K&E 12589418.16
KIRKLAND & ELLIS LLP
Citigroup Center
153 East 53rd Street
New York, New York 10022-4675
Richard L. Wynne (RW 5630)
Bennett L. Spiegel (BS 7153)
-and-
777 South Figueroa Street
Los Angeles, California 90017
Telephone: (213) 680-8400
Facsimile: (213) 680-8500
Melissa D. Ingalls (admitted pro hac vice)
Erin N. Brady (admitted pro hac vice)
Laura A. Thomas (admitted pro hac vice)
Attorneys for The Non-Agent Lenders
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ADELPHIA RECOVERY TRUST,
Plaintiff,
vs.
BANK OF AMERICA, N.A., et al.,
Defendants.
Case No.: 05-CV-9050 (LMM)
THE CCH, OLYMPUS, AND UCA/HHC NON-AGENT LENDERS’
JOINT REPLY IN SUPPORT OF THEIR MOTIONS TO DISMISS
PLAINTIFFS’ SECOND AMENDED COMPLAINT
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 1 of 55
i
K&E 12589418.16
TABLE OF CONTENTS
Page No.
INTRODUCTION ...........................................................................................................................1
I. PLAINTIFFS’ ARGUMENTS AGAINST INDEMNITY-BASED DISMISSAL
IGNORE THE CONFIRMED PLAN AND MISAPPLY NON-BANKRUPTCY
ASSIGNMENT LAW..........................................................................................................5
A. The CBNA Lenders Are Only Seeking To Enforce The Dismissal Rights
Plaintiffs Agreed To In The Post-Petition, Confirmed Plan, And Are Not
Trying To Enforce Prepetition Waivers Of Bankruptcy Protections.......................8
1. Plaintiffs’ case law is irrelevant because it does not address
prepetition indemnity agreements................................................................9
2. Prepetition secured indemnity agreements are enforceable in
bankruptcy..................................................................................................10
3. Plaintiffs provide no authority that would permit this Court to
disregard the post-petition Plan provisions that provide the CBNA
Lenders with a right to dismissal. ..............................................................11
B. Enron Is Neither Binding Nor Applicable Here, But Even If It Were, The
CBNA Lenders Would Still Be Entitled To Dismissal Based On
Indemnification. .....................................................................................................12
1. Enron is factually distinguishable and not binding on this Court..............13
2. Even if this Court applies Enron, then the CBNA Lenders’
indemnification rights, which flow to each Lender and are not sold
or assigned, still entitle them to dismissal from this case. .........................14
3. Post-petition transfer documents and knowledge about Adelphia’s
financial troubles do not defeat the CBNA Lenders’ indemnity-
based right to dismissal under the Plan......................................................15
II. THE COURT DOES NOT HAVE JURISDICTION OVER PLAINTIFFS’
BANKRUPTCY CLAIMS BECAUSE PLAINTIFFS DO NOT HAVE
STANDING TO BRING THEM. ......................................................................................18
A. The Court Must Consider The CBNA Lenders’ Standing Challenge On
The Merits..............................................................................................................19
1. The law of the case doctrine does not apply to consideration of
jurisdictional issues such as standing and, in any event, is
inapplicable here. .......................................................................................20
2. Judicial estoppel does not help Plaintiffs establish standing. ....................22
3. Res judicata does not prevent this Court from independently
assessing jurisdictional issues such as standing.........................................24
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 2 of 55
-ii-
K&E 12589418.16
B. The Plan Does Not Contemplate Or Create The Pretend Reality Upon
Which Plaintiffs Premise Their Claims. ................................................................25
1. Article 8.5 of the Plan contemplates that Plaintiffs could continue
this litigation even though they paid the bank claims — no more,
no less.........................................................................................................26
2. Claims that are deemed resolved are resolved. .........................................29
C. Plaintiffs Do Not Have Standing To Assert Their Bankruptcy Claims. ................32
1. Plaintiffs do not have standing to assert their bankruptcy claims
because they cannot establish that any creditors of the obligor
debtors were injured on account of the alleged transfers...........................32
a. The hundreds of Adelphia estates were not and cannot be
substantively consolidated. ............................................................33
b. There are no existing Intercompany Creditors...............................37
2. Plaintiffs do not have standing to assert their bankruptcy claims
because their requested relief cannot redress the Obligor Debtors’
creditors’ purported injuries.......................................................................39
a. Plaintiffs have not established a direct benefit to the
Obligor Debtors’ creditors. ............................................................40
b. Plaintiffs have not established an indirect benefit to the
Obligor Debtors’ creditors. ............................................................42
c. Plaintiffs’ assertion that they need not establish a benefit to
the Obligor Debtors’ creditors to avoid transfers fails...................44
CONCLUSION..............................................................................................................................47
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 3 of 55
iii
K&E 12589418.16
TABLE OF AUTHORITIES
Page No.(s)
Cases
A.N. Wight v. Bankamerica Corp.,
219 F.3d 79 (2d Cir. 2000)................................................................................................ 23
Acequia, Inc. v. Clinton (In re Acequia Inc.),
34 F.3d 800 (9th Cir. 1994) .............................................................................................. 43
Adelphia Commc’ns Corp. v. Bank of Am., N.A., et al (In re Adelphia Commc’ns Corp.),
365 B.R. 24 (Bankr. S.D.N.Y. 2007)......................................................................... passim
Adelphia Recovery Trust v. Bank of Am., N.A., et al., No. 05 Civ. 9050,
2008 WL 217057 (S.D.N.Y. Jan. 17, 2008) ..................................................................... 22
Altman v. Bedford Cent. Sch. Dist.,
245 F.3d 49 (2d Cir. 2001)................................................................................................ 19
Am. Home Assurance Co. v. Enron Natural Gas Mktg. Corp. (In re Enron Corp.),
307 B.R. 372 (S.D.N.Y. 2004).......................................................................................... 11
ASARCO Inc. v. Kadish,
490 U.S. 605 (1989).......................................................................................................... 18
Balaber-Strauss v. Town of Harrison (In re Murphy),
331 B.R. 107 (Bankr. S.D.N.Y. 2005).............................................................................. 45
Bank of Am. v. N. LaSalle St. L.P. (In re 203 N. LaSalle St. P’ship),
246 B.R. 325 (Bankr. N.D. Ill. 2000) ............................................................................... 10
Barhold v. Rodriguez,
863 F.2d 233 (2d Cir.1988)......................................................................................... 25, 28
Bd. of Governors of Fed. Reserve Sys. v. MCorp Fin., Inc.,
502 U.S. 32 (1991)............................................................................................................ 25
Buttes Gas & Oil Co. v. Cal. Reg’l Water Quality Control Bd. (In re Buttes Gas & Oil,
Co.),
182 B.R. 493 (Bankr. S.D. Tex. 1994) ............................................................................. 32
