Adelphia Communications Corporation et al v. FPL Group, Inc. et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
)
In re: 	) 	Chapter 11
)
ADELPHIA COMMUNICATIONS CORP., et. al., ) 	Case No. 02-41729 (REG)
) 	(Jointly Administered)
Debtors. 	)
)
ADELPHIA RECOVERY TRUST, 	)
)
Plaintiff, 	)
v. 	)
)
FPL GROUP, INC., et al., 	) 	Adv. Pro. No. 04-03295 (REG)
)
Defendants. 	)
DECISION AFTER TRIAL 1
APPEARANCES:
KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
Counsel for Plaintiff Adelphia Recovery Trust
1633 Broadway
New York, New York 10019
By: 	David M. Friedman, Esq. (argued)
Michael C. Harwood, Esq.
Howard W. Schub, Esq.
Robert M. Novick, Esq.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Counsel for Defendants FPL Group, Inc. and West Boca Security, Inc.
4 Times Square
New York, New York 10036
By: 	George A. Zimmerman, Esq. (argued)
Jonathan L. Frank, Esq.
1 	Upon a motion to withdraw the reference, Judge Crotty of the district court determined that this action—
one to recover an alleged fraudulent transfer—was beyond the Bankruptcy Court’s final adjudicatory
power. Adelphia Recovery Trust v. FPL Group, Inc. (In re Adelphia Commc’ns Corp.), 2012 U.S. Dist.
LEXIS 10804, *15, 2012 WL 264180, *5 (S.D.N.Y. Jan. 30, 2012) (ECF No. 71 in this Court’s docket).
But he determined that a bankruptcy judge could issue proposed findings of facts and conclusions of law in
a fraudulent transfer action, id. at *16, 2012 WL 264180 at *6, and that “[t]he Bankruptcy Court should
proceed with the reference, conduct the trial and issue proposed findings of fact and conclusions of law.”
Id. at *22–23, 2012 WL 264180 at *8. My Findings of Fact and Conclusions of Law are accordingly only
proposed. But I’ve written this decision as I would any other decision after trial.
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TABLE OF CONTENTS
Introduction ..................................................................................................................................... 1
Findings of Fact .............................................................................................................................. 3
I. Background ................................................................................................................................. 3
A. Adelphia/FPL Partnership ..................................................................................................... 3
B. FPL’s Additional Adelphia Stock Acquisitions .................................................................... 5
II. Interdependence of Adelphia/FPL 1999 Transactions .............................................................. 6
A. Underlying Factual Findings re Interdependence ................................................................. 6
1. The Letter Agreement ........................................................................................................ 7
2. Board Approval and Press Release .................................................................................. 11
3. The Stock Repurchase...................................................................................................... 13
4. The Olympus Redemption ............................................................................................... 14
5. FPL’s SEC Filings ........................................................................................................... 15
B. My Factual Conclusions re Interdependence ...................................................................... 16
III. Solvency, Capital Adequacy, & Equitable Insolvency .......................................................... 16
A. Solvency .............................................................................................................................. 17
1. The Experts’ Analyses—Overview ................................................................................. 17
2. The Experts’ Methodologies ............................................................................................ 18
(a) Discounted Cash Flow ................................................................................................ 18
(b) Comparable Companies ............................................................................................. 21
(c) Precedent Transactions ............................................................................................... 24
(d) Adjustments to TEV ................................................................................................... 26
(i) Verto Communications Acquisition ......................................................................... 26
(ii) Olympus Partnership Interest ................................................................................. 27
(iii) Interest in ABIZ ..................................................................................................... 29
(iv) Receivables ............................................................................................................ 29
(v) Non-Cable Assets other than ABIZ ........................................................................ 30
3. Experts’ Conclusions as to TEV After Adjustments ....................................................... 30
4. Experts’ Analysis of Liabilities ....................................................................................... 31
5. Experts’ Conclusions ....................................................................................................... 31
6. My Solvency Conclusions ............................................................................................... 32
(a) Methodology............................................................................................................... 32
(b) Adjustments to Value .................................................................................................. 39
(i) Verto Communications ............................................................................................ 39
(ii) Olympus .................................................................................................................. 40
(iii) ABIZ ...................................................................................................................... 41
(iv) Rigas Family Entities ............................................................................................. 41
(v) Olympus .................................................................................................................. 42
(vi) Noncable Assets Other than ABIZ ......................................................................... 42
(c) Net Debt...................................................................................................................... 42
(i) ABIZ Debt................................................................................................................ 42
(ii) Repayment of Bank Debt ........................................................................................ 43
(d) My Finding re Solvency ............................................................................................. 44
B. Capital Adequacy ................................................................................................................ 45
1. Capital Needs ................................................................................................................... 45
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(a) Subscriber Number ..................................................................................................... 46
(b) Olympus Consolidation .............................................................................................. 48
(c) Equity Issuance ........................................................................................................... 49
(d) CapEx ......................................................................................................................... 50
2. Access to Capital.............................................................................................................. 52
(a) High Leverage Ratio................................................................................................... 53
(b) Ability to Sell Assets .................................................................................................. 55
(c) Effect of Fraud on Access to New and Existing Sources of Capital .......................... 56
3. My Capital Adequacy Conclusions ................................................................................. 58
(a) Capital Needs.............................................................................................................. 58
(b) Access to Capital Markets .......................................................................................... 59
C. Equitable Insolvency ........................................................................................................... 61
IV. Ultimate Findings of Fact ...................................................................................................... 61
Discussion ..................................................................................................................................... 62
I. Interdependence ........................................................................................................................ 64
II. Insolvency ............................................................................................................................... 73
III. 	Inadequate Capital and Equitable Insolvency ....................................................................... 74
Conclusion .................................................................................................................................... 76
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ROBERT E. GERBER
UNITED STATES BANKRUPTCY JUDGE:
Introduction
In this adversary proceeding under the umbrella of the chapter 11 cases of reorganized
debtor Adelphia Communications Corporation (“Adelphia”) and about 232 affiliates
(together, the “Debtors”), the Adelphia Recovery Trust (the “Recovery Trust”)—which was
established under the Debtors’ now-confirmed chapter 11 plan as a successor to Adelphia’s
rights—seeks to recover, as a fraudulent transfer, approximately $150 million2 from
defendants FPL Group, Inc. (“FPL”) and FPL’s affiliate Mayberry Investments Inc.
(“Mayberry,” and together with FPL, the “FPL Defendants”).
The Recovery Trust seeks to recover the $150 million Adelphia paid in January 19993
for the repurchase of Adelphia’s own stock.4
2 	The exact amount of the alleged fraudulent transfer for which recovery is sought was $149,213,130.
But the difference in amount isn’t material. For simplicity, I refer to the amount in issue as “the
$150 million.”
3 	The $150 million payment was made about three months before Adelphia entered into the first of three
“co-borrowing” facilities under which Adelphia became liable to repay secured lending syndicates for
over $3 billion that went to or for the benefit of Adelphia’s former management, John, Timothy,
Michael and James Rigas (the “Rigases”): the UCA/Hilton Head facility, put in place in May 1999; the
Century Cable Holdings facility, put in place in April 2000; and the Olympus facility, put in place in
September 2001. See Adelphia Commc’ns Corp. v. Bank of America (In re Adelphia Commc’ns Corp.),
365 B.R. 24, 32 n.2, 61 (Bankr. S.D.N.Y. 2007) (“Adelphia-Bank of America”), aff'd as to all but an
unrelated issue, 390 B.R. 80 (S.D.N.Y. 2008) (McKenna, J.).
Few would dispute that the co-borrowing facilities had a crushing effect on Adelphia’s solvency. This
adversary proceeding requires determination of the extent to which Adelphia became insolvent or was
left with inadequate capital before any of the co-borrowing facilities were put in place.
4 	The stock in question was of two types. One was Class A Common Stock (whose acquisition by FPL in
1995 is discussed at page 4 below), one of the two classes of common stock Adelphia had at the time.
There was no evidence in the trial record of this adversary proceeding as to this—and thus this isn’t a
factual finding—but I note that the Second Circuit stated, in an opinion with respect to the Rigas
criminal trial, discussed below, see n.27, that Adelphia had issued two classes of common stock: Class
A, with one vote per share, and Class B, with 10 votes per share. The Class B common stock was
almost entirely owned by members of the Rigas family, which enabled them to maintain control of
Adelphia and its board of directors. See United States v. Rigas, 490 F.3d 208, 212 (2d Cir. 2007)
(“Rigas Criminal Trial I”).
The other was Class C preferred stock (whose acquisition by FPL is discussed starting at page 6 below).
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In another transaction that closed in October 1999, about eight months later, Adelphia
affiliate Olympus made a second purchase from FPL, redeeming FPL’s interest (the
“Olympus Partnership Interest”) in a joint venture partnership5 between Olympus and FPL.
Whether the first and second purchases were interdependent, on the one hand, or separate
transactions, on the other, is disputed by the two sides.6
For the reasons that follow, I conclude that:
(1) the two transactions—Adelphia’s January 1999 repurchase of its
stock, and its October 1999 purchase of the Olympus Partnership Interest—
were not interdependent, and Adelphia’s purchase of its stock was indeed
without consideration; but that
(2) at the time of the transaction, Adelphia was not yet insolvent, left
with inadequate capital, or unable to pay its debts as they matured.
Accordingly, judgment should be entered in favor of the FPL Defendants.
But the type of stock that was repurchased doesn’t matter for the purposes of this adversary proceeding,
and for the most part I won’t speak of the kind of stock with that level of detail.
5 	When two companies join together to conduct business, I typically refer to the entity by which they do
so as a “joint venture,” and save the word “partnership” for when individuals do so. But here, while
various parties referred to their relationship in both ways, they more commonly spoke of it as a
partnership, or simply “Olympus,” and to avoid the confusion that would result from using both
expressions, I’ll use “partnership” throughout, except when quotations require the exact language then
used.
6 	That might matter because if the two purchases were interdependent, any excess value received by
Adelphia on its second purchase could be regarded as consideration to offset any value deficiency with
respect to the first.
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Findings of Fact7
I.
Background
The Adelphia-FPL relationship had its origin, and end, as a result of FPL’s desires,
over a period of time, to enter, and then exit, businesses other than FPL’s traditional business
of delivery of electrical power, historically provided under the name “Florida Power & Light.”
Beginning in 1984, FPL sought to diversify its business lines to provide non-electric utilities,
such as cable television. FPL began acquiring cable television assets primarily through a
newly-formed, indirect, wholly-owned subsidiary, Telesat Cablevision, Inc. (“Telesat”). The
strategy wasn’t very successful, and by 1993, about nine years later, FPL sought to dispose of
its cable television assets.
To that end, in 1994, FPL agreed to sell its Telesat subsidiary to Time Warner
Communications. As is standard for transactions of this character, the sale was subject to
Hart-Scott-Rodino antitrust review. But after months of failing to receive the necessary
regulatory approval, the transaction languished. FPL then considered other alternatives.
A. Adelphia/FPL Partnership
In 1995, FPL again sought to divest itself of its cable television assets—this time by
forming a partnership with Adelphia. By 1995, Adelphia was one of the largest operators of
cable systems in the U.S., and was already involved in the cable television industry in Florida.
Through a wholly-owned subsidiary, ACP Holdings, Inc. (“ACP”), Adelphia held a limited
7 	To minimize the length of this decision, citations are limited to the most significant matters. From time
to time in this decision, I’ve made reference to my earlier decisions in the Adelphia chapter 11 cases to
provide context and useful background. See, e.g., Adelphia-Bank of America, n.3 above; In re Adelphia
Communications Corp., 368 B.R. 140, 148–153 (Bankr. S.D.N.Y. 2007) (“Adelphia Confirmation”).
But I haven’t made any findings here based on anything other than in the trial of this particular
adversary proceeding.
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partnership interest in Olympus Communications, L.P. (“Olympus”), which owned various
cable properties in Florida. Structuring the transaction as a partnership would relieve FPL of
management of the FPL Florida cable properties but wouldn’t involve the antitrust review that
a sale would invoke.
Thus, in February 1995 (about four years before the $150 million stock buyback),
Adelphia, FPL, Adelphia subsidiary ACP, and FPL subsidiary Telesat entered into two
agreements to create what we now call the Olympus Partnership: an Investment Agreement
(“Investment Agreement”) and a Second Amended and Restated Limited Partnership
Agreement (the “Partnership Agreement”).
Under the Investment Agreement, among other things,8 FPL subsidiary Telesat agreed
to:
(1) contribute substantially all of its Florida cable television assets to
Olympus;
(2) purchase, for $15 million, a million shares of Adelphia common
stock; and
(3) provide a total of $20 million in loans to Olympus (the “Telesat
Olympus Loans”).
In exchange, FPL’s Telesat would receive a one-third economic interest and 50% voting
interest in the Olympus Partnership.9
8 	Here and elsewhere, I’ve left out detail that’s unnecessary to this decision.
9 	As a technical matter, Telesat would hold those interests through two of its wholly-owned subsidiaries,
Cable LP III, Inc. (“Cable LP III”) and Cable GP Inc. (“Cable GP”). After its stock purchase, Telesat
would hold approximately 7% of Adelphia’s common stock. Thus the Investment Agreement further
provided that a Telesat nominee would be granted a seat on Adelphia’s Board of Directors (the
“Board”). Dennis Coyle (“Coyle”), a former FPL General Counsel and Corporate Secretary (and
FPL’s key fact witness at the trial), was nominated by Telesat, and Coyle served as an Adelphia director
beginning in September 1995.
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Also under the Investment Agreement, Adelphia agreed to contribute to the Olympus
Partnership, among other things, Adelphia’s rights to purchase cable systems located in Palm
Beach County Florida. Adelphia held those rights under an October 1994 Asset Purchase
Agreement (the “West Boca Agreement”) that Adelphia had previously entered into with
WB Cable Associates, Ltd. (“WB Cable”).
Under the West Boca Agreement, Adelphia had the option to pay the seller up to
$10 million of the purchase price using Adelphia common stock. To allow Olympus to utilize
this option after the assignment, Adelphia gave Olympus a non-interest bearing loan of $15
million due upon completion or termination of the West Boca Agreement. Olympus could
then use the proceeds of that loan to pay up to $10 million to Adelphia, in exchange for which
Adelphia would issue an equivalent amount of shares of Adelphia’s common stock to WB
Cable.
B. FPL’s Additional Adelphia Stock Acquisitions
In October 1995 (about 10 months after Adelphia and FPL had joined in the Olympus
Partnership), Olympus exercised the option under the West Boca Agreement to pay WB Cable
using Adelphia common Stock. As contemplated under the Investment Agreement, Olympus
paid Adelphia for that stock, and Adelphia issued an equivalent amount of shares of Adelphia
common stock to WB Cable.
WB Cable subsequently dissolved, leaving to its shareholders the Adelphia common
Stock it had received. But one of FPL’s subsidiaries, Cable LP, held a 20% interest in WB
Cable when WB Cable dissolved. Thus FPL subsidiary Cable LP received 91,524 shares of
Adelphia common stock.
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In December, 1996, Telesat assigned the one million shares of Adelphia’s common
stock that it had purchased pursuant to the Investment Agreement to its wholly-owned
subsidiary, Mayberry Investments Inc. (“Mayberry”).
Then, in July 1997, Olympus repaid the $20 million in Telesat Olympus Loans that
Telesat had made to Olympus under the Investment Agreement. Through a series of complex
transactions designed to minimize tax consequences, Olympus repaid the loans by issuing
20,000 shares of Adelphia’s Series C Preferred Stock (valued at $19.4 million) to Telesat, and
paying the remaining $600,000 in cash. The Series C Preferred Stock was priced at $970 a
share and was convertible into 2,356,490 shares of ACC common stock.
Thus, at the conclusion of these transactions, FPL’s subsidiary Telesat held 1 million
shares of Adelphia’s common stock in its wholly-owned subsidiary, Mayberry; 91,524 shares
of Adelphia’s common stock in its wholly-owned subsidiary, Cable LP I; and 20,000 shares of
Adelphia’s Series C Preferred Stock directly.
II.
Interdependence of Adelphia/FPL 1999 Transactions
A. Underlying Factual Findings re Interdependence
After a little less than four years as joint venture partners together as members of the
Olympus Partnership, FPL and Adelphia sought to end their relationship. Beginning in 1998,
Adelphia and FPL underwent several months of negotiation, primarily between FPL CEO
James Broadhead; FPL’s Coyle; former Chairman of Telesat Leslie Gelber (“Gelber”); and
members of the Rigas family—Timothy Rigas (“Tim Rigas”) in particular.
At a lunch meeting in about October 1998 (the “October Meeting”), Coyle, Tim
Rigas and Gelber discussed “a transaction in which FPL Group would fully exit the cable
television business” involving liquidation of FPL’s Adelphia stock and liquidation of FPL’s
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partnership interest in Olympus.10 According to Coyle, at the October Meeting, he “made it
very clear to both Mr. [Tim] Rigas and Mr. Gelber that FPL Group viewed this as one
transaction with two steps.” 11
After the October Meeting, the negotiations continued for several months, with Coyle
primarily handling them insofar as they involved the repurchase of the Adelphia stock, and
“people on the financial and tax side of FPL Group” handling the partnership interest
redemption.12 On January 21, 1999, Adelphia and Telesat entered into a one-page letter
agreement (the “Letter Agreement”) summarizing their agreement, signed by Tim Rigas, on
behalf of Adelphia, and Coyle, on behalf of Telesat.13
1. The Letter Agreement
The Letter Agreement had two separate sections. The first section was entitled “Sale
of Stock.” It began by summarizing Telesat’s current holdings of Adelphia’s stock—common
and preferred. The Letter Agreement stated, by way of background:
Telesat indirectly owns 1,091,524 shares of Adelphia
common stock and Adelphia preferred stock convertible
into 2,358,490.57 shares of Adelphia common stock,
which equates to a total of 3,450,014 shares of Adelphia
common stock.
It then described an agreement under which Adelphia would repurchase all of Telesat’s
holdings of Adelphia stock (the “Stock Repurchase”):
Subject to the approval of the Board of Directors of
Adelphia, Adelphia will purchase all of these shares at
price of $43.25 per share of Adelphia common stock,
which equates to a total of $149,213,130. (The
fractional share issuable upon conversion of the
10 	Declaration of Dennis P. Coyle ¶ 21, Apr. 18, 2012, ECF No. 109 (“Coyle Decl.”).
11 	Id.
12 	Id. ¶¶ 23–24.
13 	Letter Agreement (Jan. 21, 1999) (Joint Exh. 4).
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preferred stock will be paid in cash). This transaction
will occur upon execution of normal and customary
documentation for a transaction of this type, which the
parties expect will occur on or about January 27, 1999.
The price for the Stock Repurchase was based on the price at which shares were to be
offered to the public with an underwriting discount.14 The Stock Repurchase was “subject to”
Adelphia’s Board’s approval, and stated that it “will occur” upon the execution of formal
documents to consummate the transaction. But the Letter Agreement had no provisions
expressly stating whether or not the parties were contractually binding themselves before
those conditions were satisfied.
The Letter Agreement then continued with a second, separate, section entitled
“Redemption of Olympus Partnership Interest.” The second section addressed Telesat’s
partial or total exit from the Olympus Partnership (the “Redemption”), and specified the
value that would underlie the price of the Redemption. After stating that “Telesat indirectly
owns partnership interests in Olympus Communications, L.P.,” it continued:
Olympus will partially or totally redeem Telesat’s
interest at a price based on a value of $108,000,000 for
Telesat’s interest.
