 8 a court to accept that party’s earlier 9 position, so that judicial acceptance of an 10 inconsistent position in a later proceeding 11 would create the perception that either the 12 first or the second court was misled. . . . A 13 third consideration is whether the party 14 seeking to assert an inconsistent position 15 would derive an unfair advantage or impose an 16 unfair detriment on the opposing party if not 17 estopped. In enumerating these factors, we do 18 not establish inflexible prerequisites or an 19 exhaustive formula for determining the 20 applicability of judicial estoppel. 21
22 Id. at 750-51. (internal citations and quotation marks omitted). 23
Although we have recognized that “[t]ypically” the application of 24
judicial estoppel requires showing unfair advantage against the 25
party seeking estoppel, DeRosa v. Nat’l Envelope Corp., 595 F.3d 26
99, 103 (2d Cir. 2010) (requiring a party to show a clearly 27
inconsistent position, adoption of that position by a court in an 28
earlier proceeding, and unfair advantage against the party 29
seeking estoppel in the ADA context), we have not required this 30
element in all circumstances. See Maharaj v. BankAmerica Corp., 31
128 F.3d 94, 98 (2d Cir. 1997) (not requiring the element of 32
unfair advantage); Mitchell v. Washingtonville Cent. Sch. Dist., 33
190 F.3d 1, 6 (2d Cir. 1999) (same). This is consistent with New 34
Hampshire’s admonishment that the application of the judicial 35
estoppel doctrine depends heavily on the “specific factual 36
context[]” before the court. 531 U.S. at 751. We do note, 37
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though, that every case emphasizes that “[b]ecause the doctrine 1
is primarily concerned with protecting the judicial process, 2
relief is granted only when the risk of inconsistent results with 3
its impact on judicial integrity is certain.” Republic of Ecuador 4
v. Chevron Corp., 638 F.3d 384, 397 (2d Cir. 2011) (internal 5
quotation marks omitted). 6
Our holding in this regard is shaped by the context of a 7
complicated bankruptcy proceeding involving 250 related, 8
insolvent entities, and the risk to judicial integrity if we were 9
to allow a party, after the consummation of a bankruptcy, to take 10
a position that unravels key decisions in the proceedings. We 11
first turn to a description of the legal mechanics of such a 12
proceeding. 13
b) The Bankruptcy Context 14
Following a filing for Chapter 11 bankruptcy reorganization, 15
the debtor must file “a list of creditors[,] a schedule of assets 16
and liabilities[,] a schedule of current income and current 17
expenditures[, and] a statement of the debtor’s financial 18
affairs.” 11 U.S.C. § 521(a)(1). The debtor is given a 120-day 19
exclusive period in which to submit a plan of reorganization, 11 20
U.S.C. § 1121(b), and a disclosure statement containing “adequate 21
information” to allow interested parties to evaluate that plan. 22
11. U.S.C. § 1125(a)-(b). This plan includes items like complete 23
asset schedules. See Sure-Snap Corp. v. State St. Bank & Trust 24
Co., 948 F.2d 869, 873 (2d Cir. 1991); see also Chartschlaa v. 25
Nationwide Mut. Ins. Co., 538 F.3d 116, 122 (2d Cir. 2008) (The 26
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bankruptcy estate includes “all legal or equitable interests of 1
the debtor in property as of the commencement of the case” and 2
“[i]t would be hard to imagine language that would be more 3
encompassing than this broad definition.” (internal citations and 4
quotation marks omitted)). 5
The debtor is given 180 days, extendable up to 20 months by 6
the court, from filing for Chapter 11 relief in which to obtain 7
the approval of “each class of claims or interests that is 8
impaired under the plan.” 11 U.S.C. § 1121(c)-(d). If the debtor 9
fails to file a plan or the debtor’s exclusive filing period 10
expires without acceptance of a proposed plan by the parties in 11
interest, any party in interest can file a competing plan and 12
seek approval by the parties in interest. 11 U.S.C. § 1121(c). 13
Both the debtor’s plan and any competing plan must meet various 14
mandatory provisions and may meet various discretionary 15
provisions. 11 U.S.C. §§ 1122, 1123(a), (b). Foremost among the 16
mandatory requirements is that the plan designate classes of 17
claims and classes of interests and specify how these classes 18
will be treated under the plan. 11 U.S.C. §§ 1122, 1123(a). 19
Once a conforming plan has been proposed, parties in 20
interest can vote to approve it. Following approval by at least 21
one class of impaired non-insider claims -- claims that will not 22
be paid completely or will have some other right altered under 23
the plan -- the court can confirm the plan and bind all creditors 24
if the plan is feasible, was proposed in good faith, and is in 25
compliance with the Bankruptcy Code. 11 U.S.C. § 1129(a)(10), 26
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(b); Fed. R. Bankr. P. 3020(b)(2). Once the plan is confirmed, 1