Cable Television Ass’n of N.Y., Inc. v. Finneran,
954 F.2d 91 (2d Cir. 1992)................................................................................................ 20
Calpine Corp. v. Rosetta Res. Inc. (In re Calpine Corp.),
377 B.R. 808 (Bankr. S.D.N.Y. 2007).............................................................................. 44
Centennial Indus., Inc. v. NCR Corp. (In re Centennial Indus. Inc.),
12 B.R. 99 (Bankr. S.D.N.Y. 1981).................................................................................. 40
Citibank Tex. v. Progressive Cas. Ins. Co.,
508 F.3d 779 (5th Cir. 2007) ............................................................................................ 14
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 4 of 55
-iv-
K&E 12589418.16
Colotone Liquidating Trust v. Bankers Trust N.Y. Corp.,
243 B.R. 620 (S.D.N.Y. 2000).......................................................................................... 32
Cook v. Colgate Univ.,
992 F.2d 17 (2d Cir. 1993)................................................................................................ 19
Corbett v. MacDonald Moving Servs., Inc.,
124 F.3d 82 (2d Cir. 1997)................................................................................................ 28
DeJesus v. Sears, Roebuck & Co., Inc.,
87 F.3d 65 (2d Cir. 1996) ................................................................................................... 6
Fed. Deposit Ins. Corp. v. Four Star Holding Co.,
178 F.3d 97 (2d Cir. 1999)................................................................................................ 20
Freedom Party of N.Y. v. N.Y. State Bd. of Elections,
77 F.3d 660 (2d Cir. 1996)................................................................................................ 19
Friends of the Earth, Inc. v. Laidlaw Envtl. Servs.,
528 U.S. 167 (2000).......................................................................................................... 34
FW/PBS, Inc. v. City of Dallas,
493 U.S. 215 (1990).......................................................................................................... 25
G.E. Cattle Co. v. United Producers, Inc. (In re United Producers),
353 B.R. 507 (B.A.P. 6th Cir. 2006)................................................................................. 36
Galerie Des Monnaies of Geneva, Ltd. v. Deutsche Bank, A.G., N.Y. Branch (In re
Galerie Des Monnaies of Geneva, Ltd.),
55 B.R. 253 (Bankr. S.D.N.Y. 1985)................................................................................ 40
Giamo v. Detrano (In re Detrano),
222 B.R. 685 (Bankr. E.D.N.Y. 1998)................................................................................ 9
Gredd v. Bear, Stearns Sec. Corp. (In re Manhattan Inv. Fund Ltd.),
343 B.R. 63 (S.D.N.Y. 2006)............................................................................................ 21
Harvey Hopper Lobsters, Ltd. v. Best Pack Seafoods, Inc. (In re Best Pack Seafoods,
Inc.),
29 B.R. 23 (Bankr. D. Me. 1983)........................................................................................ 9
Hein v. Freedom from Religion Found.,
127 S. Ct. 2553 (2007)...................................................................................................... 18
In re Adelphia Commc’ns Corp.,
368 B.R. 140 (Bankr. S.D.N.Y. 2007).............................................................................. 32
In re Adelphia Commc’ns Corp.,
371 B.R. 660 (S.D.N.Y. 2007).......................................................................................... 36
In re Combustion Eng’g, Inc.,
391 F. 3d 190 (3rd Cir. 2004) ........................................................................................... 24
In re Crowthers McCall Pattern, Inc.,
120 B.R. 279 (Bankr. S.D.N.Y. 1990).............................................................................. 45
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 5 of 55
-v-
K&E 12589418.16
In re Joan and David Halpern Inc.,
248 B.R. 43 (Bankr. S.D.N.Y. 2000)................................................................................ 11
In re Liggett,
118 B.R. 219 (Bankr. S.D.N.Y. 1990).............................................................................. 46
In re Madison,
184 B.R. 686 (Bankr. E.D. Pa. 1995) ................................................................................. 9
In re Matter of FedPak Sys., Inc.,
80 F.3d 207 (7th Cir. 1996) ........................................................................................ 18, 34
In re Nasdaq Market-Makers Antitrust Litig.,
176 F.R.D. 99 (S.D.N.Y. 1997) .................................................................................. 25, 28
In re Oceana Int’l, Inc.,
376 F. Supp. 956 (S.D.N.Y. 1974).................................................................................... 40
In re RCM Global Long Term Capital Appreciation Fund,
200 B.R. 514 (Bankr. S.D.N.Y. 1996).............................................................................. 46
In re Resorts Int’l, Inc.,
372 F.3d 154 (3d Cir. 2004).............................................................................................. 25
In re Southeast Fin. Assocs., Inc.,
212 B.R. 1003 (Bankr. M.D. Fla. 1997) ............................................................................. 9
Jackson v. State of Ala. State Tenure Comm’n,
405 F.3d 1276 (11th Cir. 2005) ........................................................................................ 21
Johnson v. Kriger (In re Kriger),
2 B.R. 19 (Bankr. D. Or. 1979)........................................................................................... 9
Join-In Int’l (U.S.A.) Ltd. v. N.Y. Wholesale Distribs. Corp.,
56 B.R. 555 (Bankr. S.D.N.Y. 1986).......................................................................... 41, 42
L M Ericsson Telecommunications, Inc. v. Teltronics Servs., Inc. (In re Teltronics Servs.,
Inc.),
18 B.R. 705 (E.D.N.Y. 1982) ........................................................................................... 10
Lance v. Coffman,
127 S. Ct. 1194 (2007)...................................................................................................... 18
Lujan v. Defenders of Wildlife,
504 U.S. 555 (1992).......................................................................................................... 34
Marbury v. Madison,
5 U.S. 137 (1803).............................................................................................................. 31
Maxwell Newspapers,
189 B.R. 282 (Bankr. S.D.N.Y. 1995)........................................................................ 40, 41
McLean v. Mathews,
466 F. Supp. 977 (S.D.N.Y. 1976).............................................................................. 18, 34
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 6 of 55
-vi-
K&E 12589418.16
Minn. Corn Processors, Inc. v. Am. Sweeteners, Inc. (In re American Sweeteners, Inc.),
248 B.R. 271 (Bankr. E.D. Pa. 2000) ............................................................................... 10
Moore v. Bay,
284 U.S. 4 (1931).............................................................................................................. 43
New Hampshire v. Maine,
532 U.S. 742 (2001).............................................................................................. 23, 35, 36
NextWave Personal Communications, Inc. v. Federal Communications Commission (In
re NextWave Personal Communications),
235 B.R. 305 (Bankr. S.D.N.Y. 1999)........................................................................ 43, 46
Olin Corp. v. Riverwood Int’l Corp. (In re Manville Forest Prod. Corp.),
209 F.3d 125 (2d Cir. 2000).............................................................................................. 11
Pereira v. Equitable Life Ins. Soc’y of the United States (In re Trace Int’l Holdings, Inc.),