But unlike the Stock Repurchase, the Redemption was not scheduled to occur
immediately. And the terms of the Redemption were not then finalized.15 The Letter
Agreement allowed for the possibility that a partial—rather than total—redemption might
occur if the parties could agree upon mutually satisfactory terms. In that connection, the
Letter Agreement stated:
14 	Coyle Decl. ¶ 23.
15 	See FPL Group Annual Report (Form 10-K) (Mar. 2, 1999) at PX 033-054 (Plaintiff’s Exh. 33) (“FPL
1998 Form 10-K”) (“While the terms have not been finalized, the sale of the limited partnership interest
is expected to have a positive effect on FPL Group’s results of operations”).
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Telesat shall have until July 11, 1999, to present a plan
of partial redemption to Adelphia for Adelphia’s
approval. Adelphia will use its reasonable business
judgment in evaluating any plan submitted by Telesat.
But if the parties could not agree on the terms of a partial redemption, a full Redemption
would occur as a backstop:
If Adelphia and Telesat cannot agree on a plan of partial
redemption on or before July 11, 1999, then Olympus
shall totally redeem Telesat’s interest at the price agreed
to above. This transaction shall occur as soon as
practicable after there is a failure to reach agreement on
a plan of partial redemption within the time period
specified.
According to Coyle, the partial Redemption option was proposed by FPL because of “several
concerns relating to tax considerations surrounding the transaction” and the desire to “build
into its agreement the flexibility to structure the redemption in accordance with such tax
considerations.” 16 But (once more according to Coyle) “[t]his flexibility did not change the
intent of FPL Group to fully exit the cable television business and by extension, Olympus.” 17
Like the Stock Repurchase, the Redemption section of the Letter Agreement contained no
express provisions addressing whether or not the parties then were contractually bound.
The Letter Agreement further provided for FPL’s execution of a power of attorney in
favor of Olympus; if Telesat and Adelphia were unable to agree upon the terms of a partial
redemption, the full Redemption could occur with no further action. In that connection, the
Letter Agreement stated:
Simultaneously with the execution of the documentation
for the purchase of the Adelphia shares or thereafter
from time to time, the parties will execute a power of
attorney in favor of, or other documentation reasonably
16 	Coyle Decl. ¶ 29.
17 	Id.
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requested by, Olympus so that Olympus may
consummate the redemption without any further action
on the part of Telesat.
Finally, the Letter Agreement stated:
The Telesat transaction is subject to any applicable
approvals of third parties, including governmental
authorities and including Hart-Scott-Rodino approval.18
Coyle testified that at the time he understood this provision to be “simply a boilerplate
provision” as he believed that “there was no chance that this transaction would not be
consummated because of any [Hart-Scott-Rodino] Act issues.”19
Importantly, the Letter Agreement contained no language suggesting that the Stock
Repurchase and the Redemption were conditioned upon one another. In self-serving
testimony during the trial that I found unpersuasive and am unwilling to credit, Coyle claimed
that he “would not have agreed to do one step [of the transaction] without the other.”20 But
that is inconsistent with the documentary record and his testimony elsewhere, discussed
below. Nothing in the Letter Agreement made the transactions contingent upon one another.
The Letter Agreement did not provide that if the Redemption failed to occur (e.g., for failure
to obtain regulatory approval) or was only partial, the Stock Repurchase (which would have
taken place substantially earlier) would be unwound. And neither transaction was reliant
upon the other for its terms. The purchase price for the Redemption in no way related to the
price for the Stock Repurchase, or vice versa. Each transaction could have occurred on its
own, and indeed, each was set to occur on its own, independently, and at different times.
18 	The “Telesat transaction” as used in this paragraph was not a defined term and the Letter Agreement
nowhere made clear what the term “Telesat transaction” meant.
19 	Coyle Decl. ¶ 30.
20 	Coyle Decl. ¶ 26; Trial Tr. vol. 6, 685:5–13, May 2, 2012, ECF No. 117 (“Trial Tr. Vol. 6”).
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2. Board Approval and Press Release
On January 27, 1999, Tim Rigas presented the Letter Agreement to the Board.21
According to minutes of that meeting,22 Tim Rigas first “explained that the Company had
reached a letter agreement with Telesat Cablevision, Inc. regarding the repurchase of the
Company’s stock held by Telesat and its subsidiaries, and regarding the eventual redemption
of the interests held by Telesat in Olympus Communications, L.P., the joint venture
partnership in Florida.”23 He then described the provisions of the Letter Agreement in
detail.24 Tim Rigas specified that the Redemption “part of the transaction will be subject to
any necessary third party approvals and governmental approvals.”25
The Board Minutes are ambiguous as to whether the Board voted on each of the Stock
Repurchase and the Redemption separately.26 At the Rigas criminal trial,27 Coyle, who
21 	Adelphia Board Minutes (Jan. 27, 1999) (Def. Exh. 2) (“Board Minutes”).
22 	In other proceedings in the Adelphia chapter 11 case, I doubted the veracity of the Rigases’ corporate
resolutions and minutes, particularly those prepared by former Adelphia employee Colin Higgin (an
aide to Tim Rigas, who signed these minutes as Assistant Secretary), whose accounts I previously found
to be “generally unworthy of belief.” Adelphia Commc’ns Corp. v. Rigas (In re Adelphia Commc’ns
Corp.), 323 B.R. 345, 363 (Bankr. S.D.N.Y. 2005). But for lack of evidence to the contrary in this
adversary proceeding, and because independent Adelphia directors are reported to have been present at
the meeting, I accept the corporate minutes as true.
23 	Board Minutes at DX 002-002.
24 	Id.
25 	Id.
26 	Id. at DX 002-003. Specifically, with regard to the voting procedures, the Board Minutes state:
After full discussion and the answering of all questions, upon
motion duly made by Pete Metros and seconded by Perry Patterson,
the following resolutions were unanimously adopted by the full
board and separately by all the independent directors present, in
each case with Dennis Coyle expressly abstaining on the vote.
The resolutions identified in the preceding paragraph included both the Stock Repurchase and the
Redemption.
27 	John, Timothy and Michael Rigas (along with two lower-level Adelphia employees) were indicted on
multiple counts of securities fraud, wire fraud, bank fraud and criminal conspiracy in connection with
their management of Adelphia. After a trial (at which Coyle testified), a jury convicted John and Tim
Rigas of conspiracy, bank fraud and securities fraud, though it acquitted them of wire fraud. Michael
Rigas was acquitted of conspiracy and wire fraud, but the jury deadlocked on the other counts. He later
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participated in the Board Meeting telephonically but recused himself from voting due to his
conflict of interest, described the two transactions as “separate,” and that he “needed to
abstain from voting on both transactions.”28 But during the course of the trial of this
adversary proceeding, Coyle testified that there had only been one vote.29 In either case, at
pleaded guilty to a lesser charge of making a false entry in Adelphia’s books and records. See United
States v. Rigas, 583 F.3d 108, 112 (2d Cir. 2009) (“Rigas Criminal Trial II”). For more detailed
background with respect to the Adelphia criminal case, see Rigas Criminal Trial I, 490 F.3d at 212–19.
28 	Rigas Criminal Trial Transcript at 1618, 1620, United States v. Rigas, et al, No. 02-CR-1236 (S.D.N.Y.
Mar. 10, 2004) (Sand, J.). The testimony in relevant part was as follows:
Q: Now, I think you testified the reason you abstained was there
was a vote on the unwinding of the Olympus joint venture, correct?
A: I think at this meeting, the specific transaction was the sale of
the common stock that we had and the series C convertible
preferred stock. That was the transaction.
Q: In connection with the unwinding of the joint venture, correct?
A: That’s a separate transaction. There were two pieces to this.
One is – that’s a separate transaction.
. . .
Q: And they stood to benefit because Adelphia would have to buy
them out to unwind the joint venture, correct?
A: They didn’t have to do anything.
Q: That’s what they were proposing, correct?
A: That was the transaction that was being proposed.
Q: Now, you talked about this somewhat, but I’d like to delve into
it just a little bit. What were your positions –
A: Well, let me go back. That was one of the transactions that was
being proposed.
Q: Fine.
A: And it wasn’t final yet. The other transaction that was final was
the sale of the stock. So I needed to abstain from voting on both
transactions.
29 	Coyle Decl. ¶ 34. With respect to this discrepancy, FPL explains, “[Coyle] had not reviewed the Board
minutes in connection with the criminal trial (this was not an anticipated topic of his testimony) and had
mistakenly thought that there was a separate vote taken on the Stock Repurchase and Olympus
Redemption. Based on that incorrect recollection, Mr. Coyle testified that, in the context of a conflict of
interest inquiry, he recused himself from what he thought had been two separate votes. However, as
reflected in the Board Minutes, in fact, the ACC Board only took one vote at the one meeting approving
both steps of ‘the Telesat transaction.’” Def.’s Post-Trial Br. 55 n.32, June 22, 2012, ECF No. 133
(“FPL Post-Trial Br.”). I think that the Board minutes are likely more accurate than Coyle’s
recollection of the resolutions that were before the Board, and accept the Board Minutes as indicative of
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the conclusion of the meeting, the Board adopted resolutions (the “Board Resolutions”)
authorizing, ratifying and approving the Letter Agreement and the steps necessary for the
execution of the Letter Agreement.30
On the day following the Board’s approval, January 28, 1999, Adelphia issued a press
release disclosing the substance of the Letter Agreement. The press release stated:
Adelphia has reached an agreement to repurchase the
Adelphia stock owned by Telesat Cablevision, Inc., a
subsidiary of FPL, Inc. (NYSE [unreadable text, but
probably a ticker symbol]) and to acquire the interests
held by Telesat in Adelphia’s joint venture partnership,
Olympus Communications, L.P.31
It then stated “[t]he aggregate purchase price for these transactions will be
approximately $257,213,000.” 32
3. The Stock Repurchase
On January 28, 1999, the same day that the Board issued the press release, Mayberry
and Adelphia entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”)
under which Mayberry agreed to sell to Adelphia all of Telesat’s shares of Adelphia common
stock and Class C Convertible Preferred Stock for a purchase price of $149,213,130.33 The
Stock Purchase Agreement, which ran six pages before its signature page, was the epitome of
a definitive agreement, as contrasted to the Letter Agreement and other “preliminary
agreement[s]” as that expression is used in New York 34 and federal35 caselaw dealing with
what technically happened. But if Coyle regarded the two transactions as separate, I think that’s
probative of his understanding, which cannot be disregarded.
30 	Board Minutes at DX 002-003–DX 002-004.
31 	Adelphia Press Release (Jan. 28, 1999) (Def.’s Exh. 3).
32 	Id.
33 	Mayberry Stock Purchase Agreement (Jan. 28, 1999) (Joint Exh. 5).
34 	See, e.g., IDT Corp. v. Tyco Grp., S.A.R.L., 918 N.E.2d 913, 915 n.2, 13 N.Y.3d 209, 213 n.2, 890
N.Y.S.2d 401, 403 n.2 (2009) (in determining whether the document in a given case is an enforceable
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whether parties are contractually bound before definitive agreements are executed.
Importantly, the Stock Purchase Agreement made no reference to the Redemption of Telesat’s
interest in Olympus and was in no way contingent upon the Redemption. It did not, however,
contain a “merger clause” indicating that it represented a complete agreement, superseding all
previous agreements.
On the same day—January 28, 1999, i.e., the date of the alleged fraudulent transfer—
Adelphia wire transferred the stock purchase price from its bank account into Mayberry’s
bank account. On the following day, January 29, 1999, Adelphia received the stock
certificates representing the repurchased shares from Mayberry.
4. The Olympus Redemption
In late May 1999, approximately four months after the Letter Agreement was signed,
each of Telesat and several of Telesat’s affiliates executed a power of attorney (the “Powers
of Attorney”) authorizing Adelphia and Olympus to redeem and retire Telesat’s indirectly-
owned partnership interests in Olympus, which would become effective on July 11, 1999
unless the parties earlier agreed to a partial redemption.36 But by that date, Telesat hadn’t
presented a plan of partial redemption to Adelphia. The Letter Agreement had specified that
if Adelphia and Telesat didn’t agree upon a plan of partial Redemption by July 11, 1999, the
full Redemption “transaction shall occur as soon as practicable.” Nevertheless, Olympus
contract or not, the question should be asked in terms of “whether the agreement contemplated the
negotiation of later agreements and if the consummation of those agreements was a precondition to a
party’s performance.”).
35 	See, e.g., Reprosystem, B.V. v. SCM Corp., 727 F.2d 257, 262 (2d Cir. 1984), cert. denied, 469 U.S. 828
(1984) (“agreement in principle” was not a binding agreement; documents and testimony showed intent
of both parties not to be bound prior to execution of formal, written contract); Teachers Ins. & Annuity
Ass’n of America v. Tribune Co., 670 F.Supp. 491, 499–500 (S.D.N.Y. 1987) (Leval, J., then a district
judge) (finding triable issue as to whether parties intended to be bound, when commitment letter was
subject to various contingencies, including board approval, but stated that upon execution, it would be a
“binding agreement”).
36 	Powers of Attorney (May 28, 1999) (Joint Exh. 6 at 13–24).
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didn’t immediately redeem Telesat’s partnership interests. Instead, the parties engaged in
lengthy negotiations regarding the terms and structure of the Redemption.37
Finally, on October 1, 1999, over eight months after the Stock Repurchase had been
consummated, Olympus and FPL’s Cable GP entered into a redemption agreement (the
“Redemption Agreement”) by which Olympus agreed to redeem Telesat’s entire partnership
interest, for $108 million, through a complex series of transactions, the details of which, for
the most part, 38 are immaterial to the underlying issues here.
5. FPL’s SEC Filings
In early March 1999—about a month after the Stock Repurchase and about seven
months before the Olympus Redemption—FPL filed its 10-K for the 1998 fiscal year with the
SEC. 39 The 10-K described the Stock Repurchase and the Olympus Redemption as separate
transactions, and noted that the terms of the Redemption had not yet been finalized:
In January 1999, an FPL Group Capital subsidiary sold
3.5 million common shares of Adelphia
Communications Corporation (Adelphia) stock, which
had been accounted for on the equity method, resulting
in an after-tax gain of approximately $96 million. In
addition, an agreement was reached with Adelphia to
sell FPL Group Capital’s one-third interest in a limited
partnership. While the terms have not been finalized, the
sale of the limited partnership interest is expected to
have a positive effect on FPL Group’s results of
operations.40
37 	Coyle Decl. ¶ 39.
38 	The one exception is that as part of that transaction, a new corporation, West Boca Security Inc. (“West
Boca”) was formed, initially as a subsidiary of Olympus. As part of the series of transactions relating to
the Redemption (but, I find, without any connection to the Stock Repurchase), West Boca became a
wholly-owned subsidiary of FPL’s subsidiary Cable GP. In September 2000, Cable GP, Telesat and
Mayberry were merged into West Boca. West Boca is named as a defendant in this litigation along with
its indirect parent FPL.
39 	FPL 1998 Form 10-K.
40 	Id. at PX 033-054 (emphasis added).
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Then, about a year later, in March 2000, FPL filed its 10-K for the 1999 fiscal year.41
The 10-K noted FPL’s after-tax gains from the Stock Repurchase and the Redemption
separately:
In January 1999, an FPL Group Capital subsidiary sold
3.5 million common shares of Adelphia
Communications Corporation (Adelphia) stock and in
October 1999 had its one-third ownership interest in a
cable limited partnership redeemed, resulting in after-tax
gains of approximately $96 million and $66 million,
respectively. Both investments had been accounted for
on the equity method.42
Neither disclosure, to state the obvious, described the transactions as unified or
interdependent.
B. My Factual Conclusions re Interdependence
The interdependence of the Stock Repurchase, on the one hand, and the subsequent
Redemption, on the other, is in my view a mixed question of fact and law. For reasons set
forth above and in the Discussion below (applying the law to the underlying facts discussed
above), I conclude that the Stock Repurchase and the Redemption, while having a common
origin and similar motivation, were not interdependent or components of a single transaction.
III.
Solvency, Capital Adequacy, & Equitable Insolvency
While the interdependence issue addressed in Section II affects the extent to which
Adelphia received any value in the totality of its 1999 dealings with FPL—remembering, of
course, that, as the Recovery Trust notes and FPL understandably does not dispute,
Adelphia’s buyback of its own stock, by itself, provided it with no value—I still need to
41 	FPL Group Annual Report (Form 10-K) (Mar. 2, 2000) (Plaintiff’s Exh. 34) (“FPL 1999 Form 10-K”).
42 	FPL 1999 Form 10-K at PX 034-032.
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engage in the traditional fraudulent transfer analysis to determine the extent to which
Adelphia was insolvent (or rendered insolvent), left with inadequate capital, or rendered
equitably insolvent at the time it paid out the $150 million the Recovery Trust now seeks to
recover. My Findings of Fact in connection with these latter issues follow.
A.
Solvency
1. The Experts’ Analyses—Overview
The Recovery Trust and FPL each offered expert opinions as to Adelphia’s solvency at
the time of the Stock Repurchase, reflected first in expert reports each prepared, and then in
testimony before me. 43 The Recovery Trust’s primary solvency expert, Israel Shaked
(“Shaked”), of the Michel-Shaked Group, opined that at the time of the Stock Repurchase,
Adelphia was insolvent by approximately $1 billion.44 By contrast, FPL’s primary solvency
expert, Ralph Tuliano (“Tuliano”), of Mesirow Financial Consulting, opined that Adelphia
was solvent, having a positive equity cushion of roughly $3.7 billion.45
43 	I took the testimony as I did in earlier valuation trials before me—in Global Crossing, the Adelphia
confirmation hearing, DBSD and Chemtura. The testimony, consistent with my Case Management
Order # 3 (Umbrella Case ECF # 5622) and my historic practice in cases where the evidence is heavily
historic, numeric, and/or technical, was heard by declaration on direct, and live on cross, redirect, and
anything thereafter. Each expert witness made reference to his firm’s expert report (or reports) in his
testimony, with the Recovery Trust incorporating its reports by reference in direct testimony and FPL
referring to its report in and appending it to its expert’s direct testimony declaration. See Direct Trial
Test. Decl. of Professor Israel Shaked ¶ 3, Apr. 17, 2012, ECF No. 102 (“Shaked Decl.”); Decl. of
Ralph S. Tuliano ¶¶ 3–4 & App. A, Apr. 17, 2012, ECF No. 108 (“Tuliano Decl.”), and in many other
places. The direct testimony came in without objection, and the expert reports were also offered into
evidence, without objection. Though the expert reports themselves may technically have been hearsay,
I wasn’t asked to rule on whether they were, or otherwise to rule that the expert reports were
inappropriate for consideration after the various parties’ opportunities to cross-examine the witnesses.
And as both sides relied on testimony and the expert reports essentially interchangeably, I’ll do
likewise.
44 	Shaked Decl. ¶ 111.
45 	Tuliano Decl. 26 tbl.2.
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As is customary in valuation disputes, each expert opined as to the total enterprise
value (“TEV”) of Adelphia at the time of the transfer in question. The analysis by each of
TEV led to a conclusion as to the value of the Debtors’ assets from which their liabilities
(which, as a general matter, are more easily ascertainable) could be subtracted.
But while Shaked and Tuliano each employed at least one of the standard valuation
methodologies, neither used all of them. Shaked used only Discounted Cash Flow (“DCF”)
methodology, and Tuliano used only Comparable Companies and Precedent Transactions
methodology, in each case as discussed below.
For reasons discussed below, I find that reliance—and especially sole reliance—on
DCF was inappropriate under the facts of this case, and that for that reason, among others,
Tuliano’s analysis was generally more persuasive.
2. The Experts’ Methodologies
(a) Discounted Cash Flow
DCF methodology estimates the net present value of a company by adding together the
present value of two assumed future cash flow streams:
(1) projected unlevered cash flows for a number of upcoming years,
discounted to present value using an estimated discount rate based upon the
company’s weighted average cost of capital (“WACC”); and
(2) projected cash flow for the period thereafter in perpetuity—often
called the “terminal” or “exit” value.46
Shaked, but not Tuliano, employed DCF analysis, which is a very common element of
any determination of TEV.