the debtor is discharged from any prepetition debts, subject to 2
specific exceptions not relevant here, as long as the confirmed 3
bankruptcy plan is followed. 11 U.S.C. §§ 1141(d)(1), 523. 4
c) Application of Judicial Estoppel 5
As the recitation of bankruptcy procedures and time frames 6
makes clear, debtors and creditors have ample periods of time 7
within which to finalize asset ownership schedules and fashion a 8
plan dependent upon those schedules. 9
In the present case, ACC filed for bankruptcy on June 25, 10
2002; the ultimately-confirmed plan was proposed on October 16, 11
2006; and the plan was confirmed on January 5, 2007, leaving over 12
four and a half years to sort out whether ACC or a subsidiary 13
owned the Concentration Account assets. At no time during these 14
proceedings did ACC or any party attribute ownership of the 15
Concentration Account assets to ACC. At the time of bankruptcy 16
filing and again in February 2004, the ACC subsidiary ACC 17
Operations, Inc. identified the Concentration Account as its 18
property; ACC did not. Amendments to the schedules of 19
liabilities in January and May 2005 listed the ACC subsidiary 20
Adelphia Cablevision as the owner of the Account in concluding 21
that “intercompany transfers between a Debtor on the one hand, 22
and Adelphia Cablevision [as owner of the Concentration Account] 23
on the other hand, have been netted in the Intercompany Schedule, 24
creating either a net payable or receivable intercompany balance 25
between each such Debtor and Adelphia Cablevision.” ACC never 26
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claimed the Account as one of its assets until such a claim of 1
ownership was asserted in the present proceeding in 2009. Nor 2
did any other party assert such a claim or seek a substantive 3
consolidation of ACC and Adelphia Cablevision’s bankruptcies, as 4
permitted in bankruptcy proceedings to remedy circumstances where 5
formally separate entities commingle and subject their collective 6
assets to single control. See In re Augie/Restivo Baking Co., 7
860 F.2d 515, 518-19 (2d Cir. 1988). 8
Further, the bankruptcy plan undeniably was substantially 9
consummated as early as 2007. In re Adelphia Comm’cns Corp., 367 10
B.R. 84, 94 (S.D.N.Y. 2007). Substantial consummation, as 11
defined in 11 U.S.C. § 1101(2), requires the “transfer of all or 12
substantially all of the property” in the plan, “assumption by 13
the debtor . . . of all or substantially all of the property 14
dealt with by the plan,” and “commencement of distribution under 15
the plan.” Over $6 billion in cash, $117 million in tradeable 16
Time Warner shares, and $9.5 billion in tradeable Adelphia 17
Contingent Value Vehicle shares (shares set up as an interest in 18
Adelphia recoveries against third party lenders and accountants) 19
were distributed to claimholders as of early March 2007, just 20
after confirmation of the plan. Since then, substantially all 21
Adelphia’s assets have been liquidated, returning approximately 22
$18 billion to claimholders. 23
In the bankruptcy context, whether a party’s position with 24
regard to the ownership of assets is inconsistent with its later 25
claims is largely informed by the bankruptcy court’s treatment of 26
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those claims. See Galin v. United States, No. 08-cv-2508, 2008 1
WL 5378387, at *10 (E.D.N.Y. Dec. 23, 2008) (“adoption” in 2
judicial estoppel “is usually fulfilled . . . when the bankruptcy 3
court confirms a plan pursuant to which creditors release their 4
claims against the debtor” (quoting Negron v. Weiss, No. 06-cv- 5
1288, 2006 WL 2792769, at *3 (E.D.N.Y. Sept. 27, 2006))). 6
Determination of the ownership of assets is at the core of the 7
bankruptcy process, and particularly the creation of a bankruptcy 8
reorganization plan, which involves “a schedule of all [the 9
debtors’] liquid assets and liabilities,” and thereafter 10
operates, with full preclusive effect, to “bind its debtors and 11
creditors as to all the plan’s provisions, and all related, 12
property or non-property based claims which could have been 13
litigated in the same cause of action.” Sure-Snap Corp., 948 14
F.2d at 873 (citing 11 U.S.C. §§ 521(a)(1), 1141(a)). 15
It is therefore crucial, both for the sake of finality and 16
the needs of debtors and creditors, that claims to ownership of 17
various assets be determined in the bankruptcy proceedings. 18
Particularly when, as here, the assets in question were claimed 19
by other parties during the bankruptcy proceeding without 20
objection, a debtor’s subsequent claim to those assets in a 21
different proceeding must be seen as inconsistent with its prior 22
silence. 3 Cf. Chartschlaa, 538 F.3d at 123 (“The Bankruptcy Code 23
3 A party may be bound by the position taken by its predecessors in
interest in prior proceedings. See, e.g., Secured Equities Invs., Inc. v.
McFarland, 753 N.Y.S.2d 264, 264 (4th Dep’t 2002)).