289 B.R. 548 (Bankr. S.D.N.Y. 2003).......................................................................... 9, 23
Prometheus Radio Project v. Fed. Commc’ns Comm’n,
373 F.3d 372 (3d Cir. 2004).............................................................................................. 21
Raines v. Byrd,
521 U.S. 811 (1997).................................................................................................... 18, 46
Rieger v. Drabinsky (In re Livent, Inc. Noteholders Sec. Litig.),
151 F. Supp. 2d 371 (S.D.N.Y. 2001)............................................................................... 33
Rodino v. Barondess (In re Good Time Charley’s, Inc.),
54 B.R. 157 (Bankr. D.N.J. 1984) ...................................................................................... 9
Rosen v. Tenn. Comm’r of Fin. and Admin.,
288 F.3d 918 (6th Cir. 2002) ............................................................................................ 25
Scarano v. Cent. R.R. Co. of N.J.,
203 F.2d 510 (3d Cir. 1953).............................................................................................. 37
Sure-Snap Corp. v. State Street Bank & Trust Co.,
948 F.2d 869 (2d Cir. 1991).............................................................................................. 28
Tex. Consumer Fin. Corp. v. First Nat’l City Bank,
365 F. Supp. 427 (S.D.N.Y. 1973).................................................................................... 41
The Soc’y of The Roman Catholic Church of the Diocese of Lafayette, Inc. v. Interstate
Fire & Cas. Co.,
126 F.3d 727 (5th Cir. 1997) ............................................................................................ 21
Tracar, S.A. v. Silverman (In re Am. Preferred Prescription, Inc.),
266 B.R. 273 (E.D.N.Y. 2000) ......................................................................................... 28
Trans World Airlines, Inc. v. Travellers Int’l AG (In re Trans World Airlines, Inc.),
163 B.R. 964 (Bankr. D. Del. 1994) ................................................................................. 44
Travelers Casualty and Surety Co. of America v. Pacific Gas and Electric Co.,
127 S. Ct. 1199 (2007).................................................................................................. 8, 10
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 7 of 55
-vii-
K&E 12589418.16
Union Sav. Bank v. Augie/Restivo Baking Co., Ltd. (In re Augie/Restivo Banking Co.),
860 F.2d 515 (2d Cir. 1988).............................................................................................. 34
Vintero Corp. v. Corporacion Venezolana De Fomento (In re Vintero Corp.),
735 F.2d 740 (2d Cir. 1984).............................................................................................. 45
Walsh v. McGee,
918 F. Supp. 107 (S.D.N.Y. 1996).................................................................................... 20
White’s Place, Inc. v. Glover,
222 F.3d 1327 (11th Cir. 2000) ........................................................................................ 25
Whiteford Plastics Co. v. Chase Nat’l Bank of N.Y. City,
179 F.2d 582 (2d Cir. 1950).................................................................................. 40, 42, 45
Wilson v. Glenwood Intermountain Props. Inc.,
98 F.3d 590 (10th Cir.1996) ............................................................................................. 25
Statutes
Fed. R. Civ. P. 12(h)(3)................................................................................................................. 23
Other Authorities
Abraham Lincoln, Former President of the United States, Emancipation Proclamation
(Jan. 1, 1863)..................................................................................................................... 32
United States Constitution Article V ............................................................................................ 31
Webster’s Third New International Dictionary 589 (1986) ......................................................... 30
Rules
11 U.S.C. § 101(10) ...................................................................................................................... 39
11 U.S.C. § 101(5)(A)................................................................................................................... 39
11 U.S.C. § 1123(b)(3)(B) ............................................................................................................ 41
11 U.S.C. § 544............................................................................................................................. 46
11 U.S.C. § 548............................................................................................................................. 46
11 U.S.C. § 550............................................................................................................................. 46
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 8 of 55
1
K&E 12589418.16
INTRODUCTION
Plaintiffs’ Opposition imagines a world where Debtors’ Plan of Reorganization was
never confirmed or consummated. Plaintiffs ignore that the Plan provides the CCH, Olympus,
and UCA/HHC Non-Agent Lenders (collectively the “Co-Borrowing Non-Agent Lenders” or the
“CBNA Lenders”)1 with a new contractual right to indemnity that requires this Court to dismiss
the admittedly innocent CBNA Lenders from this lawsuit. Plaintiffs also pretend that
Intercompany Claims and veil-piercing claims resolved and disallowed by the Plan nonetheless
continue to exist, thereby creating imaginary creditors of the Obligor Debtors with standing to
pursue the bankruptcy claims in this case. Finally, Plaintiffs outright ignore the fact that no
creditor — not even their imaginary creditors — stands to receive any benefit from this
litigation, as any proceeds of this litigation will only flow to third parties. But this Court cannot
decide this case based on “facts” that might exist in a pretend world. In the real world, the end
result of the confirmed and consummated Plan — the “facts on the ground” — require dismissal
of the bankruptcy claims asserted against the CBNA Lenders.
The CBNA Lenders Are Entitled To Dismissal Under The Plan: Plaintiffs argue that
the CBNA Lenders cannot invoke their indemnity rights under the Prepetition Credit Agreements
because those indemnification obligations predate Adelphia’s bankruptcy and are either
unenforceable for public policy reasons or avoidable in this lawsuit. But Plaintiffs’ arguments
miss the point and ignore the confirmed and consummated Plan. Indeed, as explained in their
opening briefs, the CBNA Lenders are not seeking to enforce their prepetition indemnity rights
1 For purposes of this brief, the CBNA Lender movants are those defendants represented by Kirkland & Ellis LLP
and sued in their capacity as “Syndicate Banks” or “Assignees” in relation to the CCH Credit Facility, the Olympus
Credit Facility and the UCA/HHC Credit Facility. To the extent that any Kirkland & Ellis LLP represented
defendant is alleged to be a “John Doe” lender under these Credit Facilities, that defendant is also a moving party
here. A current list of Kirkland & Ellis LLP represented defendants in all credit facilities is attached as Exhibit 1 to
the Declaration of Richard L. Wynne in Support of (A) The CCH, Olympus, and UCA/HHC Non-Agent Lenders’
Joint Reply In Support of Their Motions to Dismiss Plaintiffs’ Second Amended Complaint, and (B) The Parnassos,
FrontierVision and Century-TCI Non-Agent Lenders’ Joint Reply in Support of Their Motions to Dismiss Plaintiffs’
Second Amended Complaint.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 9 of 55
-2-
K&E 12589418.16
in this lawsuit. Rather, the CBNA Lenders are pursuing their rights to dismissal of this lawsuit
pursuant to express provisions of the Plan.