46 	See In re Chemtura Corp., 439 B.R. 561, 574 (Bankr. S.D.N.Y. 2010) (Gerber, J.) (“Chemtura”).
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But here both experts encountered difficulty using DCF analysis due to the lack of
accurate and reliable management projections. For this reason, Tuliano declined to perform a
DCF analysis. 47 And though Shaked utilized the methodology, he declined to use
management projections—both because of their unavailability and because “any management
projections that would have existed would have been based on fraudulent information, and
would therefore be unreliable.”48 Likewise, Shaked declined to use any third-party industry
analyst projections because they would have been based on Adelphia’s inaccurately reported
information.49 Instead, to provide the basis for his valuation, Shaked developed his own
projections of Adelphia’s cash flow for the following ten years.
To create his own cash flow projections, Shaked first developed assumptions as to
factors that would drive Adelphia’s cash flow for the upcoming years, such as penetration
rates, growth rates, revenue per subscriber, EBIDTA margins, and capital expenditures
(“CapEx”).50 In doing so, Shaked consulted contemporaneous reports by third-party analysts
Paul Kagan Associates (“Kagan”) and Donaldson Lufkin Jenrette (“DLJ”).51 Shaked then
applied his assumptions to make his own cash flow projections for ten years, before
discounting them to their present value.
47 	Tuliano Decl. ¶ 43 (“I considered preparing financial projections for Adelphia but did not have the
necessary reliable data and deemed this process to be speculative.”). Tuliano critiqued and made
numerous “corrections” to Shaked’s DCF analysis, Tuliano Decl. ¶¶ 72, 75–95, exh. 1 at 15, but did not
pursue a wholly independent analysis, which would have required relying on data other than Shaked’s
troublesome projections. Id. For this reason, it is fair to say that Tuliano did not use DCF methodology
as part of his valuation.
48 	Shaked Decl. ¶ 40.
49 	Id.
50 	Id. ¶¶ 41–42.
51 	Id.
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Shaked applied a discount rate of 15.08%, which he estimated to be Adelphia’s
WACC. 52 To arrive at that WACC, Shaked assumed that “both lenders and shareholders
require a higher rate of return on their investment in a fraud-plagued company than in a
company that is law abiding.” 53 Shaked quantified the risk premium he thought investors
would apply by consulting industry reports and academic research regarding the increased
cost of capital for firms that had lower credit ratings or that had experienced fraud.54 Shaked
assumed a debt risk premium of 6.79% and an equity risk premium of 3.95%, which together
led to his WACC. 55
Finally, Shaked calculated the terminal value using the perpetuity method. Shaked
declined to calculate terminal value based on a multiple of final year EBITDA, which is
commonly done as part of DCF methodology, because he believed that doing so would
introduce market-based analyses into his non-market based methodology.56 Instead, Shaked
assumed that after the ten years of his projections, Adelphia would continue to grow in
perpetuity at a rate of approximately 4%, taking into account inflation of approximately 3%
and projected subscriber growth of less than 1%. 57
After adding together the present value of projected cash flows for ten years and the
terminal value he calculated, Shaked concluded that Adelphia had a TEV of $2.538 billion
before any adjustments.58
52 	Expert Report of Professor Israel Shaked ¶ 183, exh. 9, June 23, 2011 (Joint Exh. 60) (“Shaked
Rept.”).
53 	Shaked Rept. ¶ 260.
54 	Id. ¶¶ 184–87, 200.
55 	Id. ¶¶ 188, 200.
56 	Id. ¶ 203.
57 	Id. ¶¶ 206–10.
58 	Shaked Decl. ¶ 99.
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(b) Comparable Companies
“Comparable Companies” analysis is another standard valuation methodology. As a
general matter, it estimates the value of a firm by first examining the value of comparable peer
firms, and then using their metrics to project the value of the subject company.59 Values may
be ascertained using one or more common metrics (such as revenue, earnings, or any other
common metric that drives cash flow), with the expert then applying a multiple of the
financial metric or metrics that yields the market’s valuation of these comparable
companies.60 A valuation metric in the cable industry, “Value per Subscriber”(which as its
name implies, divides the comparable company’s value by the reported number of
subscribers, and which can then be used to value the subject company once the number of the
subject company’s subscribers is known) is commonly used in cable industry Comparable
Companies valuations.
But only Tuliano performed a Comparable Companies analysis. Shaked declined to
use this methodology because, in his view, it required “a measure of historical or forward
earnings for the subject company and the comparable companies” but data of this character
was unavailable due to “misstatements of Adelphia’s financial performance and the
unavailability of reliable data for Adelphia and comparable companies for the time period at
issue.”61
Tuliano (the expert who did perform a Comparable Companies analysis) selected six
guideline comparable companies: Comcast Corporation; Cox Communications, Inc.;
Cablevision Systems Corporation; Century Communications Corporation; Jones Intercable,
59 	Tuliano Decl. ¶ 47.
60 	See Tuliano Decl. ¶ 47; Chemtura, 561 B.R. at 575.
61 	Shaked Decl. ¶ 89.
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Inc. and TCA Cable TV, Inc.62 Tuliano used only the Cable components of the comparable
companies to derive multiples, since several derived a portion of their value from assets other
than Cable.63
Tuliano then calculated the TEV of each of the guideline companies. He calculated
TEV by combining the market value of equity and debt interests in the company, excluding
cash and equity investments.64 Tuliano then employed a Value per Subscriber analysis; he
divided each company’s TEV by its reported number of subscribers to yield each company’s
“multiple”—i.e., value per subscriber.65 His Value per Subscriber multiples ranged between
$2,462 and $3,835.66
Tuliano used only the Value per Subscriber multiple, because it “is commonly used in
the cable industry and provides a highly reliable indication of the value of Adelphia’s cable
business.”67 Shaked criticized the use of a subscriber multiple because it “[did] not account
for the differences between companies relating to upgrade status and profitability” and
because Adelphia appeared to generate less revenue per subscriber than its competitors. 68
Accordingly, Shaked did not use Value per Subscriber analysis at all. But Shaked agreed that
value per subscriber is widely and appropriately used in valuing cable systems. 69
62 	Tuliano Decl. ¶ 48.
63 	Id. ¶ 49.
64 	Id. ¶ 49 & n.51.
65 	Id. ¶ 49, exh. 1 at 2.
66 	Id. 19 fig.2, exh. 1 at 2.
67 	Id. ¶ 49.
68 	Shaked Decl. ¶¶ 116–118.
69 	Trial Tr. vol. 3, 236:4–238:23, May 1, 2012, ECF No. 114 (“Trial Tr. Vol. 3”). In the trial before me,
Shaked agreed that a report he prepared for litigation by the Recovery Trust against Bank of America
and other co-borrowing facility lenders, see Adelphia-Bank of America, n.3 above, was accurate when
he stated:
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Tuliano then qualitatively compared Adelphia with the guideline companies to
determine what multiple to select within the range of Comparable Company Value per
Subscriber multiples.70 Based, in part, on Adelphia’s relative upgrade status compared to the
guideline companies, Tuliano selected $3,024 as the multiple that he would apply to
Adelphia.71 The multiple reflected the lowest quartile multiple.72
Next, Tuliano applied the selected multiple of $3,024 to the corrected number of
subscribers based on audit summaries created during Adelphia’s restatement 73 of its financial
The use of subscriber multiples was especially helpful in the cable
industry because of the number of deals involving private cable
systems or portions of larger cable systems. In both instances,
detailed financial information about the systems was not available;
however, the number of subscribers being acquired was always
known, making it a simple metric that could be used universally to
value cable acquisitions.
Trial Tr. Vol. 3 238:13–21 (quoting from Shaked’s Adelphia-Bank of America report).
70 	Tuliano Decl. ¶ 53.
71 	Tuliano Decl. ¶ 53, 19 fig.3, exh. 1 at 2.
72 	Tuliano Decl. 19 fig.3, exh. 1 at 2.
73 	In March 2002, Adelphia disclosed that it had over $2 billion in additional debt, not reported on its
consolidated financial statements, as a consequence of the co-borrowing facilities. Thereafter,
independent members of Adelphia’s Board created a special committee to investigate related party
transactions between Adelphia entities and the Rigases. See Press Release (Joint Exh. 74 at 12).
After Adelphia filed for chapter 11 protection, Adelphia initiated a forensic accounting investigation
using the accounting firm of Tatum CFO Partners, LLP (“Tatum”). In a massive undertaking, Tatum
re-audited and restated Adelphia’s financial statements for 1999 and 2000 and prepared financial
statements for 2001, 2002 and 2003 after reviewing the many intercompany transactions that had not
been properly recorded. PricewaterhouseCoopers LLP (“PwC”) then audited the Debtor’s consolidated
financial statements, and after PwC found the restated consolidated financials to be highly reliable, I (at
the time of Adelphia’s confirmation hearing) did too. See Adelphia-Confirmation, 368 B.R. at 151.
I did not receive independent evidence in this adversary proceeding of the accuracy of Adelphia’s
restated financial information, but both sides here agreed, on the record, that the restatement process
was well done, and that Adelphia’s restated financial information was reliable. See Joint Pre-Trial
Order ¶ 51, Apr. 6, 2012, ECF No. 94 (“Joint Pre-Trial Order”); see also Trial Tr. vol. 1, 6:25–7:25,
April 30, 2012, ECF No. 112 (“Trial Tr. Vol. 1”) (Friedman: “In other words, I think the parties all
agree that the restatement is reliable and . . . if I’m not mistaken, one of the stipulated facts is that the
restatement was reliable.”; Zimmerman: “We basically agree. The findings you made previously about
the thoroughness and excellence of the restatement process, I think both parties agree with that.”).
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statements.74 Tuliano calculated the value of Adelphia’s cable assets on a marketable,
minority, basis to be $4.472 billion.75
Tuliano then added a control premium of 25%,76 distinguishing between a controlling
and minority interest in Adelphia. 77 Since Tuliano’s valuation depended in part on the
comparable companies’ stock prices (which were used to determine TEV for the comparable
companies), Tuliano determined that it was appropriate to add a control premium, because the
stock prices of publicly traded securities reflect minority interests, and here there was a
controlling interest.78 After adding the control premium (of $376.4 million), Tuliano
concluded, based on his Comparable Companies analysis, that Adelphia’s assets were worth
$4.848 billion on the date of the Stock Repurchase before any adjustments. 79 To that, he
added Adelphia’s cash of $156.1 million, to yield a TEV of $5.004 billion before
adjustments.80
(c) Precedent Transactions
Like Comparable Companies methodology, “Precedent Transactions” methodology
applies multiples derived from comparable companies—except that Precedent Transaction
methodology derives the value of comparable companies from their purchase prices in past
74 	Tuliano Decl. ¶¶ 53–54, exh. 1 at 2 & n.5.
75 	Tuliano Decl. ¶ 54, exh. 1 at 2.
76 	Tuliano Decl. ¶ 54.
77 	Tuliano Decl. ¶ 55; Trial Tr. vol. 8, 919:24–920:3, May 3, 2012, ECF No. 110 (“Trial Tr. Vol. 8”)
(“The stock price is going to . . . reflect a minority value indication; whereas, the valuation that needs to
be done of Adelphia for solvency purposes is a hypothetical exchange of the entire company on a
controlling basis. So a control premium would be . . . appropriate.”).
78 	Id.; Trial Tr. 164:10–165:3, July 25, 2012, ECF No. 139 (“7/25/2012 Trial Tr.”). Tuliano quantified
the value of the control premium based on control premiums paid in 1998 in the Leisure &
Entertainment and Broadcasting industries as reported in the Mergerstat Review. Tuliano Decl. ¶ 55 &
n.59.
79 	See Tuliano Decl. exh. 1 at 2.
80 	Id.
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mergers and acquisitions.81 Shaked declined to use the Precedent Transactions methodology
for the same reasons he declined to use Comparable Companies methodology. 82
Tuliano had three parameters for selecting appropriate transactions to use in this
analysis.83 First, Tuliano selected only transactions that involved target cable systems with
more than 300,000 subscribers.84 Second, he limited the analysis to transactions that occurred
within the six months before the January 28, 1999 stock buyback. 85 And third, Tuliano did
not include transactions that were pure “system swaps”—transactions in which one Cable
company trades a set of systems with another (rather than selling the systems), because
Tuliano believed that would provide a less reliable indicator of value.86
Tuliano found four transactions that fell within his parameters:
(1) Vulcan Venture’s acquisition of Charter in July 1998;
(2) Comcast’s acquisition of Bell Canada in August 1998;
(3) Charter’s acquisition of certain cable systems from Intermedia in January
1999; and
(4) TCI’s acquisition of different cable systems from Intermedia in January of
1999.87
Though Tuliano initially set out to eliminate any transactions that involved system swaps, he
ultimately included Charter’s acquisition of Intermedia, though the transaction was comprised
81 	Chemtura, 439 B.R. at 577; Tuliano Decl. ¶ 65.
82 	Shaked Decl. ¶ 89.
83 	Tuliano Decl. ¶ 66.
84 	Id.
85 	Id.
86 	Id.
87 	Tuliano Decl. 25 fig.4.
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in part of a system swap and in part of a sale for cash because he reasoned that the cash
portion of the transaction would yield a “highly reliable indicator of value.”88
For the same reasons that he did so in his Comparable Companies analysis, Tuliano
relied on the value per subscriber metric as his sole multiple. The range of multiples for the
selected companies was between $3,234 and $3,667, very similar to the range yielded by the
Comparable Companies analysis.89 Tuliano selected a multiple of $3,277, again qualitatively
taking into account the relative upgrade status of Adelphia as compared with the selected
companies.90
The TEV resulting from Tuliano’s Precedent Transactions analysis was $4.845
billion.91 To that, he once again added Adelphia’s $156.1 million in cash, to yield a TEV of
$5.001 billion before adjustments.92
(d) Adjustments to TEV
Shaked and Tuliano each made adjustments to their TEV computations—five, in
total—to account for Adelphia’s interests in related entities, two of which were acquired at
just about the time of the transfer.
(i) Verto Communications Acquisition
First, each of Shaked and Tuliano considered Adelphia’s January 1999 acquisition of
Verto Communications, Inc. (“Verto”), a cable television company in Pennsylvania.
Adelphia acquired Verto for $135 million in Adelphia stock.
88 	Tuliano Decl. ¶ 67.
89 	Compare Tuliano Decl. 25 fig.4 (Precedent Transactions), with Tuliano Decl. 19 fig.3 (Comparable
Companies).
90 	Tuliano Decl. ¶¶ 68–69, exh. 1 at 11.
91 	Tuliano Decl. exh. 1 at 11.
92 	Id.
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Shaked assigned no value to the Verto acquisition because of the added liability
Adelphia undertook by issuing stock in its own fraudulent company.93
By contrast, Tuliano added the entire $135 million purchase price of Verto (which he
assumed was Verto’s NAV) to Adelphia’s value.94 Though Tuliano considered the potential
liability Adelphia could incur for issuing fraudulent stock, he determined that any such
liability should be excluded because it was “highly uncertain and inherently speculative as of
January 28, 1999.” 95
Further, Tuliano noted that Adelphia had “speculative assets” as well, such as certain
of Adelphia’s tax assets. Tuliano believed that Adelphia’s speculative assets and speculative
liabilities (including potential liability for issuing fraudulent stock) should “serve to offset one
another in this matter, and so long as they are treated consistently (included or excluded)
would have no material effect on the net solvency surplus.”96
For reasons discussed at greater length below, I find that the full value of Verto would
be properly included in Adelphia’s valuation.
(ii) Olympus Partnership Interest
Second, Shaked and Tuliano each considered Adelphia’s interest in the Olympus
Partnership—which as of January 1999 was only a 2/3 interest, since as of that time, Adelphia
had not yet acquired FPL’s interest. Shaked assumed the value of Adelphia’s 2/3 interest to
93 	Shaked Decl. ¶ 104. I understood this to mean that because Adelphia issued its own stock in exchange
for the Verto assets, Adelphia could be subject to liability to the stock purchaser (here, Verto) under the
’33 and ’34 Acts if the stock turned out to be worth less than its assumed value at the time of the sale.
As we now know with the benefit of hindsight, less than all of Adelphia’s creditors were paid in full
(and Adelphia preferred stockholders received no meaningful distribution on their claims), and Adelphia
common stock now is effectively worthless.
94 	Tuliano Decl. ¶ 57, exh. 1 at 2, 11.
95 	Tuliano Decl. ¶ 57.
96 	Id.
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be, at most, twice the value at which Adelphia later acquired Telesat’s 1/3 interest in Olympus
through the Redemption. 97 Consequently, Shaked added $216 million to his valuation of
Adelphia to account for Adelphia’s interest in the Olympus Partnership.98
Tuliano, on the other hand, relied on the valuation of FPL’s interest in Olympus put
forth by another of FPL’s experts, Professor Jack Williams (“Williams”),99 of Georgia State
University College of Law and, also, Mesirow Financial Consulting. Like Shaked, Tuliano
doubled the value of Telesat’s 1/3 interest in Olympus, to reflect the fact that Adelphia had the
2/3 interest in Olympus.100 But unlike Shaked, Tuliano used Williams’ valuation for the FPL
Olympus interest, rather than the price Adelphia paid for that interest roughly eight months
later. Tuliano did not apply a control premium (since Adelphia had only a 50% voting
interest, an amount insufficient to exercise control), and he discounted the value by an
additional 5% “marketability discount.”101 Accordingly, Tuliano added $318 million to
Adelphia’s valuation to account for Adelphia’s interest in Olympus102 —roughly $100 million
more than Shaked had.
For reasons discussed below, I find that, as urged by Shaked and the Recovery Trust,
only $216 million for the Olympus partnership interest would properly be included in
Adelphia’s valuation.
97 	Shaked Decl. ¶ 107.
98 	Id.
99 	Tuliano Decl. ¶ 59.
100 	Id.
101 	Id.
102 	Id. Tuliano assumed Adelphia’s interest in Olympus to be $418 million in his original report, but he
corrected that number in his declaration. Id.
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(iii) Interest in ABIZ
Third, Shaked and Tuliano each considered Adelphia’s interest in Adelphia Business
Solutions, Inc. (“ABIZ”).103 Adelphia held majority economic and voting (and hence
controlling) interests in ABIZ of approximately 66% and 86%, respectively. Shaked assumed
that if Adelphia’s fraud had been revealed as of the date of the Stock Repurchase, ABIZ
would have been insolvent because of its critical dependence on Adelphia to raise capital and
fund the ABIZ business.104 Thus, Shaked added nothing to his valuation on account of
ABIZ. 105 Tuliano, on the other hand, added the entire market value of the ABIZ stock at the
time, and, in addition, a 25% control premium, which collectively amounted to approximately
$642 million.106
For reasons discussed below, I find that no value for ABIZ should have been added.
(iv) Receivables
Fourth, Shaked and Tuliano considered the treatment of receivables owing to Adelphia
from related entities. Shaked did not include a $279 million receivable owing from Olympus
103 	ABIZ was Adelphia Business Solution’s stock ticker at the time, and commonly used as a nickname for
the company. In March 2002, about three months before the June 2002 filing of the Adelphia chapter
11 cases, ABIZ filed for chapter 11 relief in this district (Bankr. S.D.N.Y. No. 02-11389), and the ABIZ
chapter 11 case was assigned to me.
Thereafter, in September 2002, still another Adelphia affiliate (Century/ML Cable Venture, a joint
venture between Adelphia and Merrill Lynch affiliates which operated two cable systems in Puerto
Rico) filed a chapter 11 case in New York. (Bankr. S.D.N.Y. No. 02-14838). That case too was
assigned to me; the Adelphia and Century/ML Cable Venture cases were assigned to me as cases related
to the earlier ABIZ filing.