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is premised on full and complete disclosure of the debtor’s 1
finances.”). Any other holding would encourage sharp practices, 2
involving strategic denials or affirmations of asset ownership 3
timed to the legal exigencies of the moment, precisely what the 4
doctrine is intended to prevent. 5
The bankruptcy court’s treatment of the asset schedules in 6
the present matter underlies their importance and the need for 7
finality. In order for the reorganization to proceed, the 8
Adelphia entities underwent a massive restatement of their 9
accounting records, which sought to provide separate, audited 10
financials for each insolvent entity. In re Adelphia, 368 B.R. at 11
150-51. The allocation of assets to the various entities was of 12
central importance to this process. One of the foremost 13
difficulties the bankruptcy court encountered was the issue of 14
intercompany transfers between the various entities controlled by 15
the Rigas family. See id. at 152. The resolution of this problem 16
depended on the parties’ adoption of the so-called “Bank of 17
Adelphia Paradigm,” 4 which tracked intercompany transfers through 18
a single RFE subsidiary that controlled the main account: 19
Adelphia Cablevision. Id. at 151-53. Adelphia Cablevision was 20
listed as the owner of the Concentration Account in both the 21
4 “[I]ntercompany transactions (e.g., cash receipts, disbursements,
acquisition accounting and cost allocations) were deemed to have been made by
or to a single entity, Adelphia Cablevision, LLC (the ‘Bank of Adelphia’).
This methodology, often referred to as the ‘Bank of Adelphia Paradigm,’
aggregated intercompany transaction balances consistent with the actual flow
of funds within the Debtor’s cash management system.” In re Adelphia, 368
B.R. at 151.
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January and May amendments to the debtors’ schedules of assets 1
and liabilities, and neither ACC nor appellant’s predecessors in 2
interest contested that determination. 3
The asset schedules thus played a key role in both the 4
bankruptcy court’s supervision of the process and in the parties’ 5
understanding of the plan. As the district court noted in its 6
discussion of substantive consolidation, such relief was “highly 7
unlikely” because “the Debtors have issued restated financial 8
statements and filed the May 2005 Schedules, thus evidencing an 9
ability to generally determine the assets and liabilities of each 10
Debtor.” Id. at 219 (discussing In re Augie/Restivo, 860 F.2d at 11
519) (internal quotation marks omitted). The Bank of Adelphia 12
paradigm, which included Adelphia Cablevision’s ownership of the 13
account in the asset schedules, was the cornerstone of the 14
bankruptcy plan, and without it the entire process would have 15
been at risk of unraveling. We, therefore, decline to issue a 16
ruling inconsistent with the factual underpinnings of this duly 17
confirmed and substantially consummated bankruptcy plan. 18
A different ruling would threaten the integrity of the 19
bankruptcy process by encouraging parties to alter their 20
positions as to ownership of assets as they deem their litigation 21
needs to change, leaving courts to unravel previously closed 22
proceedings. Doing so would allow parties an opportunity to 23
“play[] fast and loose” with the requirements of the bankruptcy 24
process and inject an unacceptable level of uncertainty into its 25
results -- exactly the result that the doctrine of judicial 26
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estoppel is intended to avoid. Wight v. BankAmerica Corp., 219 1
F.3d 79, 89 (2d Cir. 2000); accord In re Adelphia Recovery Trust, 2
634 F.3d at 696 (integrity of judicial process threatened by 3
parties taking a short term position that risks being 4
inconsistent with its future position, not only by “knowingly 5
[lying]”). 6
In relying upon the prospective harm to the integrity of 7
bankruptcy proceedings that would result from a different ruling, 8
we do not exclude the possibility of specific harm, or unfair 9
disadvantage to, Goldman beyond the possible loss of $63 million. 10
We simply decline to require Goldman and the courts having to 11
unravel all previous proceedings to determine what would have 12
happened had appellant or its predecessors in interest claimed 13
ownership of the Concentration Account in a timely fashion. 14
We also do not exclude the possibility that, in an unusual 15
case, the allocation of specific assets may be largely irrelevant 16
to the bankruptcy court’s actions. However, given the centrality 17
of asset allocation to the integrity of the bankruptcy process, 18
see Chartschlaa, 538 F.3d at 122, particularly where multiple 19
related entities are involved, a creditor who fails to lay claim 20
to an asset in the bankruptcy court only to do so in subsequent 21
litigation must, to prevail, bear the heavy burden of showing a 22
de minimis effect on the bankruptcy proceeding. 23
CONCLUSION 24
The requirements of judicial estoppel are, therefore, met. 25
The asset schedules showing that the Concentration Account was 26
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held by a subsidiary of ACC were approved by appellant’s 1
predecessors in interest. The bankruptcy court adopted the asset 2
schedules and approved a plan of reorganization that treated ACC 3
separately from its subsidiaries based on those schedules. 4
Revisiting the accuracy of those schedules to permit the present 5
action to proceed would clearly threaten the integrity of 6
bankruptcy proceedings. We, therefore, hold that appellant’s 7
complaint is barred by the doctrine of judicial estoppel. The 8
judgment of the district court is affirmed. 9
10
11
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