As part of the Plan, Plaintiffs themselves agreed — in exchange for the CBNA Lenders’
relinquishing of their secured rights to affirmative indemnity under the Prepetition Credit
Agreements (and the CBNA Lenders’ agreement to extinguish the Prepetition Credit
Agreements) — to provide new, defensive indemnity protection to the CBNA Lenders. The
CBNA Lenders gave up valuable indemnity rights to obtain affirmative recovery relating not just
to this lawsuit, but to any others relating to the Prepetition Credit Agreements. And critically,
the CBNA Lenders agreed to limit their indemnity rights for recovery of costs and fees to a $3
million shared pool, instead of having unlimited, individual rights of reimbursement.
The defensive indemnity protection that Plaintiffs specifically negotiated and agreed to
— after the Debtors’ bankruptcy filing and while this lawsuit was pending — gives the CBNA
Lenders the right to dismissal of any claims in this lawsuit that otherwise would have been
indemnifiable by the Debtors under the Prepetition Credit Agreements, subject only to any
limitations provided in the Plan. This new Plan-based indemnity right, which is now res
judicata, provides that with respect to any cause of action relating to the credit agreements,
unless the individual CBNA Lender engaged in gross negligence or willful misconduct, such
Lender is entitled to be dismissed from this lawsuit. Plaintiffs here have not alleged that any
Non-Agent Lender engaged in gross negligence or willful misconduct (and indeed have admitted
that they do not allege any bad acts against the Non-Agent Lenders). As a result, all of
Plaintiffs’ claims against the CBNA Lenders are indemnifiable under the Plan and therefore must
be dismissed pursuant to the Plan. This post-petition Plan provision is neither voidable nor
against public policy, and nothing Plaintiffs cite in the Opposition suggests otherwise.
Plaintiffs’ only remaining argument against the Plan’s dismissal requirement is that the
Enron decision supposedly charges the innocent CBNA Lenders with the alleged knowledge and
conduct of the Agent Banks for purposes of Plaintiffs’ bankruptcy claims. But Enron only
“taints” the claim, not the individual lender seeking repayment on the claim. And the CBNA
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 10 of 55
-3-
K&E 12589418.16
Lenders’ indemnity rights, which were obtained directly from the Debtors, first under the
Prepetition Credit Agreements and then again directly from Debtors under the Plan, indemnify
the CBNA Lenders except when they themselves commit bad acts. The Enron case is thus
irrelevant to the indemnity analysis. Moreover, Enron, a case of first impression not binding on
this Court, itself highlighted that (1) the court was deciding a case with unique factual
circumstances and (2) the court’s holding only applies, if at all, to equitable subordination claims
(and thus not to avoidance claims such as alleged preferences or fraudulent transfers). Plus,
Enron expressly held that transferees of bankruptcy claims may contract around the risk of
equitable subordination resulting from a “tainted” claim through indemnification agreements.
The CBNA Lenders’ have done that and indeed have obtained such indemnity not merely from
their predecessors but directly from the Debtors. Thus, as noted above, the Plan indemnity
provisions entitle the CBNA Lenders to dismissal from this lawsuit.
The CBNA Lenders Are Also Entitled To Dismissal Because Plaintiffs Lack Standing:
The confirmed Plan also provides that each of the Obligor Debtors (i.e., the specific Adelphia
entities that borrowed funds from the CBNA Lenders and therefore are the only entities that can
assert the technical bankruptcy avoidance claims against the CBNA Lenders) will pay all of its
respective creditors in full, with interest. Subsequent status reports regarding consummation of
the Plan — which Plaintiffs themselves have filed — establish that the Obligor Debtors have
done just that. Those facts are undisputed. Nonetheless, Plaintiffs argue that the Court must
ignore this reality because they believe that the Bankruptcy Court, in ruling on motions brought
by other parties years before the Plan was confirmed, already found that Plaintiffs had standing
to bring their bankruptcy claims. The Bankruptcy Court did not make any such finding. And
even if it had, that would not preclude this Court from considering its own jurisdiction, including
Plaintiffs’ standing, at this or any other point in the case.
As the CBNA Lenders explain in their moving papers, to establish standing, Plaintiffs
must demonstrate both that (1) the Obligor Debtors’ creditors were injured on account of any
alleged unlawful acts and (2) the relief Plaintiffs seek can redress those injuries. The burden to
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 11 of 55
-4-
K&E 12589418.16
establish standing is on Plaintiffs. And notwithstanding their attempts to alter reality, they fail to
meet this burden.
First, the Obligor Debtors have paid all of their creditors in full under the Plan; therefore,
Plaintiffs cannot establish that any of the Obligor Debtors’ creditors were injured because of the
allegations in Plaintiffs’ Second Amended Complaint.2 Plaintiffs try to obfuscate this reality by
fashioning a pretend world in which (1) the more than 250 individual Adelphia estates are or can
be substantively consolidated and (2) the so-called Intercompany Claims (claims one Adelphia-
related company may have had against another based on disputed bookkeeping entries) and
alleged veil-piercing claims continue to exist. But the Court cannot predicate its jurisdiction —
and Plaintiffs’ standing — on hypothetical scenarios or hypothetical injuries. The Court’s
jurisdiction must be premised on the record as it actually exists. That record is clear: the Plan
did not substantively consolidate the Adelphia Debtors into one entity, and the alleged
Intercompany Claims and veil-piercing claims have been dismissed, with prejudice.