104 	Shaked Decl. ¶¶ 112–14.
105 	Shaked Decl. ¶ 114.
106 	Tuliano Decl. ¶ 58, exh. 1 at 2, 11.
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to Adelphia because he believed Olympus would not have been able to repay it.107 By
contrast, Tuliano, added the full value of this receivable to his valuation.108
Shaked also declined to add the value of receivables from Rigas Family Entities, worth
approximately $279 million;109 Shaked believed they were uncollectable.110 By contrast,
Tuliano added the full value of these receivables.111
For reasons discussed below, I find that the $279 million Olympus receivable should
have been added, but that the $279 million Rigas receivable should not have been.
(v) Non-Cable Assets other than ABIZ
Fifth, each of Shaked and Tuliano added $91 million for Adelphia’s non-cable assets
other than ABIZ, based on the reported value for these assets in Adelphia’s 1998 financial
statements.112 Here, obviously, there was no difference between them.
3. Experts’ Conclusions as to TEV After Adjustments
After making the adjustments described in Section III(A)(2)(d) above, each expert
then reached a conclusion as to Adelphia’s TEV. Shaked concluded (based on his
methodology, which used DCF methodology alone) that Adelphia’s TEV was
$2.845 billion.113 Tuliano concluded (based on his methodology, which included Comparable
107 	Shaked Decl. ¶ 108.
108 	Tuliano Decl. ¶ 60, exh. 1 at 2, 11.
109 	The fact that the Rigas Family Entities receivable, after rounding, was $279 million, and that the
receivable owing from Olympus to Adelphia, after rounding, was also $279 million, appears to me to be
a coincidence. The numbers were slightly different before rounding, and the former is the sum of
$195 million related to a March 1996 co-borrowing agreement and $84 million in intercompany
receivables.
110 	Shaked Decl. ¶ 110.
111 	Tuliano Decl. ¶ 61.
112 	Shaked Decl. ¶ 106 & ¶ 106 n.48; Tuliano Decl. ¶ 60, exh. 1 at 2, 11.
113 	Shaked Decl. 34 “Summary of Adelphia Equity Valuation.” I reach $2.845 billion by adding the value
of Adelphia’s non-cable assets (valued at $91 million) and Adelphia’s interest in the Olympus
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Companies and Precedent Transactions methodology, but not DCF) that Adelphia’s TEV was
$6.747 billion, after averaging the values he calculated using each of his methodologies and
after adjustments. 114
4. Experts’ Analysis of Liabilities
Now turning to the other side of the analytical balance sheet, each expert also made
assumptions with respect to Adelphia’s net debt. Shaked assumed that Adelphia’s net debt as
of the date of the Stock Repurchase was $3.722 billion—a figure slightly greater than the
amount reported in Adelphia’s 1998 Form 10-K. 115 Tuliano relied on each of the assumptions
that Shaked had relied on to find an increase in the net debt over its reported value.116 But
Tuliano reduced the net debt by (1) the amount of debt associated with ABIZ, and
(2) proceeds from an equity offering in January 1999 which were used to repay bank debt
after Adelphia’s 1998 financial statements were concluded.117 Tuliano accordingly assumed
that Adelphia’s net debt was approximately $3 billion.118
5. Experts’ Conclusions
Finally, each expert subtracted Adelphia’s net debt from its TEV to determine whether
Adelphia was solvent.
Thus Shaked concluded that Adelphia was insolvent, by approximately $1 billion.119
Partnership (valued by Shaked at $216 million) to Adelphia’s starting TEV (determined by Shaked to be
$2.538 billion).
114 	Tuliano Decl. ¶¶ 71–72, exh. 1 at 11.
115 	Shaked Decl. ¶¶ 100–101 (Shaked revises his original net debt calculation. See Shaked Rept. ¶ 212).
116 	See Shaked Rept. ¶ 212; Tuliano Decl. exh. 1 at 1, 11.
117 	Tuliano Rept. exh. 1 at 14 & nn.3, 4.
118 	Tuliano Decl. 26 tbl.2, exh. 1 at 1. This includes Adelphia’s own debt liabilities and co-borrowing
agreement liabilities as reflected in the table and exhibit.
119 	Shaked Decl. ¶ 111.
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By contrast, Tuliano concluded that Adelphia was still solvent at the time of the
transfer, with an equity cushion of approximately $3.7 billion.
6. My Solvency Conclusions
For ease of reference, a table showing the experts’ figures, and my own, follows this
Decision as Appendix A. I find, as facts, that while each expert’s analysis had
shortcomings—and in several respects, material ones—Tuliano’s assumptions and
methodology in drawing conclusions as to TEV, on balance, were more appropriate. Thus my
own starting and adjusted TEVs—which I find to be in the range of $4.472 to $4.845 billion,
and $5.722 to $5.725 billion, respectively120 —come closer to his. My findings as to
Adelphia’s liabilities ($3.228 billion) while greater than Tuliano’s, also come closer to his.121
And I find, as a result, that Adelphia still had a net worth at the time of the Stock Repurchase
in the range of $2.494 to $2.497 billion. 122 For these reasons (and in the context of the law
discussed beginning at page 73 below), I find that on January 28, 1999, the date of the Stock
Repurchase, Adelphia was solvent.123
The factual predicates for those conclusions follow.
(a) Methodology
As previously indicated, Shaked’s valuation presented a TEV of $2.5 billion (before
adjustments to TEV), largely accounting for his ultimate conclusion (after adjustments to TEV
120 	App. A at ll. 1 & 9.
121 	Id. at l. 10.
122 	Id. at l. 11.
123 	For reasons discussed below, Adelphia would have made a constructive fraudulent transfer if it were
either insolvent before the transfer in question, or rendered insolvent as a result of it. Here, by reason of
my conclusions as to Adelphia’s TEV and liabilities (i.e., that Adelphia’s TEV exceeded its liabilities
by much more than $150 million), the distinction doesn’t matter. Thus I simply refer to Adelphia’s
solvency just before the Stock Repurchase, and without regard to the $150 million decrease in assets
resulting from it.
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and consideration of liabilities) that Adelphia was insolvent. Shaked’s valuation conclusion
was reached after consideration of only discounted cash flow methodology, based on his own
projections for Adelphia's cash flow over ten years.
Tuliano’s valuation, by contrast, presented a TEV of $6.747 billion after adjustments
(more than twice Shaked’s valuation), largely accounting for Tuliano’s conclusion that
Adelphia was solvent. Tuliano’s valuation was reached after a decision on his part not to rely
on DCF analysis at all,124 and to employ instead two market-based methodologies,
Comparable Companies and Precedent Transactions.
Upon considering the alternative approaches, I find Shaked’s reliance on DCF alone to
be inappropriate, and find his assumptions underlying his DCF analysis to have been too
arbitrary and speculative. While Tuliano’s analysis was less than perfect in several respects
(as demonstrated most dramatically by a TEV in excess of Adelphia’s market capitalization
(“Market Cap”) at a time when Adelphia’s fraud was in existence but unknown to its
investors),125 I find that Tuliano’s methodology was superior, though as discussed below, I
question several of his assumptions, and find that his use of those assumptions led to a
valuation on his part that I regard as too high.
124 	See n.47 above.
125 	As Shaked noted, see Shaked Decl. ¶ 120, as of January 28, 1999, Adelphia had 53.2 million shares
outstanding. The market price of these shares on that date (prior to disclosure of fraud) was $59.06. By
the methodology Shaked then used to compute an Equity Value per Share, those figures would suggest
a Market Cap of approximately $3.14 billion. Shaked pointed out that Tuliano’s approach would result
in a 23% premium over the market price, at a time when the market was unaware of Adelphia’s fraud up
to that point. Shaked’s point was persuasive, but he did not explain, to my satisfaction, how the entirety
of the value reflected in the $3.14 Market Cap would go away, and in fact, leave the company with
$1 billion negative equity as well. See id. ¶ 121.
Shaked calculated this 23% premium over market price using exhibits that Tuliano later updated to
reflect a revision in his valuation of the Olympus Partnership. See Tuliano Decl. ¶ 59. I replicated
Shaked’s analysis using Tuliano’s revised valuation, and found a 19% premium over market price. I
have some difficulty seeing how Adelphia’s valuation could ever exceed its Market Cap, especially
when there had been fraud not yet disclosed. My valuation (using traditional methodologies) comes in
at a level below Adelphia’s Market Cap, but to an extent much less than Shaked’s. See App. A at ll. 11,
12, 13 & 14.
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As a matter of common sense, DCF works best (and, arguably, only) when a company
has accurate projections of future cash flows; when projections are not tainted by fraud; and
when at least some of the cash flows are positive. 126 If either of the first two of those can’t be
found to be true, the factual underpinnings of the DCF computation become unreliable; if the
third of them can’t be found to be true, it’s difficult, if not impossible, to find that the cash
flows, by themselves, justify the valuation.127 In instances where any of those premises is
invalid, the propriety of any use of DCF (and the weight DCF conclusions should be given)
becomes debatable at best. This case is a poster child for the deficiencies in that regard.
In past valuation hearings before me when the company in question had material
positive cash flow, I’ve had the luxury of considering (either by a weighted average or
reference to a “football field”128 ) DCF analysis—along with the other two commonly used
126 	This last factor was a major concern in my earlier decision in DBSD, determining TEV for a startup
company with very valuable assets but with consistently negative projected cash flow. See In re DBSD
North Am., Inc., 419 B.R. 179, 197 (Bankr. S.D.N.Y. 2009) (Gerber, J.) (“DBSD”), aff’d, 2010 U.S.
Dist. LEXIS 33253, 2010 WL 1223109 (S.D.N.Y. Mar. 24, 2010) (Kaplan, J.), aff’d in part and rev’d in
part, 634 F.3d 79 (2d Cir. 2011), in each case with respect to other issues. In that case, while each of
the experts tried to employ a DCF analysis under those circumstances, I told the experts to give me
supplemental affidavits describing what their valuation conclusions would be with DCF analysis
omitted. See id. at 199.
127 	As I wrote in DBSD:
While I can see how one might examine a stream of cash flows with
some yearly cash flows that were negative, I have difficulty seeing
how a stream of totally negative cash flows could provide a basis
for valuation. It seems extraordinarily unlikely to me, if not remote,
that anyone would pay to secure a stream of uniformly negative
cash flows, and thus that a valuation could appropriately be based
on such a stream. Anyone buying an enterprise with such negative
cash flows would have to be doing it for some reason other than the
projected loss stream coming in—asset value, perhaps—but would
not be buying it for the privilege of taking an unrelenting stream of
losses.
419 B.R. at 197 (emphasis in original).
128 	For an explanation, and illustration, of a “football field,” see Chemtura, 439 B.R. at 573 (“Lazard
prepared a chart, colloquially referred to as the “football field,” upon which the valuation ranges that
resulted from each methodology appeared, and which showed a range near the middle where the
individual methodology results, for the most part, overlapped); id. at 580 (showing a picture of the
“football field” in that case).
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methodologies, Comparable Companies and Precedent Transactions. But here, of course, the
ability to use DCF analysis—even with material positive cash flow—was impaired. The fraud
at Adelphia, as both experts recognized, made historical financials and Rigas-era forward
projections unreliable.
But the experts responded to these limitations in drastically different ways. Tuliano
simply declined to employ DCF analysis by reason of the faulty data. Shaked understandably
rejected reliance on the Rigas-era data, but then created his own projections, by what was in
essence creating his own data. I cannot comfortably rely on Shaked’s approach.
I was surprised by Shaked’s use of DCF methodology alone, in light of the lack of
reliable management projections or company-specific contemporaneous analyst projections.
Shaked formulated assumptions underlying his cash flow projections based only roughly on
projections for the cable industry or the “typical cable company,” exposing his analysis to
particularly close scrutiny. And Shaked’s decisions to selectively use certain assumptions
from third-party analyst Kagan and others from DLJ led me to question whether his analysis
unduly deflated Adelphia’s value.
By way of example, Shaked adopted capital expenditure assumptions from DLJ’s
model, which projected extensive upgrades.129 In turn, DLJ’s model projected that the typical
cable company would experience concomitant increases in revenue. But while Shaked
employed DLJ’s capital expenditure assumptions (which drove down cash flow),130 he did not
129 	Shaked Rept. ¶ 105 (citing Dennis Leibowitz, Karim Zia & Jeff Shelton, Cable Industry Outlook 1998:
Holding the Keys to the Kingdom?, DLJ Analyst Report, Sept. 23, 1998 , at 41 (Joint Exh. 89) (“DLJ
Rept.”)).
130 	Shaked Rept. ¶ 105, exh. 9d, 9e. In DCF analyses I’ve seen in the past, cash flow was not materially
affected by capital expenditures, if indeed cash flow was affected at all. But here, both sides repeatedly
discussed the effect of capital expenditures on operating cash flow. For that reason (as I’d assumed that
CapEx would affect cash flow, but not operating cash flow) at closing arguments I requested that the
parties clarify their use of the term “cash flow” as they had used it. The Recovery Trust did not address
the issue directly, but Shaked’s analysis reflects that capital expenditures were deducted from projected
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utilize DLJ’s revenue assumptions (which would tend to drive cash flow up).131 Instead,
Shaked utilized Kagan’s lower growth rate.132 While I believe that Shaked made this choice
as a result of the unavailability of analyst reports, and not data manipulation, that decision
underscores the excessively arbitrary, and ultimately speculative, nature of Shaked’s analysis
and its susceptibility to inaccuracy.
I think all would agree, and in any event I find, that that the fraud at Adelphia made
use of DCF methodology difficult. But in my view (and here too I find), use of alternative
established metrics would be superior to reliance on DCF—and especially to sole reliance on
DCF. The uncertainties in the data that Shaked developed and then used to craft a DCF
analysis—which he then used as his only valuation methodology—make his methodology
choice unpersuasive.
As discussed below, I differ with some of the adjustments Tuliano made after he first
computed a starting TEV, but I find that his decision to rely on Comparable Companies and
Precedent Transactions analysis here, where DCF methodology would be unwise, was sound.
cash flows. See Shaked Rept. exh. 7c (deducting CapEx before determining debt free cash flow). And
though FPL Group stated that operating cash flow did not include capital expenditures, its counsel
George Zimmerman continued to discuss the effect of capital expenditures on operating cash flow. See
7/25/2012 Trial Tr. at 10:14–11:1 (The Court: “Mr. Zimmerman, you in particular, at Page 36 of your
brief, talked about operating cash flows. I have normally thought of operating cash flows as being a
different way of saying EBITDA. But there was . . . an implication . . . that operating cash flows might
also include cash flows as they would be needed to be used for CapEx, capital expenditures. I would
like you folks to clarify when you think operating cash flows should or should not include checks that
you’d have to write out for capital expenditures, because I saw a double entendre or potential failure on
my part to understand which of the two alternatives you were talking about.”); 7/25/2012 Trial Tr. at
131:19–21 (Zimmerman: “You asked a question. We use ‘operating cash flow’ the way you use
EBITDA, they’re synonymous. . . .”).
I now understand the parties to be using the term “cash flow” to represent operating cash flows less
CapEx, along with other, smaller, adjustments. I consider the inclusion of CapEx to be appropriate in
this context because of the significance of upgrade expenditures in the growing cable industry at the
time.
131 	Compare DLJ Rept., with Cable TV Investor, P AUL K AGAN A SSOCIATES , I NC ., Aug. 10, 1998, at 4–5
(Joint Exh. 100) (“Kagan Rept.”). See also n.132 below; Tr. 937:10–938:7.
132 	Shaked Rept. ¶¶ 80–82, exh. 9b, 9c (citing Kagan Rept. 4–5).
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After Adelphia completed its restatement effort with respect to its financials, after the Rigases
were ousted, Adelphia’s count of the number of its subscribers was one of the most accurate
of its financial data. Tuliano’s value per subscriber metric utilized one of Adelphia’s most
reliable historical metrics. For cable companies, cash flow, which drives valuation, is directly
correlated with subscriber number—and in any event, subscriber number is widely used for
valuation in mergers and acquisitions in the cable industry and was used for the eventual sale
of Adelphia’s assets to Time Warner.133 And the narrow range within which the Comparable
Companies multiples lay makes me comfortable that Adelphia would have been able to sell its
assets roughly within that range.
Shaked and the Recovery Trust were correct, in my view, in assertions they made to
me that relative upgrade status and lower profitability per subscriber are factors that would
cause a Comparable Companies analysis to be less reliable. But no valuation methodology is
certain; each allows the introduction of the expert’s judgment. Here, Shaked’s analysis
allowed too much room for judgment and speculation. Tuliano’s analysis was more closely
tied to the market and the price Adelphia could actually receive for its assets in a sale.134
133 	I find Shaked’s criticism of Value per Subscriber analysis in the trial before me—what was effectively a
retreat from his earlier view in the Bank of America litigation—unpersuasive. In the years in question,
every or nearly every major cable operator was making upgrades in its system to effect the changeover
from analog to digital, and to provide additional services like video on demand, broadband internet, and
telephony. These changes would require material CapEx—some of which would already have been
completed and some of which would have to be undertaken in the future. The seemingly comparable
companies would inevitably be in different stages of the upgrade process, and would have different
levels of profitability. But to the extent that such was material, one could take material differences into
account. I therefore conclude that while Shaked was undoubtedly right when he believed that other,
seemingly comparable, companies would have differences in their upgrade status and profitability, that
would be an insufficient basis for wholly disregarding Value per Subscriber analysis—and I choose to
find in accordance with what Shaked said in the quoted portion of his Adelphia-Bank of America
litigation report, see n.69 above, as contrasted to what he told me in this trial.
134 	Shaked also critiqued Tuliano’s analyses, providing one main criticism. Shaked argued that Tuliano’s
calculation of subscriber number was incorrect, and further, that the subscriber count for 1998 was
unreliable. As described in the Capital Adequacy section below, Tuliano and Shaked disagreed with
respect to how to calculate subscriber number for 1998, on a cable-only basis, since the post-Rigas Era
audit provided only a number for Adelphia’s 1998 subscribers on a consolidated basis. But I agree with
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It also is not uncommon, if not also customary, for valuation experts to use alternative
valuation methodologies as a “sanity check” to test the reasonableness of conclusions based
on a particular methodology.135 Here Shaked did not do so, and his failure to do so, in my
view, was a material deficiency in the quality of his analysis.
But there were two potential computations that might also serve as a “sanity check”
that Tuliano did not employ either. One was a DCF analysis of the type Shaked employed,
even if such a DCF analysis could not by itself support a valuation.136 Another was
Adelphia’s Market Cap, which Tuliano’s valuation exceeded by approximately 19%.137 Each
of, in my view, would require a valuation lower than Tuliano’s.
To what extent is less clear. Assuming, as I do, that Tuliano’s valuation was 19% over
the valuation that would be implied by Market Cap, I can’t find anything in the record that
would dictate, with any precision, the extent of the necessary adjustment that would
accordingly need to be made. But while I think some adjustment should be made, I would
still come much closer to Tuliano’s conclusions than Shaked’s, and Adelphia would not fall so
far in value as to hit insolvency. Assuming, by way of example, that Tuliano’s valuation was
19% too high, Adelphia would still not be insolvent. Adjustments of that character would
suggest, instead, a net equity (even using Tuliano’s lower, $4.472 billion starting TEV
computation, which would result from his Comparable Companies methodology)
Tuliano that the appropriate method for calculation would involve distinguishing between the portion
of the reduction due to Olympus subscribers and the portion attributable to other reasons. Accordingly,
I accept Tuliano’s conclusions regarding subscriber number both for the purposes of the solvency
analysis and the capital adequacy analysis addressed below.
135 	See, e.g., Chemtura, 439 B.R. at 580 (“Comparable Companies and Precedent Transactions analyses
were employed, but not to reach separate valuations that would then be considered to provide a
composite or blended valuation. Instead, they were used only as a species of check—sometimes
referred to as a “sanity check”—on the valuation UBS arrived at by its use of DCF.”).