Second, Plaintiffs cannot establish that even one creditor of an Obligor Debtor will
directly or indirectly benefit from, or have any supposed injury redressed by, this lawsuit. No
creditor of any Obligor Debtor received any interest in the Contingent Value Vehicle (the
“CVV”) under the Plan or can receive a single dollar of benefit on account of Plaintiffs’ claims
— this benefit was all assigned to remote creditors of the Obligor Debtors’ parents, grandparents,
great-grandparents and, in some cases, great-great grandparents. And Plaintiffs’ contention that
they are exempt from demonstrating any benefit to creditors to establish statutory standing for
their fraudulent conveyance actions is contrary to binding Second Circuit precedent, which
uniformly recognizes that it would be a “mockery of justice” to allow a debtor that incurred an
2 The CBNA Lenders originally replied to the Amended Complaint in their Motions. However, on March 4, 2008,
Plaintiffs filed a Second Amended Complaint. See Second Amended Complaint, Docket No. 541 in Case No. 05-
civ-9050. By stipulation filed on March 27, 2008, the parties agreed that the CBNA Lenders’ Motions would be
treated as if filed in response to the Second Amended Complaint. See Stipulation and Order, Docket No. 599 in
Case No. 05-civ-0905. Therefore, the CBNA Lenders now cite to the Second Amended Complaint.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 12 of 55
-5-
K&E 12589418.16
obligation or made a transfer to avoid that transaction under the Bankruptcy Code where doing
so would not benefit any of its own, existing creditors.
In sum, Plaintiffs cannot prosecute their claims against the CBNA Lenders based on what
might have been. As proponents of the Plan, Plaintiffs themselves agreed that the CBNA
Lenders would be dismissed from this case if the CBNA Lenders have not individually engaged
in gross negligence or willful misconduct. They agreed that the Adelphia estates would not be
substantively consolidated. They agreed that Intercompany Claims and veil-piercing claims
would be “deemed resolved” and dismissed with prejudice. And they agreed that the Obligor
Debtors would pay all of their creditors in full. Their attempt to pretend that the facts resulting
from the implementation of these agreements never happened cannot save their claims. The
Court should dismiss the CBNA Lenders from this lawsuit, based on the unambiguous language
of the Plan, the lack of allegations in the Second Amended Complaint, and the judicially
noticeable, uncontested facts that exist today.
I. PLAINTIFFS’ ARGUMENTS AGAINST INDEMNITY-BASED DISMISSAL
IGNORE THE CONFIRMED PLAN AND MISAPPLY NON-BANKRUPTCY
ASSIGNMENT LAW.
The CBNA Lenders’ indemnity-based argument for dismissal is simple: the confirmed
Plan cancelled the Prepetition Credit Agreements and expressly provided for a new indemnity-
based dismissal right for the Non-Agent Lenders.3 Under the confirmed Plan, if a CBNA Lender
establishes that Debtors would have owed that Lender indemnification for this lawsuit under the
terms set forth in the applicable Prepetition Credit Agreement, then that CBNA Lender is entitled
3 As discussed in the Motions, the Plan provides for the new indemnity-based dismissal through the definition of
Dismissed Bank Actions, which means “the Bank Actions [which term includes this litigation] or one or more
Claims asserted therein, if any: . . . (ii) with respect to a particular defendant as to which there is a determination by
a court of competent jurisdiction pursuant to a Final Order that such defendant as to such Bank Actions, is (or would
be, but for any limitation on indemnification or contribution pursuant to this Plan) entitled to indemnification or
contribution (whether under a Prepetition Credit Agreement or under another agreement or principle of law), either
by a Debtor or by a Person who is (or would be, but for any limitation on indemnification or contribution pursuant to
the Plan) entitled to indemnification or contribution by a Debtor, but only to the extent of such indemnification or
contribution.” CCH Mot. at 10 (citing Plan at A-17).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 13 of 55
-6-
K&E 12589418.16
to dismissal from this lawsuit. Under the Prepetition Credit Agreements, the relevant Debtors
agreed to indemnify each individual Lender (and each subsequent individual purchaser of the
debt paper) for any claim related to the credit agreements, unless the claim arose from that
individual Lender’s own gross negligence or willful misconduct. Notwithstanding the years that
Plaintiffs have had to investigate the facts and circumstances surrounding this lawsuit, Plaintiffs
do not allege that even one CBNA Lender acted with gross negligence or willful misconduct, nor
do they allege (with good reason) that even one of the CBNA Lenders is liable for any tort
claims.4 Accordingly, the CBNA Lenders would have been entitled to indemnification for
Plaintiffs’ claims against them, and the Plan requires that such claims be dismissed.
Plaintiffs, however, argue that the prepetition indemnity agreements “cannot nullify
statutory bankruptcy remedies” (Pls.’ Opp. at 65) and assert that the CBNA Lenders’ request for
dismissal based on indemnification is a “backdoor means to deprive creditors of statutory
remedies” (Pls.’ Opp. at 67). But the sky is not falling on creditors, nor are any statutory
bankruptcy remedies being nullified. To the contrary, Plaintiffs knowingly negotiated and
agreed, post-petition and after this lawsuit was filed, that the CBNA Lenders would be dismissed
if they would have been entitled to indemnification for the claims asserted here under the
standards of the Prepetition Credit Agreements, so long as the CBNA Lenders gave up very
4 Plaintiffs concede that they make no factual allegations of wrongdoing against the Assignees who make up the
bulk of the CBNA Lenders, but assert that the Second Amended Complaint contains “facts that amount to
misconduct by all original lenders, including Syndicate Banks.” Pls.’ Opp. at 69-70. Plaintiffs are incorrect, as can
be seen from the face of the Second Amended Complaint. The specific paragraphs cited by Plaintiffs contain no
facts alleging bad acts against the Syndicate Banks. Instead, Plaintiffs’ citations for their “facts” refer to paragraphs
in the Counts of the Second Amended Complaint containing rote, conclusory allegations against all lenders. These
conclusory allegations rest upon Plaintiffs’ “slide tactic” of lumping the Non-Agent Lenders with a group of other
lenders against whom some facts may have been alleged. But Plaintiffs’ slide tactic cannot overcome the reality that
Plaintiffs have pled no facts supporting any misconduct against the Syndicate Banks. The unsupported and
conclusory allegations in the paragraphs cited to by Plaintiffs (and in the Second Amended Complaint as a whole)
are inadequate to state a claim. See DeJesus v. Sears, Roebuck & Co., Inc., 87 F.3d 65, 70 (2d Cir. 1996) (finding
that conclusory allegations unsupported by factual allegations fail to satisfy Rule 12(b)(6)).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 14 of 55
-7-
K&E 12589418.16
significant secured affirmative indemnity rights to monetary recovery.5 The confirmed Plan then
cancelled the Prepetition Credit Agreements (so there is no prepetition indemnity obligation to
avoid) and expressly provided for this dismissal right (so there is no prepetition agreement being
enforced post-petition). And as Plaintiffs themselves explain (Pls.’ Opp. at 37-41), the
confirmed Plan (a Plan that creditors approved) is res judicata and is immune from collateral
attack. Thus, because Plaintiffs agreed postpetition in the now-confirmed Plan to dismiss
bankruptcy claims that would have been indemnifiable under the standards of the Prepetition
Credit Agreements, Plaintiffs’ arguments regarding prepetition waivers of creditor remedies are
misplaced and should be disregarded.
Plaintiffs then argue that the Court should follow non-bankruptcy assignment law,
whereby the claim of a successor may be “tainted” by the bad acts of its predecessor, to find that
the CBNA Lenders would not have been entitled to indemnification because “the original
holders of bank claims are alleged to have engaged in willful misconduct.” Pls.’ Opp. at 70.
This argument fails, however, because the “taint” recognized in certain assignment law contexts,
even if it were applicable here, does not modify the contractual indemnity rights of the CBNA
Lenders, which provide that the sole exceptions to their indemnity rights would be their own
gross negligence or willful misconduct, not the bad acts of third parties. In any event, non-
bankruptcy assignment law does not apply to statutory bankruptcy causes of action, and indeed
only one court — Enron6 — has held, in a legally and factually distinguishable context, that
assignment law might be applicable to bankruptcy actions, but only then in actions for equitable
subordination. Plaintiffs do not, however, limit their proposed application of Enron to equitable
subordination claims. And even assuming that Enron was applicable to the equitable
subordination claims in this case, Enron recognized that a “tainted” claim does not change the
5 Not surprisingly, Plaintiffs admit that the Plan precludes any “affirmative” recovery by the CBNA Lenders. Pls.’
Opp. at 75.
6 Springfield Assocs., L.L.C. v. Enron Corp. (In re Enron Corp.), 379 B.R. 425 (S.D.N.Y. 2007).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 15 of 55
-8-
K&E 12589418.16
enforceability of indemnification agreements (like those relied upon by the CBNA Lenders
here). See CCH Mot. at 28-30; Olympus Mot. at 16; UCA/HHC Mot. at 16. Plaintiffs’
Opposition never addresses this part of Enron.
A. The CBNA Lenders Are Only Seeking To Enforce The Dismissal Rights
Plaintiffs Agreed To In The Post-Petition, Confirmed Plan, And Are Not
Trying To Enforce Prepetition Waivers Of Bankruptcy Protections.
Plaintiffs’ Opposition spends five pages building up and knocking down a strawman
argument that prepetition indemnity contracts are unenforceable in bankruptcy. Pls.’ Opp. at 65-
69. Plaintiffs’ argument fails on all fronts. As an initial matter, none of the cases cited by
Plaintiffs discusses the enforceability of prepetition indemnity contracts, much less holds or
implies that such contracts are void as a matter of public policy. In fact, prepetition indemnity
agreements constitute valid claims in bankruptcy, as recently reaffirmed by the Supreme Court in
Travelers Casualty and Surety Co. of America v. Pacific Gas and Electric Co., 127 S. Ct. 1199,
1206 (2007). And more importantly — in keeping with the actual record of this case and not
Plaintiffs’ imaginary world where the Plan does not exist — there are no prepetition
indemnification agreements to “void” here and there are no creditors being bound by a
prepetition agreement in which they did not participate. The Plan cancelled and extinguished the
Prepetition Credit Agreements (Plan Art. 8.6), and extinguished the CBNA Lenders’ secured
rights to affirmative indemnification. In place of Debtors’ pre-petition indemnity obligations, the
Plan provides that if the CBNA Lenders “would be, but for any limitation on indemnification or
contribution pursuant to this Plan, entitled to indemnification or contribution (whether under a
Prepetition Credit Agreement or under another agreement or principle of law)” (Plan at A-17)
(emphasis added), then the CBNA Lenders are entitled to dismissal from this lawsuit. See CCH
Mot. at 9-10, 22-23; Olympus Mot. at 6-7, 16; UCA/HHC Mot. at 6-7, 17. The only limitation
provided in the Plan is that instead of having an affirmative indemnity right to recovery, the
CBNA Lenders have the right to dismissal of claims against them. It is this post-petition, Plan-
based dismissal right, negotiated and agreed upon with Plaintiffs, that the CBNA Lenders seek to
enforce by their Motions to Dismiss.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 16 of 55
-9-
K&E 12589418.16
1. Plaintiffs’ case law is irrelevant because it does not address
prepetition indemnity agreements.
The case law cited by Plaintiffs to support their assertion that prepetition indemnity
provisions are void as a matter of policy (see Pls.’ Opp. at 66-69) never actually addresses the
enforceability of prepetition indemnity agreements. The prepetition indemnity provisions
provide for two types of claims to become additional secured indebtedness of the Obligor
Debtors: substantive claims for indemnification for any liability, costs or expenses against a
CBNA Lender, and claims for attorneys’ fees and cost reimbursement. Those lending provisions
become additional debt, valid against the obligors under state law. None of Plaintiffs’ cases
challenge the validity of such additional obligations, under state law or on public policy grounds.
Instead, Plaintiffs’ cases stand for a variety of unremarkable and irrelevant propositions, such as:
• Prepetition agreements that a creditor’s claims for payment will not be
discharged in the event of a bankruptcy filing are not enforceable. See,
e.g., Giamo v. Detrano (In re Detrano), 222 B.R. 685 (Bankr. E.D.N.Y.
1998) (discussing a prepetition judgment against debtor for breach of a
settlement agreement) (Pls.’ Opp. at 66).
• Prepetition agreements to not seek bankruptcy protection are not
enforceable. See, e.g., Johnson v. Kriger (In re Kriger), 2 B.R. 19 (Bankr.
D. Or. 1979) (discussing a prepetition stipulated judgment for settlement
of a personal injury lawsuit) (Pls.’ Opp. at 66-67); In re Madison, 184
B.R. 686 (Bankr. E.D. Pa. 1995) (discussing an agreement between debtor
and her mortgagee to not file for bankruptcy for 180 days, reached after
debtor’s fourth bankruptcy filing was dismissed and prior to her fifth
bankruptcy filing) (Pls.’ Opp. at 67); In re Southeast Fin. Assocs., Inc.,
212 B.R. 1003 (Bankr. M.D. Fla. 1997) (discussing breach of a stipulation
to continue a foreclosure sale) (Pls.’ Opp. at 67).