136 	Tuliano arguably used DCF as a sanity check. See n.47 above.
137 	See n.125 above.
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approximately $600 million lower (taking a 19% discount), depending on adjustments to the
starting TEV discussed in the section that follows. Even taking the 19% discount, and
assuming the adjustments made by Tuliano in his Comparable Companies analysis, Adelphia
would have been solvent by over $3 billion.
Rather clearly, in my view, such a Market Cap “sanity check”—when applied to
Shaked’s analysis, as Shaked proposed such a sanity check should be applied to Tuliano’s—
would not suggest the negative valuation Shaked proposed, even assuming (as I do) that
Adelphia had engaged in some fraud before the infamous co-borrowing facilities that came
thereafter.
(b) Adjustments to Value
Other disputes exist with respect to adjustments to value that each expert made after
employing their respective valuation methodologies. I address these now.
(i) Verto Communications
First, the parties dispute the value that should be attributed to Verto. Shaked attributed
no value to Verto based on the potential ’33 Act and/or ’34 Act liability Adelphia might have
incurred by issuing stock in its own fraudulent company. 138 By contrast, Tuliano included
Verto’s full value, as measured by the $135 million purchase price then paid.139
On balance, I agree with Tuliano, though the matter would be closer if we were to
consider an alternative for which neither expert argued, counting the Verto assets’ value with
a discount. The outcome of litigation that was never brought is too speculative to justify
disregarding the entirety of the value of the Verto assets. I doubt that any litigator writing a
FASB 5 letter would have advised Adelphia’s accountants that a loss contingency for Verto
138 Shaked Decl. ¶ 104.
139 Tuliano Decl. ¶ 57.
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liability before the co-borrowing arrangements were put in place was “probable,” and I don’t
think the amount of any resulting liability could reasonably be estimated.
But I don’t believe that any such litigator would say that the liability was “remote,”
either. If litigation had been brought by Verto at the time of the Stock Repurchase (it being
remembered that at this point in time, Adelphia was much less fraudulent than thereafter), I
think it is nevertheless very possible that Verto could establish some fraud. But the more
likely probability under those circumstances is that at that time, the Adelphia stock was
overvalued but not worthless. Whether the fraud would have been material enough to obtain
rescission, or would have resulted in damages in a sizeable amount, is far less clear, and
ultimately too speculative to warrant discounting the Verto assets entirely.140
So then we get to the more difficult question of whether I should employ an
assumption that neither expert did—that Verto value should be included, but with a haircut.
Tuliano believed—reasonably, in my view—that contingent, unliquidated, assets and
liabilities should be treated uniformly across the valuation. Other contingent assets and
liabilities did not result in adjustments to value. It would be inconsistent, in my view, to do so
here, without engaging in a similar inquiry with respect to every such asset and liability.
Because Shaked provided no other reason for omitting Verto’s value, I find that the full value
of Verto was properly included in Adelphia’s valuation.
(ii) Olympus
Second, the parties dispute the value that should be ascribed to Adelphia’s interest in
Olympus. The amount of value Tuliano attributed to Olympus was based on Jack Williams’
140 	I could, I suppose, take a view at neither extreme, and attribute value to Verto but with a “haircut” to
take into account a potential settlement of ’33 or ’34 Act liability that might have resulted from the
Verto purchase. But the amount of that haircut would also be speculative.
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expert opinion regarding Olympus’ value. But Shaked’s value was based on the actual price
Adelphia paid for Olympus, only a few months later.
I believe that the actual price fixed in that transaction, which appears to have been at
arms length and without any taint, is more probative than any expert opinion would be. For
that reason, I accept the $216 million value that Shaked ascribed to Olympus, rather than
Tuliano’s $318 million, and find that only $216 million for the Olympus interest would
properly be included in Adelphia’s valuation.
(iii) ABIZ
Third, the parties differ with respect to the propriety of including the value of
Adelphia’s interest in ABIZ. Shaked asserted that Adelphia’s interest in ABIZ was worthless
because of ABIZ’s reliance on Adelphia for capital, ABIZ’s financial weakness generally, and
the likelihood that ABIZ would become insolvent if Adelphia’s fraud were exposed. In
particular, the Recovery Trust provided statements from ABIZ’s 10-K supporting the
Recovery Trust’s position as to ABIZ’s precarious financial position, and analyst reports to
the same effect.141 Tuliano provided no meaningful counterarguments when he included
ABIZ’s total book value and even added a control premium, amounting to $642 million. The
Recovery Trust’s position as to this was effectively uncontroverted, and the documents upon
which the Recovery Trust relied—irrespective of the failure to dispute them—support the
Recovery Trust’s position. I think any value for ABIZ should have been excluded.
(iv) Rigas Family Entities
Fourth, Shaked and Tuliano disagreed with respect to the treatment of receivables
owing to Adelphia from Rigas Family Entities. Tuliano added the full value of these
141 	Shaked Rept. exh. 11.
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receivables to Adelphia’s value, while Shaked added no value, because he did not believe they
would be repaid. With respect to the Rigas Family Entities, I agree with Shaked. If fraud at
Adelphia had been exposed, I believe it highly improbable that the Rigas Family Entities
would have paid back the loan.142
The $279 million receivable from the Rigas Family Entities should be omitted from
Adelphia’s valuation.
(v) Olympus
Fifth, while a similar issue exists with respect to the $279 million receivable from
Olympus, I feel differently. Olympus did not have the creditworthiness problems that ABIZ
or the Rigas Family Entities had, and was in fact generating positive cash flow. Thus, I agree
with the inclusion of the Olympus $279 million receivable in full.
(vi) Noncable Assets Other than ABIZ
Sixth, both sides agree on the propriety of an addition of $91 million to cover the value
of noncable assets other than ABIZ, as do I.
(c) Net Debt
Though they generally agreed with respect to increases in Adelphia’s debt over the
debt reported in Adelphia’s 10-K for 1998, Shaked and Tuliano differed in two respects. In
one case I agree with Tuliano, but in the other I agree with Shaked.
(i) ABIZ Debt
Tuliano reduced Adelphia’s net debt by the amount of ABIZ’s debt—$494 million.
But Shaked provided only “hunches” regarding commingling of assets between ABIZ and
142 	While the Restatement Team expressed a view that the Rigas Family Entities receivables were
unimpaired, its later view, albeit in a different context, was that the Rigas Family Entities lacked
sufficient liquid assets to repay the co-borrowing debt. Direct Trial Declaration of Robert J. DiBella ¶
34 & n. 34, Apr. 17, 2012, ECF No. 98.
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Adelphia to support inclusion of ABIZ’s debt in Adelphia’s net debt for solvency purposes.143
I agree with Tuliano that ABIZ’s debt should have been excluded.
I do so for two reasons. First, I’ve already determined, for reasons discussed above,144
that contrary to Tuliano’s view, the value of ABIZ should have been excluded. Since the
value of ABIZ should have been excluded, it would be improper, in my view, to then include
ABIZ liabilities, as there was no showing that Adelphia was a guarantor of them, or otherwise
on the hook for them. 145
Second, I agree that Shaked’s “hunches” were too speculative and are unsupported on
this record. Based on what I heard during the course of Adelphia’s underlying chapter 11
case, I don’t regard Shaked’s assumptions of commingling of assets between ABIZ and
Adelphia to be implausible. But I’m uncomfortable relying on views I formed in the
underlying chapter 11 case in a separate adversary proceeding in which evidence that might
support those views was not introduced.146
Thus I conclude that Adelphia’s net debt should be reduced by the amount of ABIZ’s
debt.
(ii) Repayment of Bank Debt
Then, Tuliano reduced Adelphia’s debt by $222 million, representing the paydown,
after December 31, 1998 and before the Stock Repurchase, of bank debt in that amount after
143 	Expert Rebuttal Rept. of Professor Israel Shaked ¶¶ 38–42, Apr. 5, 2011 (Joint Exh. 61) (“Shaked
Rebuttal Rept.”).
144 	See p. 41 above.
145 	Even if ABIZ were worthless, its liabilities at least arguably would properly have been taken into
account if Adelphia were a guarantor or otherwise liable for them, but here I heard no evidence that
Adelphia was either a guarantor or otherwise liable.
146 	That’s especially so since my factual findings here are subject to de novo review by a district judge who
was not present during the five pre-confirmation years during which Adelphia’s underlying chapter 11
case was before me, and who would have no basis for making, or verifying, factual findings that I made
in that regard.
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an equity offering which raised $372 million. 147 Approaching the matter slightly differently,
Shaked excluded from Adelphia’s TEV the $372 million in equity proceeds (and did not
reduce Adelphia’s net debt by $222 million, $372 million, or any other amount) because the
equity offering proceeds were not applied to reduce Adelphia’s outstanding debt, but rather
the outstanding debt of Olympus and the Rigas’s Hilton Head Communications (“Hilton
Head”).148
I think Shaked was right in refusing to reduce Adelphia’s net debt by the amount of
the equity proceeds (or by the lesser amount Tuliano used). The equity proceeds were used
for the repayment of debt of non-Debtor entities. And while Adelphia had contemplated a
later repurchase of Olympus, the price at which it would do so was not fixed, and it was not
shown to my satisfaction that there would be a dollar-for-dollar correlation between paydown
of Olympus debt and the price for Olympus that was ultimately paid.
Thus, I conclude that Adelphia’s net debt should not have been reduced by the amount
of the equity proceeds used to pay down Olympus and Hilton Head debt.
(d) My Finding re Solvency
The facts found above underlie my ultimate factual finding, set forth above and below,
that after adjusting for my own computation of an appropriate starting TEV, and for
appropriate adjustments to value and debt, Adelphia still had net equity in the range of $2.494
to $2.497 billion.
Thus Adelphia was still solvent at the time of the Stock Repurchase.
147 Tuliano Decl. exh. 1 at 14 n.3. Tuliano calculated a cumulative adjustment of $222 million, which
equaled “the equity proceeds of [$372 million] as of January 14, 1999 received from Adelphia’s
completed Class A Common Stock offering used to repay subsidiary bank debt less [$150 million] in
additional borrowings in advance of the Company's share repurchase from FPL Group.” Id.
148 	Shaked Rebuttal Rept. ¶ 53; Shaked Decl. ¶¶ 62, 102.
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B.
Capital Adequacy
I then need to consider whether Adelphia, even if it were still solvent, was left with
insufficient capital at the time of the Stock Repurchase. The Recovery Trust and FPL each
had its solvency expert provide an opinion on capital adequacy as well. Shaked, on behalf of
the Recovery Trust, opined that Adelphia would lack adequate capital to maintain its
operations over a three-year period following the Stock Repurchase, based primarily on its
negative free cash flow and lack of access to capital markets.149 Tuliano, on behalf of FPL,
opined that Adelphia would have adequate capital to maintain operations, based primarily on
its equity cushion and continued access to capital markets.150
With respect to this issue, I agree with Tuliano.
1. Capital Needs
Each expert utilized (1) cash flow projections and (2) Adelphia’s reported debt
maturities (all from Adelphia’s 1998 Form 10-K) to project Adelphia’s capital needs during
the years following the Stock Repurchase. Understandably, neither used management or
contemporaneous analyst cash flow projections by reason of the fraud’s effect on those
projections, as discussed above. 151
Instead, Shaked used the same cash flow projections he used in his DCF analysis, but
limited to a three-year horizon.152 Shaked concluded that Adelphia would need approximately
$658 million to meet its capital needs between 1999 and 2001.153
149 	Shaked Decl. ¶¶ 54–60.
150 	Tuliano Decl. ¶¶ 100–101, 119–137.
151 	See nn.47–49 and accompanying text.
152 	Shaked Decl. ¶¶ 46–53.
153 	Shaked Rept. ¶ 132 & exh. 4i.
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Tuliano, by contrast, did not create his own cash flow projections, but instead
“corrected” Shaked’s cash flow projections by changing a number of the assumptions.154
Tuliano concluded that Adelphia would need a lesser $531 million (approximately) during the
three years following the Stock Repurchase.155
Tuliano’s adjustments to Shaked’s cash flow projections account for the entirety of the
difference in the experts’ assessments of capital needs. Tuliano made four main adjustments:
(a) Subscriber Number
First, Tuliano adjusted Shaked’s subscriber number. In 1998, Adelphia reported that it
had 2,162,858 subscribers on a consolidated basis,156 and 1,528,307 wholly-owned
subscribers.157 By reason of fraud, however, Adelphia’s reported number of subscribers for
1998 was incorrect. Noting this, each expert made assumptions regarding Adelphia’s true
number of subscribers.
Both used audit “issue summaries” created during the restatement process for
guidance.158 The restatement, however, did not specifically restate 1998 (as it covered only
1999 through 2003), and it restated Adelphia’s financials only on a consolidated basis. Still,
“Issue Summary G-6” adjusted the number of Adelphia’s consolidated subscribers prior to
1999 downward, from 2,162,858 to 1,943,205—a reduction of 219,653 or approximately
154 	Tuliano Decl. ¶¶ 102–15.
155 	Tuliano Decl. 46 tbl.5.
156 	Adelphia Commc’ns Corp., Issue Summaries: Audit Issues for Restatement of Financial Statements for
1999, 2000, 2001 and 2002, Issue Summary G-6 at JX 011-322 (Dec. 1, 2004) (Joint Exh. 11) (“Issue
Summary G-6”). Combining Adelphia’s wholly-owned subscriber number (1,528,307) and Olympus
subscriber number (641,575) from its 1998 Form 10-K, see n.157 below, leads to a slightly different
result (2,169,882 consolidated subscribers).
157 	Adelphia Commc’ns Corp. Annual Report (Form 10-K) at JX 013-008 (May 25, 1999) (Joint Exh. 13)
(“Adelphia 1998 Form 10-K”).
158 	Issue Summary G-6.
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11.3%.159 Assuming that Adelphia’s wholly-owned subscribers were overstated by the same
percentage, Shaked reduced the reported number of wholly-owned subscribers by 11.3% as
well—yielding his conclusion that on December 31, 1998, Adelphia had 1,373,097
subscribers.160
But Tuliano contended that this was a flaw in Shaked’s analysis. Tuliano
distinguished the portion of the adjustment in Issue Summary G-6 attributable to exclusion of
Olympus subscribers from the portion attributable to other reasons.161 Tuliano argued that
roughly 77% of the adjustment was due to the elimination of Olympus subscribers from
Adelphia’s consolidated subscriber count. 162 Tuliano contended that because Shaked began
with the number Adelphia reported on its Form 10-K—which was already net of Olympus
subscribers—reducing that number proportionate to the reduction in consolidated subscribers
effectively double-counted a reduction on account of exclusion of Olympus subscribers.163
For that reason, Tuliano subtracted only the portion of the subscribers reduction that he
contended was not attributable to Olympus. Thus Tuliano assumed that Adelphia had
1,478,529 subscribers, 105,432 more than Shaked did. 164
The effect of this adjustment was a decrease in the debt-to-EBITDA ratio165 from
9.15x to 8.62x. 166
159 	Issue Summary G-6 at JX 011-322; Shaked Decl. ¶ 46.
160 	Shaked Decl. ¶¶ 46–47.
161 	Tuliano Decl. ¶¶ 103–106.
162 	Id. ¶ 103 & ¶ 103 n.5.
163 	Id. ¶¶ 103–106.
164 	Tuliano Decl. ¶ 90.
165 	Leverage—and more specifically, a leverage ratio—can be measured by comparing the debt to various
things. Here the parties spoke of the ratio of Adelphia’s debt (long term debt for the cable division) to
its EBITDA (measured using last-quarter-annualized operating figures), and I will do likewise. See
Flynn Rept. ¶ 52 & 27 n.78; Shaked Rept. ¶ 55. As Shaked explained, “[t]he debt-to-EBITDA ratio . . .
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As noted below, I accept Tuliano’s assumptions regarding Adelphia’s true number of
subscribers.
(b) Olympus Consolidation
Second, Tuliano consolidated Olympus into Adelphia’s cash flow projections.
Tuliano contended that consolidation was appropriate because the Olympus Redemption was
known as of January 28, 1999 and because the transaction was expected to close in the third
quarter of 1999—which it almost did, closing on October 1, 1999, only one day thereafter.167
By contrast, Shaked did not include Olympus’ cash flow because the Redemption had not
taken place, nor had the final terms been agreed to, and because Shaked believed it unlikely
that the Redemption would have occurred if Adelphia’s fraud were known. 168 The effect of
Tuliano’s adjustment, net of his other adjustments, was to decrease Adelphia’s leverage ratio
from 9.13x EBITDA to 8.62x EBITDA.169
As noted below, in this respect I agree with Tuliano. As of the time of the Stock
Repurchase, it was not clear that the Redemption would take place (or in what size), but for
purposes of making cash flow projections in determining capital adequacy, the experts were
engaged in a forward looking exercise, and could reasonably take into account probabilities.
measure[s] the amount of debt owed by a company relative to the earnings available to service the
debt.” Id. ¶ 56.
166 	Shaked Decl. ¶¶ 65–66. At first blush, the distinction between 9.15x and 8. 62x might not appear to be
material. But because the adjustment brought the debt-to-EBITDA ratio below 8.75x, a level required
under Adelphia’s borrowing agreement, the distinction could be of significance.
167 	Tuliano Decl. ¶ 107.
168 	Shaked Decl. ¶ 63.
169 	Shaked Decl. ¶ 64.
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Real life was consistent with the probabilities. The Olympus Redemption took place on
October 1, 1999, which is the date from which Tuliano included Olympus’ cash flows. 170
(c) Equity Issuance
Third, Tuliano included proceeds from Adelphia’s equity issuance on January 14,
1999. The equity issuance (which was at a price of $43.25 per share) raised approximately
$372 million.171 Shaked omitted these proceeds because they were used to pay down
Olympus and Hilton Head debt, and for that reason, he assumed the proceeds would have no
effect on Adelphia’s balance sheet.172 But Tuliano chose to include them to the extent that
they were used to pay down Olympus debt in his capital adequacy analysis for the same
reasons that he chose to consolidate Olympus cash flow with Adelphia’s—i.e., that the
Olympus Redemption was scheduled to occur in 1999, so any Olympus debt that was paid
down would affect Adelphia’s balance sheet.173 Tuliano also chose to include the amounts
used to repay Hilton Head debt because he assumed an intercompany receivable would have
been created and repaid shortly.174 Shaked criticized that assumption as he noted that the
Rigas Family Entities were net borrowers over time, and could not have repaid the amounts
they received from Adelphia.175
The effect of Tuliano’s adjustment, net of his other adjustments, was to reduce
Adelphia’s leverage ratio from 9.54x EBITDA to 8.62x EBITDA. 176
170 	See Tuliano Decl. ¶ 107 (“I have corrected Prof. Shaked’s analysis by including Olympus’ cash flows
commencing October 1, 1999.”).
171 	Tuliano Decl. ¶ 111; Shaked Decl. ¶ 62.
172 	Shaked Decl. ¶ 62.
173 	Tuliano Decl. ¶ 111.
174 	Id.
175 	Shaked Decl. ¶ 62.
176 	Id.
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For the reasons discussed below, proceeds from Adelphia’s equity issuance should not
have been included in the cash flow projections.