• Prepetition judgments are not binding on a trustee in pursuit of an
avoidable transfer, because trustees in pursuit of such transfers are not
deemed to be in privity with the debtor. See, e.g., Pereira v. Equitable
Life Ins. Soc’y of the United States (In re Trace Int’l Holdings, Inc.), 289
B.R. 548 (Bankr. S.D.N.Y. 2003) (discussing a prepetition order regarding
payment of dividends to preferred shareholders) (Pls.’ Opp. at 67); Rodino
v. Barondess (In re Good Time Charley’s, Inc.), 54 B.R. 157 (Bankr.
D.N.J. 1984) (discussing a prepetition judgment reinstating a first
mortgage) (Pls.’ Opp. at 67); Harvey Hopper Lobsters, Ltd. v. Best Pack
Seafoods, Inc. (In re Best Pack Seafoods, Inc.), 29 B.R. 23 (Bankr. D. Me.
1983) (discussing a prepetition attachment on third party payments to
debtor) (Pls.’ Opp. at 67).
• Prepetition release agreements may not bar claims not known at the time
of the release and may not bind creditors not a party to the release. See,
e.g., Minn. Corn Processors, Inc. v. Am. Sweeteners, Inc. (In re American
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 17 of 55
-10-
K&E 12589418.16
Sweeteners, Inc.), 248 B.R. 271 (Bankr. E.D. Pa. 2000) (discussing how
an action for equitable subordination was affected by debtor’s prepetition
release of claims) (Pls.’ Opp. at 68); L M Ericsson Telecommunications,
Inc. v. Teltronics Servs., Inc. (In re Teltronics Servs., Inc.), 18 B.R. 705
(E.D.N.Y. 1982) (discussing how an action for equitable subordination
was affected by a prior judgment dismissing claims) (Pls.’ Opp. at 69).
• Prepetition agreements do not override contrary provisions of the
Bankruptcy Code. See, e.g., Bank of Am. v. N. LaSalle St. L.P. (In re 203
N. LaSalle St. P’ship), 246 B.R. 325 (Bankr. N.D. Ill. 2000) (enforcing a
prepetition subordination agreement as regards payment, but not enforcing
it as regards voting rights) (Pls.’ Opp. at 68).
None of these cases offers any support for Plaintiffs’ argument that prepetition indemnification
clauses like the ones in the now-extinguished Prepetition Credit Agreements are against public
policy and are therefore void. And none of them applies at all to provisions voted upon by all
creditors and approved in a now-confirmed Plan of Reorganization.
2. Prepetition secured indemnity agreements are enforceable in
bankruptcy.
Plaintiffs’ suggestion that the CBNA Lenders’ rights to indemnity are somehow invalid
because their claims in this lawsuit arise under bankruptcy law flies in the face of recent
Supreme Court precedent. In Travelers Casualty and Surety Co. of America v. Pacific Gas and
Electric Co., 127 S. Ct. 1199, 1206 (2007), the Court expressly rejected the idea that the
Bankruptcy Code mandated disallowance of contractual pre-petition indemnity claims against
the Debtor simply because the attorneys’ fees at issue were incurred litigating issues of
bankruptcy law. The Court stated that it will “generally presume that claims enforceable under
applicable state law will be allowed in bankruptcy unless they are expressly disallowed.” Id.
Plaintiffs’ nebulous public policy arguments against the validity of pre-petition indemnity claims
are best addressed to Congress, which as the Court reminded, “has the power to amend the
Bankruptcy Code by adding a provision expressly disallowing claims . . . incurred by creditors in
the litigation of bankruptcy issues.” Id. But where, as here, no such provision exists, there is no
basis for Plaintiffs’ contention that such an indemnity claim is invalid.
Lower courts have likewise found that prepetition indemnity agreements give rise to valid
and allowable claims in bankruptcy. See Olin Corp. v. Riverwood Int’l Corp. (In re Manville
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 18 of 55
-11-
K&E 12589418.16
Forest Prod. Corp.), 209 F.3d 125, 129 (2d Cir. 2000) (finding that prepetition indemnification
agreements covered future statutory liability and constituted a valid bankruptcy claim); Am.
Home Assurance Co. v. Enron Natural Gas Mktg. Corp. (In re Enron Corp.), 307 B.R. 372, 381
n.58 (S.D.N.Y. 2004) (noting that “it is undoubtedly true that the [indemnitees] are entitled to
payment from [the debtor] pursuant to the indemnity agreements” and thus the question is
priority vis-a-vis other creditors).
Under the governing case law, the CBNA Lenders’ secured rights to indemnification
under the Prepetition Credit Agreements for Plaintiffs’ bankruptcy causes of action would have
been enforceable, but for the fact that the Plan extinguished those rights in exchange for the
agreed-upon right under the Plan to be dismissed from this lawsuit.
3. Plaintiffs provide no authority that would permit this Court to
disregard the post-petition Plan provisions that provide the CBNA
Lenders with a right to dismissal.
Ultimately, not one of Plaintiffs’ proffered “policy” arguments addresses the facts of this
case. Here, this Court has an unambiguous post-petition agreement (the Plan), negotiated by
Plaintiffs and Defendants and voted upon by creditors years after this lawsuit was filed, which
incorporates indemnification standards to provide a dismissal remedy to the Bank Litigation.
The Plan is now res judicata and not subject to collateral attack. Pls.’ Opp. at 37-42. And there
is no doubt that negotiation of and agreement to post-petition indemnification agreements like
the one at issue here are allowed and enforceable under the Bankruptcy Code. See, e.g., In re
Joan and David Halpern Inc., 248 B.R. 43, 46 (Bankr. S.D.N.Y. 2000) (finding valid a post-
petition indemnification agreement negotiated by debtor and the Creditors’ Committee, and
noting that the Creditors’ Committee’s support for the indemnity provision “is entitled to weight.
After all, it is the creditors’ money that is placed at risk by the indemnity provision”).
There are no prepetition waivers of bankruptcy protection at issue, nor are there creditors
bound by an agreement in which they did not participate. And because the prepetition secured
indemnity rights and Prepetition Credit Agreements have been extinguished, there is no
prepetition indemnity claim to avoid. Accordingly, Plaintiffs’ “policy” arguments premised on
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 19 of 55
-12-
K&E 12589418.16
cases considering distinguishable prepetition agreements that waive fundamental protections of
the Bankruptcy Code do not apply to the CBNA Lenders’ Plan-based, court-approved right to
dismissal from this lawsuit.
B. Enron Is Neither Binding Nor Applicable Here, But Even If It Were, The
CBNA Lenders Would Still Be Entitled To Dismissal Based On
Indemnification.