(d) CapEx
Fourth, and finally, Tuliano adjusted Shaked’s assumptions regarding CapEx. I heard
considerable evidence, and even more argument, as to the extent to which Adelphia would
have to upgrade its systems in the years following the Stock Repurchase. Shaked assumed
that Adelphia would need to upgrade between 90 and 100% of its systems by 2001,177 while
Tuliano assumed that Adelphia would have until 2003 to upgrade its systems, and would only
have to upgrade 75% of its systems by then.178
On this point, two additional experts were called. The Recovery Trust called Robin
Flynn (“Flynn”), and FPL called Christian Dippon (“Dippon”). I find that both showed
satisfactory expertise with respect to the cable television industry.179
Flynn testified that between 1998 and 2000, “it was absolutely crucial for cable
operators to upgrade their plant and add new services to counter DBS [Digital Broadcast
Satellite, such as DirecTV] competition.”180 During that time period, Flynn testified,
Adelphia was “substantially less upgraded than the other major MSOs [Multi-System
177 	Shaked Rept. ¶¶ 117–19; Shaked Decl. ¶ 71.
178 	Tuliano Decl. ¶¶ 108–110.
179 	The Recovery Trust criticized Dippon for not being an industry analyst or cable industry expert, but
rather an economist. Plaintiff’s Post-Trial Mem. of Law 16, June 22, 2012, ECF No. 124 (“Recovery
Trust Post-Trial Br.”) (“Ms. Flynn was the only pure cable expert to testify.”); Rebuttal Rept. of Robin
V. Flynn ¶ 2, July 15, 2011 (Joint Exh. 58) (“Flynn Rebuttal Rept.”) (“Mr. Dippon, possibly because
he did not seem to be involved in analysis of the cable industry in the 1998–2001 time period, displays
an ignorance of the prevailing trends and industry mind-set of the time.”). I was not troubled by
Dippon’s background. While he was not an industry analyst, he specialized in telecommunications
economics for over 15 years, and had extensive qualifications to support his expertise. See Decl. of Dr.
Christian M. Dippon ¶¶ 1–4, Apr. 17, 2012, ECF No. 104 (“Dippon Decl.”). Moreover, he provided a
thoughtful analysis, demonstrating expertise.
180 	Direct Trial Testimony Decl. of Robin V. Flynn ¶ 16, April 17, 2012, ECF No. 99 (“Flynn Decl.”).
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Operators]” both with regard to bandwidth and two-way transmission capability.181 Flynn
believed, accordingly, that Adelphia was a laggard in the industry, and could not delay its
upgrade.182
Based in part on Flynn’s analysis, Shaked then assumed that Adelphia would have to
upgrade between 90 and 100% by 2001. Shaked also relied on management projections that
network upgrades would be 95% complete by 2000, as they appeared in Adelphia’s 1998
Form 10-K, and as they were interpreted by analysts from Goldman Sachs and Kagan.183
Though Dippon agreed that Adelphia needed to upgrade its systems, he testified that
“[t]here was no competitive imperative for Adelphia to engage in a three-year upgrade
program, as set forth by Prof. Shaked.”184 I agree, and so find. Dippon criticized Flynn and
Shaked for failing to consider whether other upgrade strategies were viable options.185
Further, Dippon estimated that the upgrade status with regard to bandwidth for a typical cable
company was only 90% by 2001 and 92% by 2003, indicating that Flynn and Shaked were too
aggressive in assuming that Adelphia had to fully complete its upgrade by 2001.186 (Indeed,
Flynn herself estimated that by 2001, only 90% of the industry’s plant was upgraded with
181 	Flynn Decl. ¶ 8. For example, in 1997, Flynn, like other analysts, believed that less than 35% percent of
Adelphia’s plants had upgraded their bandwidth but that by year-end 1998, the cable industry as a whole
was thought to have approximately 70% of its networks upgraded. Id. Additionally, in August 1998,
Flynn, like other analysts, believed that only 20% of Adelphia’s cable plant was two-way capable, but
that by year-end 1999, the industry average was expected to be 55%. Id. ¶ 9.
182 	Flynn Decl. ¶ 16 (“Like the rest of the cable industry, Adelphia could not delay its upgrade because it
needed to develop the capability to offer advanced services to compete with DBS, and to meet
investors’ expectations that it generate comparable revenue and cash flow growth to that of the other
major MSOs.”).
183 	Shaked Decl. ¶¶ 67–68.
184 	Dippon Decl. ¶ 8 (emphasis added).
185 	Dippon Decl. ¶¶ 92–95.
186 	Dippon Decl. ¶¶ 54–62 (referencing DLJ Report 23, 33 app. 1).
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regard to bandwidth and 80% upgraded with regard to two-way capability.187 ) Based
primarily on Dippon’s analysis, though also on management’s representations in Adelphia’s
1998 Form 10-K, Tuliano assumed that Adelphia would only have to upgrade 75% of its
systems by 2003.188
Based in material part on their differences in methodology, Shaked and Tuliano came
to different conclusions regarding Adelphia’s capital needs in the three years following the
Stock Repurchase.189 Tuliano, on behalf of FPL, estimated that approximately $531 million
would be needed; Shaked, on behalf of the Recovery Trust, estimated that $658 million would
be required.190
The effect of Tuliano’s adjustment, net of his other adjustments, was to decrease
Adelphia’s leverage ratio from 8.78x EBITDA to 8.74x EBITDA. 191
For the reasons discussed below, I find Adelphia’s capital need to be in the range of
$600 million, a figure between the estimates provided by FPL and the Recovery Trust.
2. Access to Capital
While the two sides’ conclusions on Adelphia’s capital needs were divergent by only
approximately 20%, the two sides strongly disagreed with respect to Adelphia’s ability to
meet those needs—i.e., by borrowing, selling assets, or otherwise generating the capital
required.
The Recovery Trust contended that Adelphia would not be able to meet its capital
needs—making three main arguments to support that position. First, the Recovery Trust
187 	Expert Rept. of Robin V. Flynn ¶ 24, June 23, 2004 (Joint Exh. 57) (“Flynn Rept.”).
188 	Tuliano Decl. ¶ 110.
189 	Tuliano Decl. 46 tbl.5.
190 	Shaked Rept. exh. 4i.
191 	Shaked Decl. ¶ 71.
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argued that Adelphia’s high leverage ratio would (1) lead to defaults on its existing debt
covenants (or at least restrict access to additional debt from existing sources), and (2) restrict
Adelphia from acquiring capital from new sources. Second, the Recovery Trust argued that
because of its existing debt covenants, Adelphia would be unable to sell its assets to satisfy its
capital needs. Third, the Recovery Trust argued that if the fraud at Adelphia became known
to investors, Adelphia’s access to capital markets would have been cut off. While the
Recovery Trust admitted that any of these factors in isolation would not necessarily cause
access to capital markets to be restricted or cut off entirely, it argued that the confluence of the
factors would.192
In opposition, FPL disputed each of those arguments, and further contended that
Adelphia had an equity cushion that made it likely that investors would be willing to provide
Adelphia with capital. For those reasons, FPL argued that Adelphia would be able to meet its
capital needs notwithstanding the facts now known about Adelphia’s financial condition at the
time of the Stock Repurchase.
(a) High Leverage Ratio
I first need to address the Recovery Trust’s contention that Adelphia was so over-
leveraged at the time of the Stock Repurchase (and that Adelphia would continue to be so in
following years) that Adelphia would not have had access to capital from new or existing
sources.
192 	Shaked Decl. ¶¶ 78–79; Trial Tr. vol. 4, 421:23–422:3, 456:22–457:10, May 1, 2012, ECF No. 115
(“Trial Tr. Vol. 4”). Notably, the Recovery Trust did not argue that the fraud at Adelphia, in and of
itself, would make acquiring financing impossible. Indeed, at closing arguments, counsel for the
Recovery Trust stated “And I don’t think we really needed the testimony of . . . Professor Tabak, who
said something entirely unremarkable; that when a company engages in fraud, [it] can still access the
capital markets if its financial performance is such that it remains creditworthy. We’ve never said that
fraud, in and of itself, without more, will automatically, under all circumstances, make a company
uncreditworthy.” Trial Tr. 7/25/2013 Tr. 15:1–7 (transcription errors corrected).
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As reported in Adelphia’s Form 8-K, Adelphia had existing debt agreements which
provided that its indebtedness could not exceed 8.75x EBITDA. 193 Shaked observed that
Adelphia’s reported debt-to-EBITDA ratio at the end of 1998 was 9.9x, 194 an amount that
exceeded, quite obviously, that 8.75x level. But the two sides disagreed with respect to what
Adelphia’s leverage ratio would be in the following years. Shaked projected Adelphia’s debt-
to-EBITDA ratio to be 11.6x, based on his own projections of Adelphia’s performance in
1999 and Adelphia’s restated debt figures.195 Tuliano calculated Adelphia’s debt-to-EBITDA
ratio to be 8.69x at the time of the Stock Repurchase, and lower in subsequent years.196
Based on Shaked’s calculation of Adelphia’s leverage ratio, the Recovery Trust argues
that Adelphia “had no right to borrow and was subject to the exercise of default remedies by
its creditors at every level of its capital structure.” 197 Since Shaked calculated Adelphia’s
debt-to-EBITDA ratio to be at least 9.9x (and likely higher if restated), the Recovery Trust
argued that Adelphia exceeded the maximum authorized under Adelphia’s borrowing
covenants. For this reason, the Recovery Trust argued that it would be unreasonable to
assume that Adelphia would be able to access additional funding from existing debt sources to
meet its capital needs.
FPL countered (based on Tuliano’s calculation that Adelphia’s debt-to-EBITDA ratio
was 8.69x in 1999 and lower in subsequent years) with the assertion that Adelphia had not
breached its debt covenants at the time of the Stock Repurchase. And FPL further argued that
193 	Shaked Rept. ¶ 134 & n.9 (quoting Adelphia Commc’ns Corp. Current Report (Form 8-K) (Jan. 28
1998) at sec. 4.05 (Plaintiff’s Exhibit 68)).
194 	Flynn Decl. ¶ 20; Trial Tr. Vol. 1 43:13–44:5.
195 	Shaked Rept. ¶ 137.
196 	Tuliano Rept. 47 tbl.6.
197 	Recovery Trust Post-Trial Br. 41.
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even if Adelphia had technically violated its debt covenants, creditors would not necessarily
have declared defaults (or would have waived them), and that Adelphia would not necessarily
have been prevented from accessing capital markets, a point which Shaked acknowledged.198
The Recovery Trust also contended that Adelphia would be unable to access capital
markets for new financing based on its leverage ratio. To support this, the Recovery Trust
turned to Flynn. Flynn testified that “[a]lthough the financial markets had widespread
enthusiasm for lending to the cable industry in 1999, markets were generally not comfortable
with cable companies with leverage levels over 7.0–8.0x EBITDA.” 199 But FPL disputed this,
by noting Adelphia’s continued access to credit markets to finance three acquisitions in 1999,
despite its reported leverage ratio of 9.9x EBITDA.200 And FPL also noted that Mediacom, a
similar cable company, successfully completed an IPO and issued new debt between 1999 and
2001, despite leverage ratios at much higher levels—between 11.1x EBITDA and 17x
EBITDA during that period. 201 FPL contended, therefore, that both debt and equity markets
would not be closed to Adelphia simply by virtue of its high leverage ratio.
For the reasons discussed below, I agree with FPL with respect to this.
(b) Ability to Sell Assets
The Recovery Trust also argued that Adelphia would not be able to sell assets, or grant
liens on those assets, to satisfy its capital needs.202 In his report, Shaked reviewed several of
Adelphia’s debt agreements, and covenants they contained, and determined that “[t]he
198 	Trial Tr. Vol. 4 423:17–23.
199 	Flynn Decl. ¶ 23.
200 	Trial Tr. Vol. 1 41:12–44:5.
201 	FPL Post-Trial Br. 40–41; Trial Tr. Vol. 1 59:10–61:10, 80:17–81:2, 73:21–74:7.
202 	Plaintiff’s Trial Mem. of Law 2, 44, Apr. 17, 2012, ECF No. 106 (“Recovery Trust Pre-Trial Brief”);
Trial Tr. 7/25/2013 239:5–9.
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combined effect of the limitations on the sale of assets in Adelphia’s credit agreements and
indentures made the sale of assets difficult and complicated, and especially so for a company
as leveraged as Adelphia.” 203 But FPL disputed what Adelphia’s debt covenants said. FPL
argued, to the contrary, that under Adelphia’s debt covenants, Adelphia “had substantial
flexibility to sell cable systems, if necessary, in order to deleverage,”204 and that Adelphia
could have sold ABIZ or Verto so long as it retained at least 660,000 subscribers.205
As noted below, I agree that Adelphia could have sold assets to provide sufficient
capital if necessary.
(c) Effect of Fraud on Access to New and Existing Sources of Capital
The Recovery Trust further argued that Adelphia’s fraud, in combination with a lack
of credit-worthiness, would preclude it from obtaining capital from new and existing sources.
Specifically, the Recovery Trust argued that “a company that cannot support further
borrowing based upon its weak credit statistics has an even lesser (read: impossible) chance of
borrowing after it is revealed to have engaged in a massive fraud.” 206
The Recovery Trust based its argument on testimony by Shaked and Flynn.207 Both
Shaked and Flynn expressed skepticism about the market’s willingness to extend financing to
Adelphia if its fraud were disclosed.208 Because they argued that capital markets would be
closed to Adelphia, neither Shaked nor Flynn quantified the additional cost of borrowing
203 	Shaked Rept. ¶ 171.
204 	FPL Post-Trial Br. 37–38.
205 	Id. 38.
206 	See Recovery Trust Post-Trial Br. 42.
207 	See Recovery Trust Post-Trial Br. 42 n.69.
208 	Shaked Decl. ¶¶ 57, 60 (noting that if Adelphia’s fraud were disclosed, its credit rating would likely be
withdrawn and it would violate its existing debt covenants, making it difficult for Adelphia to obtain
new financing.”); Flynn Decl. ¶ 23 (“In my opinion, in 1999, the market would not have continued to
extend financing at Adelphia’s actual leverage levels, particularly after the disclosure that its financial
statements were materially misstated as a result of fraud.”).
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Adelphia would experience as a result of its fraud.209 But Dr. David Tabak (“Tabak”), an
expert FPL called on the issue, testified that Adelphia would still be able to borrow, merely
experiencing an increased spread of 97.5 basis points210 in its borrowing costs.211
Tabak further testified that disclosure of fraud would not necessarily have precluded
Adelphia’s access to capital markets.212 Tabak examined an empirical study on access to
capital markets after disclosures of fraud, and also examined five large companies that had
disclosed fraudulent activity (Cendant, Waste Management, Rite-Aid, Enron, and
WorldCom), each of which was able to obtain financing after the disclosure.213 Tabak
concluded that “[t]he fact that all five of the companies examined obtained financing after
disclosing fraud strongly supports my conclusion and completely rebuts that of Prof. Shaked.
Even two companies with massive fraud, Enron and WorldCom, which I note Prof. Shaked
cited in his rebuttal report, obtained financing in the much more challenging 2001/2002
economic environment . . . .” 214 Shaked countered that two of these companies (Cendant and
Waste Management) had lower leverage ratios than Adelphia, and that the confluence of
factors made Adelphia’s financing impossible.215 But Tabak argued that a third company’s
(Rite-Aid’s) leverage ratio was higher.216 I harmonize this underlying evidence to find that
209 	Shaked did calculate the increased WACC that he believed Adelphia would experience as a result of
risk premia applied to its cost of debt and cost of equity, see p. 20 above, but he did not translate that to
interest rate terms.
210 	A basis point is 1/100 of a percent. By way of example, an increased interest rate of 97.5 basis points
would be a little less than 1%.
211 	Written Direct Testimony of David Tabak, Ph.D. ¶ 35, Apr. 17, 2012, ECF No. 103 (“Tabak Decl.”)
(citing Tabak Rept. ¶¶ 18–20).
212 	Id. ¶ 11.
213 	Id. ¶ 14.
214 	Id. ¶ 63.
215 	Shaked Rebuttal Rept. ¶¶ 119–123.
216 	Trial Tr. vol. 7, 812:8–813:16, 815:14–17, May 3, 2012, ECF No. 118 (“Trial Tr. Vol. 7”).
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fraud, at least at the lower level present at Adelphia before the co-borrowing facilities were
put in place, would not necessarily result in an inability to access capital, and would not have
done so here.
3. My Capital Adequacy Conclusions
(a) Capital Needs
The unavailability and unreliability of management and contemporaneous analyst
projections presented challenges in the capital adequacy analysis similar to those I faced in the
solvency analysis. But here, each of the experts had no choice but to utilize cash flow
projections to determine Adelphia’s capital needs in the short-term. Though I remain troubled
that the projections made by each side were in significant respects speculative, I have no
choice either. Because cash flow projections are so important to the capital adequacy
analysis, I consider them as well, though with a fair degree of scrutiny.
I accept Tuliano’s assumptions regarding Adelphia’s true number of subscribers. I
also accept his consolidation of Olympus cash flow for purposes of the capital adequacy
analysis because the fact that Olympus would provide useful cash flow was probable in
January 1999, and became a reality on October 1, 1999, the date from which Tuliano included
it. However, as in my solvency analysis, 217 I reject Tuliano’s inclusion of the portion of the
1999 equity issuance that was used to pay down Olympus debt, because I do not believe there
was a dollar-for-dollar relationship between the paydown of Olympus debt and the price
ultimately paid for Olympus, nor, of course, with respect to any cash flow Olympus might
provide. And as in my solvency analysis with respect to receivables owing from the Rigas
Family Entities, 218 I cannot accept Tuliano’s view with respect to the intercompany
217 	See pp. 43–44 above.
218 	Id.
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receivable that would be issued by Hilton Head, one of the Rigas Family Entities, as a result
of Adelphia’s paydown of Hilton Head debt from the equity proceeds. Instead, I consider it
inappropriate to include that portion of the equity issuance in Adelphia’s cash flow
projections.
Capital expenditures based on upgrades of Adelphia’s systems provided an easier issue
in connection with Adelphia’s cash flow projections. I did not regard the analysis by either
Flynn or Dippon to be unreasonable. But I think Dippon was correct in challenging Flynn’s
and Shaked’s assumptions that Adelphia would have to completely upgrade over just a three-
year time period. I have little doubt that upgrading would boost revenues, and be desirable.
But I was not persuaded as to the asserted urgency of upgrading. Adelphia was subject to
only limited competition within the markets in which it did business; I was not persuaded that
competition from satellite would place significant pressure on Adelphia to upgrade its service.
And also of significance to me was the fact that Flynn herself acknowledged that other similar
companies were not 100% upgraded by 2001, and in fact were only in the range of 80–90%
upgraded. In light of that evidence, while I accept as true that Adelphia was not as upgraded
as other multi-service operators, I easily find that there was no need for Adelphia to so
promptly undertake such an upgrade plan.
Though I could not determine with precision the exact amount of Adelphia’s capital
need between 1999 and 2001, I believe, and find, that it would be in the range of $600
million, a figure between the estimates provided by FPL and Adelphia.
(b) Access to Capital Markets
Gauging ability to access capital markets presented the most challenging issues in
analyzing capital adequacy. Doing so required me to predict how markets would react if
Adelphia’s fraud and true financial metrics were disclosed at the time of the Stock
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Repurchase, an exercise which is unavoidably somewhat speculative. And the expert
testimony as to this was in sharp conflict. But ultimately I find that the Recovery Trust failed
to meet its burden in proving that capital markets would be closed to Adelphia if Adelphia’s
fraud, which was in its infancy in 1999, was disclosed.
The Recovery Trust argued that the confluence of three factors—Adelphia’s leverage
ratio, its encumbered assets, and fraud—would cause the capital markets to be closed off to
Adelphia. But after hearing FPL’s evidence as to this, I was unpersuaded by the Recovery
Trust’s contentions in this regard. 	Preliminarily, the Recovery Trust did not even argue that
any of the factors in isolation would cause capital markets to be closed to Adelphia. The
Recovery Trust instead relied on those factors in combination. But (especially in light of
Mediacom’s ability to raise equity capital with a much higher leverage ratio, and the evidence,
which I accept, that Adelphia could sell assets) I don’t believe that the first two factors
(leverage ratio and encumbered assets) would present material impediments, and that those
two factors would be sufficient, even when piled on with the third (which was the most
significant), to cause Adelphia to have been unable to raise capital.
Ultimately, the most persuasive aspect of FPL’s position was its analysis of other
companies facing a similar confluence of factors. In particular, Tabak’s analysis of five
companies facing similar situations (especially Rite-Aid, which was also highly leveraged)
was persuasive; it showed how markets actually reacted to fraud at large public companies.
Also, but importantly, Adelphia’s fraud in 1999 was much less extensive than the fraud that
had infected the company by 2002. For that reason, I find Shaked’s heavy reliance on the
outcome of Adelphia’s fraud disclosures in 2002 to be flawed. And indeed, Adelphia could
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even secure financing upon the June 2002 filing of its chapter 11 case (part of which financing
was used for CapEx), after the much more serious fraud at Adelphia had become known.219
For all of these reasons, I find that the Recovery Trust did not meet its burden of proof
in demonstrating that Adelphia lacked adequate capital at the time of the Stock Repurchase.
C.
Equitable Insolvency
The Recovery Trust did not try to show that in 1999, at the time of the Stock
Repurchase, Adelphia was “equitably insolvent”—i.e., unable to pay its debts as they
matured. Nor did the Recovery Trust try to show that Adelphia entered into the Stock
Repurchase intending that it would be unable to pay its debts, or on notice that such would be
the result. To the extent that the Recovery Trust might have desired findings of that character,
it failed to meet its burden of proof in that regard.
I cannot, and do not, find that Adelphia was equitably insolvent at the time of the
Stock Repurchase, or that the Stock Repurchase made it so.
IV.
Ultimate Findings of Fact
For reasons set forth above and in the Discussion below, I find:
(1) The Stock Repurchase and Redemption were separate transactions,
inappropriate for collapsing with each other.
(2) Adelphia was not insolvent at the time of the Stock Repurchase, nor did the
Stock Repurchase make it so.
219 	See Interim Order Authorizing Post-Petition Financing, June 28, 2002, Umbrella ECF No. 51; Final
Order Authorizing Post-Petition Financing, Aug. 23, 2012, Umbrella ECF No. 525.
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(3) Adelphia was not left with inadequate capital at the time of the Stock
Repurchase, nor did the Stock Repurchase leave it so.
(4) Adelphia was not equitably insolvent at the time of the Stock Repurchase,
nor did the Stock Repurchase make it so.
Discussion
Under familiar principles, a trustee or one with the rights of a trustee may bring
fraudulent transfer claims on behalf of an estate to avoid a transfer when avoidance could be
obtained under state law by an entity that was a creditor at the time of the transfer.220 If the
transfer is avoided, the transferred property is recoverable for the benefit of the estate.221 The
plaintiff bears the burden of proving, by a preponderance of the evidence, each element of a
constructive fraudulent transfer claim. 222
220 	Bankruptcy Code section 544(b)(1). It provides, with an exception not relevant here:
[T]he trustee may avoid any transfer of an interest of the debtor in
property or any obligation incurred by the debtor that is voidable
under applicable law by a creditor holding an unsecured claim that
is allowable under section 502 of this title or that is not allowable
only under section 502(e) of this title.
221 	Section 550(a) of the Code provides, in relevant part, and with exceptions not relevant here:
[T]o the extent that a transfer is avoided under section 544 . . . , the
trustee may recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of such property,
from—
(1) the initial transferee of such transfer or the entity for
whose benefit such transfer was made . . . .
I did not have to consider the extent to which FPL would be protected by the “Safe Harbor” of
Bankruptcy Code section 546(e), since that potential defense was not timely asserted by FPL’s former
counsel. See Adelphia Recovery Trust v. FLP Group, Inc. (In re Adelphia Commc’ns Corp)., 452 B.R.
484, 492–93 (Bankr. S.D.N.Y. 2011) (Gerber, J.).
222 	See Glassman v. O’Brian (In re Valley Bldg & Constr. Corp.), 435 B.R. 276, 287–88 (Bankr. E.D. Pa.
2010) (Fitzsimon, J.); Leibersohn v. Campus Crusade for Christ, Inc., 280 B.R. 103, 115 (Bankr. E.D.
Pa. 2002) (Carey, J.).
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Though in the respects relevant here, there is little difference in the fraudulent transfer
law of most, if not all, of the states223 (and, for that matter, the similar fraudulent transfer
provisions that exist under section 548 of the Bankruptcy Code). I apply Pennsylvania law,
the law of the jurisdiction where the alleged injury was suffered and that has the greatest
interest in this controversy.224
Putting together Pennsylvania’s two relevant statutory provisions225 with the
Bankruptcy Code’s sections 544 and 550, the Recovery Trust can prevail here if it shows
(1) that the transfer in question—i.e., the Stock Repurchase—was for less than reasonably
223 	See Weisfelner v. Fund 1 (In re Lyondell Chemical Co.), 503 B.R. 348, 356 n.13 (“State fraudulent
transfer law is largely, but not entirely, the same throughout the United States; the Uniform Fraudulent
Transfer Act (“UFTA”) has been enacted in 43 of the states, though two (including New York) still use
the older Uniform Fraudulent Conveyance Act (“UCFA”), and five others have idiosyncratic statutes or
rely on common law.”).
224 	Pennsylvania is one of the 43 states in the nation that has enacted the UFTA.
225 	The first, 12 PA. CONS . S TAT. § 5104 (2014), provides, in relevant part, with respect to transfers
fraudulent as to present and future creditors:
A transfer made . . . by a debtor is fraudulent as to a creditor,
whether the creditor’s claim arose before or after the transfer was
made . . . , if the debtor made the transfer . . . :
. . .
(2) without receiving a reasonably equivalent value in
exchange for the transfer . . . , and the debtor:
(i) was engaged or was about to engage in a
business or a transaction for which the remaining
assets of the debtor were unreasonably small in
relation to the business or transaction; or
(ii) intended to incur, or believed or reasonably
should have believed that the debtor would incur,
debts beyond the debtor’s ability to pay as they
became due.
The second, 12 PA. CONS . S TAT. § 5105 (2014), provides, in relevant part, with respect to transfers
fraudulent as to present (but not future) creditors:
A transfer made . . . by a debtor is fraudulent as to a creditor whose
claim arose before the transfer was made . . . if the debtor made the
transfer . . . without receiving a reasonably equivalent value in
exchange for the transfer . . . and the debtor was insolvent at that
time or the debtor became insolvent as a result of the transfer or
obligation.
(Emphasis added in each instance).
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equivalent value in exchange, and (2) that it took place when Adelphia (a) was insolvent, or
would be rendered such; (b) would be left with unreasonably small capital; or (c) intended to
incur (or reasonably should have believed it would incur) debts beyond Adelphia’s ability to
pay them as they became due.
Here, the Recovery Trust seeks to recover the $150 million Stock Repurchase by
showing compliance with those requirements. FPL defends this action making two principal
contentions. First, FPL challenges the propriety of considering the Stock Repurchase
independently of the Redemption, about eight months later—contending that the transactions
were integrated (and for that reason, I should “collapse” and consider them as one)— and FPL
contends that when the two transactions are collapsed, it provided reasonably equivalent value
in exchange for Adelphia’s payments. Second, FPL challenges the Recovery Trust’s assertion
that Adelphia was insolvent, inadequately capitalized, or equitably insolvent at the time of the
transfer. I consider these issues in turn.
I.
Interdependence
Determination of reasonably equivalent value starts with whether the Stock
Repurchase and the Redemption should be collapsed and considered as a single transaction.
This preliminary issue bears on what “transfer” I should analyze under fraudulent transfer law
for the purpose of determining whether reasonably equivalent value was paid.
FPL frames the transaction as one in which Adelphia paid FPL approximately
$257 million for the aggregate of the Stock Repurchase and the Redemption. The Recovery
Trust contends, on the other hand, that the Stock Repurchase and Redemption were two
separate transactions—one in which Adelphia paid the $150 million for the repurchase of
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Adelphia’s own stock, and another in which Adelphia paid $108 million to redeem FPL’s
interest in Olympus.
It is not infrequently appropriate, as FPL advocates, to “collapse” a series of
transactions for fraudulent transfer analysis.226 “Courts have ‘collapsed’ a series of
transactions into one transaction when it appears that despite the formal structure erected and
the labels attached, the segments, in reality, comprise a single integrated scheme when
evaluated focusing on the knowledge and intent of the parties involved in the transaction.”227
The paradigmatic example of such is a leveraged buyout (“LBO”).228 But I find the facts here
to be very different than those of an LBO. And as a mixed question of fact and law, I find no
basis for collapsing here.
While the Pennsylvania Supreme Court has not addressed the issue of collapsing
multiple transactions for determining reasonably equivalent value under Pennsylvania’s
226 	See Official Comm. of Unsecured Creditors of Sunbeam Corp. v. Morgan Stanley & Co. (In re Sunbeam
Corp.), 284 B.R. 355, 370–71 (Bankr. S.D.N.Y. 2002) (Gonzalez, J.) (“Sunbeam”).
227 	Id. at 370.
228 	See HBE Leasing Corp. v. Frank, 48 F.3d 623, 635 (2d Cir. 1995) (“HBE Leasing”) (“It is well
established that multilateral transactions may under appropriate circumstances be ‘collapsed’ and treated
as phases of a single transaction for analysis under the UFCA. This approach finds its most frequent
application to lenders who have financed leveraged buyouts of companies that subsequently become
insolvent.” (citation omitted)).
In an LBO, two or more transactions are executed substantially contemporaneously or in rapid
succession to effect the purchase of a target company using its own assets as security for financing. In
the “paradigmatic scheme,” “one transferee gives fair value to the debtor in exchange for the debtor’s
property, and the debtor then gratuitously transfers the proceeds of the first exchange to a second
transferee. The first transferee thereby receives the debtor’s property, and the second transferee
receives the consideration, while the debtor retains nothing.” Id.
While in the first component of the transaction, the debtor receives reasonably equivalent value, in the
second, the debtor does not. If considered separately, only the second transaction would raise
fraudulent transfer concerns, even though the entire scheme could seriously injure the debtor’s
preexisting creditors.
For this reason, courts have found it appropriate to look beyond the individual components of multi-
component transactions and focus instead on the overall picture. See, e.g., United States v. Tabor Court
Realty Corp., 803 F.2d 1288 (3d Cir. 1986) (“Tabor”) (affirming district court’s decision to “look[]
beyond the exchange of funds” and collapse transactions that “were part of one integrated transaction”).
FPL asks me to do so here.
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versions of the UFTA or the older UFCA, several federal courts have. The best known of
these decisions is the Third Circuit’s frequently cited opinion in Tabor, construing the
Pennsylvania version of the earlier UFCA. 229 The Tabor court rejected contentions that the
UFCA didn’t apply to LBOs;230 agreed that the LBO should be collapsed for analytical
purposes;231 and ultimately affirmed a district court ruling that the LBO was a fraudulent
transfer.232
Tabor considered a number of factors in determining when transactions should be
collapsed for analytical purposes, but did not, in so many words, list them. But later cases,
relying on Tabor, have done so.233 The Hechinger court (relying not just on Tabor, but also
on the Second Circuit’s decision in HBE Leasing) stated that it would focus “not on the
structure of the transaction but the knowledge and intent of the parties involved in the
229 	Tabor, 803 F.3d at 1295–96.
230 	Id. at 1297.
231 	Id. at 1302–03.
232 	Id. at 1296.
233 	See In re Hechinger Inv. Co. of Delaware, 327 B.R. 537, 546–47 (D. Del. 2005) (Robinson, C.J.)
(“Hechinger”); Mervyn’s LLC v. Lubert-Adler Grp. IV, LLC (In re Mervyn’s Holdings, LLC), 426 B.R
96, 104 (Bankr. D. Del. 2010) (Gross, J.) (“Mervyn’s”); In re Tribune Co., 464 B.R. 126, 165 (Bankr.
D. Del. 2011) (Carey, J.) (“Tribune”). Each of Hechinger, Mervyn’s and Tribune involved analysis of
the closely similar Bankruptcy Code section 548.
Though developed and principally applied in the LBO context, these factors have also been applied in
other contexts. See, e.g., Voest-Alpine Trading USA Corp. v. Vantage Steel Corp., 919 F. 2d 206, 212–
13 (3d Cir. 1990) (“Voest-Alpine”) (applying Tabor Factors in context of a series of transactions
transferring assets between related companies); Sher v. SAF Financial, Inc., 2009 U.S. Dist. LEXIS
129948, at *20, 2010 WL 4034272, at *7 (D. Md. Oct. 14, 2010) (Bennett, J.) (“Sher”) (finding Tabor
Factors “instructive” in context of alleged plan to distribute bonus payments); In re National Forge
Co., 344 B.R. 340, 347–51 (W.D. Pa. 2006) (McLaughlin, J.) (“National Forge”) (noting Tabor Factors
are “instructive and consistent with the principles of the ‘integrated transaction’ doctrine” in context of
stock redemption and settlement payment); Protocomm Corp. v. Novell, Inc., 55 F. Supp. 2d 319, 327
(E.D. Pa. 1999) (Reed, J.) (“Protocomm”) (finding Tabor Factors “equally applicable” in case where
company allegedly undertook stock acquisition as part of a plan to place assets out of creditor’s reach);
In re Syntax-Brillian Corp., 2011 WL 3101809, at *11–12 (Bankr. D. Del. July 25, 2011) (Shannon, J.)
(“Syntax-Brillian”) (applying Tabor Factors where debtors disbursed proceeds from credit lines to
insider corporation); Sunbeam, 284 B.R. 355, 370–72 (considering collapsing where lenders issued
secured loan and debtor subsequently used loan proceeds to acquire corporate entities).
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transaction.”234 Decisions in this district similarly speak of “the knowledge and intent of the
parties in the transaction.”235 Mervyn’s, citing Tabor and Hechinger, spoke of courts
considering three factors in their analysis:
(1) whether all of the parties involved had knowledge of the
multiple transactions;
(2) whether each transaction would have occurred on its own;
and
(3) whether each transaction was dependent or conditioned on
other transactions.236
Tribune, citing Mervyn’s, did likewise.237 Thus I focus on the “knowledge and intent” of the
parties in the transaction, as articulated in Best Products, Sunbeam, and Hechinger, and on the
three factors identified in Mervyn’s and Tribune.
The “knowledge and intent” factor (which overlaps, in part, with the first of the
Mervyn’s-Tribune factors) cuts to a certain extent in each direction, but on balance strongly
favors a ruling that declines to collapse. When the Stock Repurchase took place, FPL and
Adelphia knew that they also contemplated a redemption, of some kind, of Telesat’s interest
in Olympus. But they also knew that, unlike the Stock Repurchase, the redemption was not
scheduled to occur immediately; that the terms of the redemption were not then finalized; and
that the redemption might be total or that it might be only partial.238 They knew that the Stock
234 	Hechinger, 327 B.R. at 546 (internal quotation marks omitted).
235 	See Sunbeam, 284 B.R. at 370 (citing In re Best Products Co., 157 B.R. 222, 229 (Bankr. S.D.N.Y.
1993) (Brozman, C.J.)).
236 	Mervyn’s, 426 B.R. at 104.
237 	Tribune, 464 B.R. at 165.
238 	See pp. 8–9 above.
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Repurchase had not been made contractually contingent on the resolution of the open matters
related to the Olympus Redemption.
Along with the evidence of FPL’s and Adelphia’s knowledge (which to a limited
extent would support collapsing, but which to a greater extent would support declining to
collapse) is the strong evidence of their intent—which was not to make the two transactions
dependent on each other. As I noted previously in my Findings of Fact, nothing in the Letter
Agreement made the transactions contingent upon one another. 239 The Letter Agreement did
not provide that if the Redemption failed to occur, the Stock Repurchase (which would have
taken place substantially earlier) would be unwound. And neither transaction was reliant
upon the other for its terms, nor did it have the purpose of facilitating the other. The purchase
price for the Redemption in no way related to the price for the Stock Repurchase, or vice
versa. Each transaction could have occurred on its own, and indeed, each was set to occur on
its own, independently, and at different times. The Board Minutes (after referring in a recital
to the Letter Agreement, and a defined term, the “Telesat Transaction,” which had two
components) authorized the “Telesat Transaction” in a single paragraph, but without saying
that either component was dependent on the other. And when Coyle testified at the criminal
trial (when he did not yet have an interest in the outcome), he described the two transactions
as separate.240 The FPL 10-K for 1998 described the Stock Repurchase and Olympus
Redemption as separate transactions (noting that the latter was “in addition”), and noted that
239 	See p. 10 above.
240 	It is true that in Adelphia’s press release, it referred to “an agreement” in the singular, embodying both
aspects of the Adelphia-FPL transactions, see p. 13 above, which cuts in the other direction. But the
press release does not refer to the two aspects of the transaction as interdependent or manifest an intent
that one turn on the consummation of the other.
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the terms of the latter had not yet been finalized. And the FPL 10-K for 1999, though less
clearly, was to the same effect, referring there to “both investments.”
The first of the three Tabor factors has already been addressed. The second and third
Tabor factors deal, in various ways, with the interdependence of the transactions. The second
focuses on the unwillingness of the parties to undertake any of the steps of the purportedly
integrated transaction without the others,241 and the third deals with the interdependence of
each transaction’s terms. 242
Turning to those second and third factors, I note that three documents governed the
Stock Repurchase and the Redemption: the Letter Agreement, the Stock Purchase
Agreement, and the Redemption Agreement. Here, nothing in the three documents governing
the transactions suggested that the parties intended the transactions to be integrated. I
conclude instead that they were simply different transactions toward similar ends.
Of the three agreements governing the Stock Repurchase and the Redemption, the
Letter Agreement was the only document to reference both transactions. It stated, in that
regard:
Simultaneously with the execution of the documentation
for the purchase of the Adelphia shares or thereafter
from time to time, the parties will execute a power of
241 	See Allstate Insurance Co. v. Countrywide Financial Corp., 842 F. Supp. 2d 1216, 1233 (C.D. Cal.
2012) (Pfaelzer, J.) (“Allstate”) (finding “[f]actor two is arguably present” where it was “unlikely” that
defendant would have completed the first step of the allegedly integrated transaction if it were unable to
also complete the second step); Hechinger, 327 B.R. at 547 (collapsing transactions where “[e]ach step
of the Transaction would not have occurred on its own, as each relied on additional steps to fulfill the
parties’ intent”); National Forge, 344 B.R at 350 (finding second factor was present where “[f]or
example, [debtor] would not have sought to borrow the additional $4 million from the Lenders (and the
Lenders would not have lent those monies) if not for the purpose of financing the stock redemption.”).
242 	See Allstate, 842 F. Supp. 2d at 1233 (“[F]actor three is not present. The merger was not contingent on
the asset sales, nor vice versa.”); see also Tribune, 464 B.R. at 166 (“I am not willing to dispense with
the third factor in the particular collapsing question at issue here (i.e. for purposes of determining
solvency rather than reasonably equivalent value). . . . [I]f the Step One transactions could stand on
their own as of the closing of Step One, then it is not appropriate to collapse the steps for determining
solvency at that time.”).
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attorney in favor of, or other documentation reasonably
requested by, Olympus so that Olympus may
consummate the redemption without any further action
on the part of Telesat.
But it also provided that FPL would have the option to submit a plan for a partial redemption
of its Olympus interest, which could occur instead of the full redemption.243 The fact that at
the time that the Letter Agreement was signed, the parties were unsure of the extent of the
Redemption, but the Stock Repurchase was scheduled to occur regardless and in full, tends to
indicate that full completion of both aspects of the transaction was unnecessary for the
transaction to achieve its desired effect. Because the Letter Agreement contemplated that a
mere partial redemption could have occurred, the Letter Agreement suggests that the parties
did not intend that the transactions be truly integrated.
The two other agreements executed by the parties relating to the Stock Repurchase and
the Redemption were the Stock Purchase Agreement and the Redemption Agreement, which
were undertaken after the Letter Agreement. Neither of those agreements mentioned the other
transaction, and the agreements were not cross-conditioned in any way. Further, neither
provided any indication that the transactions were intended to rely upon one another.
In the face of all this, FPL points to several other facts which it argues support a
conclusion that the transactions should be collapsed. First, FPL points to the fact that “[b]oth
steps were negotiated simultaneously by the same individuals.”244 That is true, but is
unpersuasive without more. Second, FPL argues that because “FPL Group would not have
agreed to do one step in the integrated transaction without the other,” the Stock Repurchase
243 	Letter Agreement (“Telesat shall have until July 11, 1999, to present a plan of partial redemption to
Adelphia for Adelphia’s approval. Adelphia will use its reasonable business judgment in evaluating any
plan submitted by Telesat.”).
244 	FPL Post-Trial Br. 54.
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and the Redemption should be viewed as a single integrated transaction.245 But that rests on
Coyle’s testimony alone—and I find Coyle’s testimony to be unworthy of acceptance—
because it was so obviously self-serving, contradicted by his previous testimony in the Rigas
criminal trial (when he had less of a motivation to spin the facts his way), and contradicted by
the bulk of the documents.
Then, FPL argues that because the initial purchase of one million shares of Adelphia’s
common stock was integrally related to FPL’s involvement in the Olympus Partnership (and
indeed a “sine qua non” to Adelphia’s willingness to enter into the Olympus Partnership)246
the transactions reversing them must have also been integrally related—what Coyle suggested
was “two steps in, two steps out.” I disagree. Indeed the fact that Adelphia and FPL could
(and did) draft to make the interdependence clear at the outset of their dealings suggests to me
that they did not have the like intention at the end.
FPL then points to an additional fact which occurred after the Letter Agreement was
signed, which it suggests supports collapse. FPL argues that the fact that Adelphia’s Board
“reviewed and approved of both transactions in the same board meeting” supports the notion
that the parties viewed the transactions as integrated.247 But just as it is plausible that the
same individuals would negotiate even completely separate transactions at the same time, the
fact that the Board considered both the Stock Repurchase and the Redemption at the same
time does not, without more, tend to support a finding that the transactions were integrated or
dependent on each other.
245 	Id. 54–55.
246 	FPL Pre-Trial Br. 8–9 (“As a sine qua non to this transaction, at [Adelphia’s] insistence, Telesat also
purchased one million shares of [Adelphia] Class A Common Stock . . .”).
247 	FPL Post-Trial Br. 54–55.
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Finally, FPL argues that the evidence presented “conclusively established the parties’
‘knowledge and intent’ in this case; namely that each side to the transaction (i) intended to
terminate the parties’ mutual business relationship, (ii) knew the counterparty had the same
goal, and (iii) viewed the Stock Repurchase and Olympus Redemption as one integrated
transaction with two steps.” 248 And FPL goes on to assert that “the parties’ mutual knowledge
and intent in this case is sufficient, by itself, to integrate the Stock Repurchase and Olympus
Redemption.”249
I cannot agree. The expectation that another transaction would take place falls far
short of establishing an intent that the two transactions would be interdependent or otherwise
linked. And most of the other indicia run in the opposite direction. I don’t doubt that when
Adelphia and FPL entered into the Letter Agreement, they shared a mutual goal to end their
relationship, and that each of the Stock Repurchase and Redemption furthered that goal. But I
cannot find based on the facts presented to me, that the parties intended to execute the two
transactions as a single integrated one—especially when they took place eight months apart.
As described above, for transactions to be integrated and interdependent, the parties must
intend that the individual transactions in the series rely upon one another to achieve the
desired effect. I cannot find that the parties so intended here.
* * *
If satisfied that the transactions should be integrated, I would then consider whether
Adelphia received reasonably equivalent value in exchange for its payment of everything it
laid out, including the $150 million it paid incident to the Stock Repurchase. But I have
determined that the premise for undertaking such an inquiry fails. Here, FPL understandably
248 	FPL Post-Trial Br. 52.
249 	Id. 54.
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does not dispute that Adelphia did not receive reasonably equivalent value when it
repurchased its own stock. I then turn to the real issue in this adversary proceeding: whether
Adelphia was, or became, insolvent, inadequately capitalized, or equitably insolvent at the
time of the Stock Repurchase or because of it.
II.
Insolvency
The parties do not dispute the legal standards with respect to insolvency. Under
Pennsylvania law, a debtor is actually insolvent “if, at fair valuations, the sum of the debtor’s
debts is greater than all of the debtor’s assets,” commonly referred to as “balance sheet
insolvency.”250 Fair value, in the context of a going concern, is measured by “the fair market
price of the debtor’s assets that could be obtained if sold in a prudent manner within a
reasonable period of time to pay the debtor’s debts.”251
Insolvency is a question of fact, and a court has broad discretion when considering
evidence to support a finding of insolvency.252 Though courts must determine solvency free
of impermissible hindsight, courts may consider information “originating subsequent to the
250 	12 P A. CONS . S TAT. § 5102; In re Fidelity Bond and Mortg. Co., 340 B.R. 266, 288 (Bankr. E.D. Pa.
2006) (Carey, J.) (referring to “the ‘balance sheet test’ for insolvency”).
251 	In re Roblin Indus., Inc., 78 F.3d 30, 35 (2d Cir. 1996) (“Roblin Industries”); see In re Coated Sales,
Inc., 144 B.R. 663, 667 (Bankr. S.D.N.Y. 1992) (Blackshear, J.) (“Coated Sales”) (citing Jahn v.
Reading Body Works, Inc. (In re Fassnacht & Sons, Inc.), 45 B.R. 209, 217 (Bankr. E.D. Tenn. 1984));
In re Adler, Coleman Clearing Corp., 247 B.R. 51, 110–11 (Bankr. S.D.N.Y. 1999) (Garrity, J.)
(“Adler”).
In extreme cases of fraud, liquidation value, rather than going concern value, may appropriately be used
in determining solvency. Here, neither party advocated use of liquidation value and I agree that here,
the extent of fraud at Adelphia does not rise to the level where use of liquidation value would be
appropriate. See Adler, 247 B.R. at 111 (“[W]here a company is on its ‘deathbed’, we will value its
assets according to what could be obtained at a liquidation sale and not give them a ‘going concern
value.’”); In re Art Shirt Ltd., 93 B.R. 333, 341 (E.D. Pa. 1988) (“[A] business does not have to be
thriving to receive going concern valuation. Before the going concern valuation is to be abandoned, the
business must be ‘wholly inoperative, defunct or dead on its feet.’” (citation omitted) (quoting In re
Bellanca Aircraft Corp., 56 B.R. 339, 387 (Bankr. D. Minn. 1985))).
252 	See Roblin Industries, 78 F.3d at 35.
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transfer date if it tends to shed light on a fair and accurate assessment of the asset or liability
as of the pertinent date,” which assures that the valuation is based in reality.253 Subsequent
discovery of fraud is appropriately considered when determining the real financial condition
of the company at the time of the transfer.254
In this case I have found that fraud had already begun at Adelphia at the time of the
Stock Repurchase, but the fraud at Adelphia was of a much lesser degree than at the later time
that the co-borrowing arrangements came into place and thereafter. More fundamentally, I
have found, as facts, that the Shaked valuation was unpersuasive, and that the Tuliano
valuation, while also flawed in several respects, came closer to my views as to the appropriate
methodology and conclusions.
For the reasons set forth in my Findings of Fact, I conclude that the Recovery Trust
did not meet its burden of proof in showing that Adelphia was insolvent at the time of the
transfer.
III.
Inadequate Capital and Equitable Insolvency
The parties likewise do not dispute the applicable legal standard regarding capital
adequacy. Under Pennsylvania’s enactment of the UFTA, a company lacks adequate capital if
its assets are unreasonably small in relation to its business.255 Courts considering capital
adequacy (under state law or Bankruptcy Code section 548, which affords analogous rights of
253 	Coated Sales, 144 B.R. at 668 (quoting In re Chemical Separations Corp., 38 B.R. 890, 895 (Bankr.
E.D. Tenn. 1984)); see Adler, 247 B.R. at 111 (“We may consider evidence uncovered after the advent
of bankruptcy to determine the value of the debtor’s assets at the time the alleged insolvency
occurred.”).
254 	See Coated Sales, 144 B.R at 668 (considering the effect of fraud on the going concern value of the
company).
255 	12 P A. CONS . S TAT. § 5104.
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recovery in favor of estate representatives under federal law) have generally considered
whether, at the time of the transfer, the company was able to generate sufficient profits or
capital to sustain operations over a reasonable period of time.256 In doing so, they have
considered the reality of the debtor’s financial condition leading up to the transfer, looking to
such factors as the company’s “debt to equity ratio, its historical capital cushion, and the need
for working capital in the specific industry at issue,”257 as well as “the debtor’s present and
prospective debts, and whether the retained assets are sufficiently liquid to enable the debtor
to pay such debts as they become due.’” 258 But “[w]hile a company must be adequately
capitalized, it does not need resources sufficient to withstand any and all setbacks.”259
Here I have found as a fact, and now find as a mixed question of fact and law, that
Adelphia was not left with inadequate capital.
In Moody, the Third Circuit, deciding a case under Pennsylvania’s now-superseded
UFCA, 260 concluded, in the context of earlier differing judicial views on the subject, that “the
better view is that inadequate capital denotes a financial condition short of equitable
insolvency.”261 The Moody court understood the latter to occur when a company is unable to
256 	See Moody v. Sec. Pac. Bus. Credit, Inc., 971 F.2d 1056, 1069–70 (3d Cir. 1992) (“Moody”); United
States v. Rocky Mountain Holdings, Inc., 782 F. Supp. 2d 106, 118–19 (E.D. Pa. 2011) (“Rocky
Mountain”) (“The ‘unreasonably small assets’ test set forth in subsection (a)(i) does not require
insolvency but rather an ‘inability to generate sufficient profits to sustain operations.’” (quoting In re
Fidelity Bond and Mortg. Co., 340 B.R. 266, 294 (Bankr. E.D. Pa. 2006))).
257 	In re Iridium Operating LLC, 373 B.R. 283, 345 (Bankr. S.D.N.Y. 2007) (Peck, J.) (“Iridium”) (quoting
MFS/Sun Life Trust-High Yield Series v. Van Dusen Airport Services Co., 910 F. Supp. 913, 944
(S.D.N.Y. 1995) (Francis, M.J., hearing case and directing entry of final judgment on 28 U.S.C.
§ 636(c) consent) (“MFS”)).
258 	Rocky Mountain, 782 F. Supp. 2d at 119 (quoting 12 PA. CONS . S TAT. § 5104 cmt. 4).
259 	Iridium, 373 B.R. at 345 (quoting MFS, 910 F. Supp. at 944).
260 	Pennsylvania replaced its version of the UFCA with its version of the UFTA in 1993, and the UFTA
applies to the transaction at issue here.
261 	Moody, 971 F.2d at 1070.
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pay obligations as they become due. 262 Textual analysis of Pennsylvania’s superseding
UFTA, insofar as it carries over the equitable insolvency concept, suggests that the newer
statute requires a focus on the debtor’s intent and belief (including, in the latter case,
constructive belief) with respect to its incurrence of debt, as contrasted to a focus on financial
condition alone.263 But that does not necessarily mean that the Moody analysis was
legislatively overruled in any way, and in any event, any distinctions in this regard do not
matter; the Recovery Trust here does not separately argue that Adelphia was equitably
insolvent, but instead focuses on insolvency and capital adequacy.264
For this reason, and because I do not find that Adelphia lacked adequate capital (a
financial condition which is less severe than equitable insolvency), I cannot and do not find
that Adelphia was equitably insolvent, either.
Conclusion
I find that the Stock Repurchase and later purchase of the Olympus Partnership interest
were not interdependent, and that Adelphia received no value when it spent $150 million for
the buyback of its stock. But I nevertheless find that while Adelphia was plainly insolvent
when it entered into the later co-borrowing facilities (or was rendered insolvent as a
consequence of them), the Recovery Trust failed to meet its burden to show that Adelphia was
insolvent, or rendered insolvent, at this earlier time. Likewise, the Recovery Trust failed to
262 	Id. (“Because an inability to generate enough cash flow to sustain operations must precede an inability
to pay obligations as they become due, unreasonably small capital would seem to encompass financial
difficulties short of equitable solvency.”).
263 	See 12 P A. CONS . S TAT. § 5104(a)(2)(ii) (a transfer would be fraudulent if the debtor, without receiving
a reasonably equivalent value in exchange for the transfer, “intended to incur, or believed or reasonably
should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they
became due” (emphasis added)).
264 	See Recovery Trust Pre-Trial Br. 45 (“Neither party’s experts separately addressed equitable insolvency
in their reports, but instead included that analysis in their discussions of capital adequacy.”); accord
FPL Post-Trial Br. 34.
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meet its burden to show that the Stock Repurchase left Adelphia with inadequate capital, or
rendered Adelphia equitably insolvent. Thus judgment should be entered in favor of the
Defendants.
This Decision after Trial should be deemed to constitute proposed Findings of Fact
and Conclusions of Law. In accordance with Fed.R.Bankr.P. 9033, and Local Bankruptcy
Rule 9033-1, the bankruptcy court clerk will serve copies of this Decision after Trial on all
parties by mail. Parties are reminded that under Fed.R.Bankr.P. 9033(b), they should file with
the clerk any objections they might have to these findings within 14 days after being served,
stating the grounds for such objection, as the first step to effect any desired district court de
novo review.
Dated: New York, New York 	s/Robert E. Gerber
May 6, 2014 	United States Bankruptcy Judge
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APPENDIX A
Range Of Court's Findings
Line 	Item
[A]
Recovery Trust
Expert (DCF)
[1]
FPL Expert
(Comparable
Companies)
[2]
FPL Expert
(Precedent
Transactions)
[3]
FPL Expert
(Valuation
Conclusion) 	High 	Low
1 	Starting TEV 	$ 	2,538,254,000 	$ 4,471,693,000 	$ 4,844,770,000 	$ 4,658,231,500 	$ 4,471,693,000 	$ 	4,844,770,000
Add Control Premium 	$ 	0 	$ 	376,370,000 	$ 	0 	$ 	188,185,000 	$ 	376,370,000 	$ 	0
Subtotal 	$ 	2,538,254,000 	$ 4,848,063,000 	$ 4,844,770,000 	$ 4,846,416,500 	$ 4,848,063,000 	$ 	4,844,770,000
Add Cash 	$ 	0 	$ 	156,074,000 	$ 	156,074,000 	$ 	156,074,000 	$ 	156,074,000 	$ 	156,074,000
Subtotal 	$ 	2,538,254,000 	$ 5,004,137,000 	$ 5,000,844,000 	$ 5,002,490,500 	$ 5,004,137,000 	$ 	5,000,844,000
2 	Adjustments to Starting
TEV (All Additions):
[B]
3 	(1) Verto Acquisition 	$ 	0 	$ 	135,143,000 	$ 	135,143,000 	$ 	135,143,000 	$ 	135,143,000 	$ 	135,143,000
4 	(2) Olympus Partnership
Interest 	$ 	216,000,000 	$ 	318,000,000 	$ 	318,000,000 	$ 	318,000,000 	$ 	216,000,000 	$ 	216,000,000
5 	(3) Value of ABIZ 	$ 	0 	$ 	642,078,000 	$ 	642,078,000 	$ 	642,078,000 	$ 	0 	$ 	0
6 	(4) Receivable from
Olympus 	$ 	0 	$ 	279,084,000 	$ 	279,084,000 	$ 	279,084,000 	$ 	279,084,000 	$ 	279,084,000
7 	(5) Receivable from
Rigas Family Entities 	$ 	0 	$ 	279,121,000 	$ 	279,121,000 	$ 	279,121,000 	$ 	0 	$ 	0
8 	(6) Value of Noncable
Assets Other than ABIZ 	$ 	90,880,000 	$ 	90,880,000 	$ 	90,880,000 	$ 	90,880,000 	$ 	90,880,000 	$ 	90,880,000
9 	Adjusted TEV (i.e. ,
Assets) 	$ 	2,845,134,000 	$ 6,748,443,000 	$ 6,745,150,000 	$ 6,746,796,500 	$ 5,725,244,000 	$ 	5,721,951,000
10 	Subtract Net Debt (i.e. ,
Liabilities): 	$ 	3,872,452,000
[C]
$ 3,122,285,000 	$ 3,122,285,000 	$ 3,006,343,000
[4]
$ 3,228,343,000
[i]
$ 	3,228,343,000
[ii]
11 	Extent to Which Solvent
or Insolvent (Parenthesis
Indicates Insolvent) 	$ (1,027,318,000) 	$ 3,626,158,000 	$ 3,622,865,000 	$ 3,740,453,500 	$ 2,496,901,000 	$ 	2,493,608,000
12 	Market Cap [D] 	$ 	3,141,992,000 	$ 3,141,992,000 	$ 3,141,992,000 	$ 3,141,992,000 	$ 3,141,992,000 	$ 	3,141,992,000
13 	Premium Over (Under)
Market Cap ($) 	$ (4,169,310,000) 	$ 	484,166,000 	$ 	480,873,000 	$ 	598,461,500 	$ 	(645,091,000) 	$ 	(648,384,000)
14 	Premium Over (Under)
Market Cap (%) 	-133% 	15% 	15% 	19% 	-21% 	-21%
[A]
[B]
[C]
[D]
[1] Tuliano Decl. exh. 1 at 2.
[2] Tuliano Decl. exh. 1 at 11.
[3] Tuliano Decl. exh. 1 at 1, 2, 11 & 13.
[4] Tuliano Decl. exh. 1 at 1, 13. Tuliano used the reported value of the debt, rather than the fair market value of the debt, for his valuation conclusion.
[i]
[ii] Id.
Shaked Decl. 34 "Summary of Adelphia Equity Valuation"; see also Shaked Rept. ex. 9a. In mid-January 1999, Adelphia issued stock and received $372 million
in proceeds. Initially Shaked included the equity proceeds (less $150 million in additional borrowings to finance the Stock Repurchase) as a positive adjustment
to TEV. Shaked Rept. ¶¶ 213–14 & exh. 9a. Shaked reversed course in his Rebuttal Report, and instead excluded the $372 million in equity proceeds (though
maintaining the $150 million in debt incurred to finance the Stock Repurchase). Shaked Rebuttal Rept. ¶ 53. Shaked also was inconsistent with respect to the
inclusion of $156.1 million in cash. While Tuliano always included it, Shaked initially did, but later decided to take it out. Shaked Decl. ¶ 101.
This table shows six categories of adjustments to Starting TEV, while the Decision speaks of only five, by reason of my split conclusions with respect to one of
those five, "Receivables".
I multiplied Adelphia's 53.2 million shares outstanding by Adelphia's market price of $59.06, both as of January 28, 1999. See Shaked Decl. ¶ 120 & n.54.
I began with Tuliano's reported value of the net debt and added back the $222 million in equity proceeds used to pay back Rigas and Olympus debt, the amount
by which Tuliano had reduced Adelphia's net debt as a result of the equity offering. See Shaked Decl. ¶ 102, Tuliano Decl. ¶ 111. Because I believe that sooner
or later Adelphia could satisfy its obligations in accordance with the obligations' terms, I believe the reported amount of the debt is more appropriate.
This figure does not correspond with the $3.722 billion of net debt cited by Shaked, see Shaked Decl. ¶¶ 100–101; Shaked Rept. ¶ 212, because I added to
Shaked's $3.722 billion the $150 million in debt to finance the Stock Repurchase. See note [A] above. I did so for ease of comparison between Shaked's,
Tuliano's and my own valuations.
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