Plaintiffs’ only other argument against the CBNA Lenders’ indemnity-based right to
dismissal rests on the decision in Springfield Assocs., L.L.C. v. Enron Corp., (In re Enron Corp.),
379 B.R. 425 (S.D.N.Y. 2007). But, Plaintiffs do not ask this Court to follow the Enron court’s
non-binding decision and limit it, as that court did, to equitable subordination claims. Instead,
Plaintiffs suggest a dramatic expansion in which Enron’s reliance on notions of “taint” in
relation to equitable subordination claims is applicable to other bankruptcy causes of action like
the fraudulent conveyance and preference causes of action at issue here, notwithstanding the
express statutory provisions of those technical bankruptcy avoidance causes of action. Pls.’ Opp.
at 69-72. However, Plaintiffs’ own cases — none of which (with the exception of Enron) is a
bankruptcy case — highlight that application of general principles of assignment law to
Plaintiffs’ bankruptcy avoidance actions is not routine, and Plaintiffs offer no support for their
unwarranted expansion of the avowedly narrow Enron holding except their assertion that it
should be so. See Enron, 379 B.R. at 428 (noting that the Court’s “conclusions of law cleave
tightly to the facts presented”).
Even assuming, however, that Enron applied to Plaintiffs’ claims for equitable
subordination in this case, this Court should still dismiss the CBNA Lenders because the Enron
court expressly held that parties could contract around the effect of any “taint” through
indemnification agreements. Enron, 379 B.R. at 442; see also CCH Mot. at 29-30. The CBNA
Lenders have done just that, contracting around any alleged “taint” on their claims through their
individual indemnification agreements with the Debtors.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 20 of 55
-13-
K&E 12589418.16
1. Enron is factually distinguishable and not binding on this Court.
As discussed in the Motions (see, e.g., CCH Mot. at 28-30), the Enron court faced an
issue of first impression: whether claims in the hands of innocent transferees were subject to
equitable subordination to the same extent as if the claims were still in the hands of the alleged
bad actor. The specific issue the court had to decide was whether the Bankruptcy Code only
allowed subordination of claims actually held by the alleged bad actor. The Enron court made a
distinction between transfers by sale and transfers by pure assignment, finding that transfers by
sale did not pass any “taint” (and so the claim from a bad actor in the hands of a downstream
“sale” transferee could not be subordinated on account of any “taint” associated with that bad
actor), while transfers by “pure assignment” might pass on a “taint” (and so the claim from a bad
actor in the hands of a downstream “assignment” transferee might be tainted, if that transferee
could not raise a holder in due course defense).7 The Enron court cited to “pure assignments”
such as subrogation of a surety, or a receiver, or by operation of law where the assignee stands in
the shoes of the assignor. None of those situations exists here.
In addition, none of the Enron transferees asserted that they had obtained from the Enron
debtors the same kind of fully-secured indemnification rights that the CBNA Lenders had from
the Adelphia Obligor Debtors, and thus could not assert against the Enron debtors the
indemnification protections the Enron court recognized. See Enron, 379 B.R. at 442 (“Parties to
true assignments, by contrast, can easily contract around the risk of equitable subordination or
disallowance by entering into indemnity agreements to protect the assignee.”). As a result,
Enron and its rationale do not apply to the CBNA Lenders.
7 While the CBNA Lenders were, in fact, purchasers and not assignees, this dispute is not before the Court on these
Motions. The Motions seek dismissal on pure issues of law that this Court can decide now, including: (1) whether
Enron is applicable to this case; and (2) even assuming the Court applies Enron, whether the CBNA Lenders are
entitled to dismissal based on their indemnification rights under the Plan.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 21 of 55
-14-
K&E 12589418.16
2. Even if this Court applies Enron, then the CBNA Lenders’
indemnification rights, which flow to each Lender and are not sold or
assigned, still entitle them to dismissal from this case.
If this Court decides that Enron is applicable to the equitable subordination count, then
this Court should follow all of Enron. As articulated in the Motions, and as outlined in the
Enron decision, the Enron court found that if the post-petition transfers at issue were purchases
then the claim would not be “tainted,” but if they were pure assignments, then traditional
assignment law could apply and transfer the “taint” of an original bad actor to the innocent
downstream transferee’s claim for repayment (if that transferee could not raise a holder in due
course defense or other assignment law defense). However, the Enron court also held that even
if the Enron defendants were assignees who could not raise the holder in due course defense,
they could contract around the effect of the tainted claim through indemnification agreements.
Enron, 379 B.R. at 442 (“Parties to true assignments . . . can easily contract around the risk of
equitable subordination or disallowance by entering into indemnity agreements to protect the
assignee.”); see also id. at 446 (finding that defendant’s indemnification rights from its transferor
continue and “provide[] protection against the risk” of the taint); see also Citibank Tex. v.
Progressive Cas. Ins. Co., 508 F.3d 779 (5th Cir. 2007) (finding that party who could not raise
the holder in due course defense should be indemnified under the language of the indemnity
agreement).
As applied to this case, and assuming arguendo that the transfers were assignments and
that Plaintiffs will prove bad acts by the Agent Banks, then this Court could apply the purported
“taint” of the Agent Banks’ alleged actions to equitably subordinate the repayment claims of the
CBNA Lenders. But the indemnification rights the CBNA Lenders received directly from
Debtors would remain valid and enforceable. As discussed in the Motions, the Non-Agent
Lenders received indemnification rights directly from Debtors. See, e.g., CCH Mot. at 5-7, 9-10,
22-23; Olympus Mot. at 2-3; UCA/HHC Mot. at 3-4. These rights were not transferred from
purchaser to purchaser, but were instead contracted to anew with each purchase. Thus,
Plaintiffs’ implied argument that these indemnity rights are somehow “tainted” through
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 22 of 55
-15-
K&E 12589418.16
purchaser to purchaser transfers misstates the record before this Court (and ignores Enron’s
holding that such transferor/transferee indemnification rights remain valid even when a “taint”
affects a claim for repayment). These rights were not transferred and so cannot be tainted
through the alleged acts of previous holders.
And Plaintiffs have admitted, repeatedly, that “there is no allegation that the Syndicate
Banks individually did anything improper.” See Estimation Mot. ¶ 8. 8 As a result, there is no
exception to the CBNA Lenders’ individual indemnification rights under the now-extinguished
credit agreements. But for the Plan, the CBNA Lenders would have been entitled to
indemnification and are now entitled to dismissal.
3. Post-petition transfer documents and knowledge about Adelphia’s
financial troubles do not defeat the CBNA Lenders’ indemnity-based
right to dismissal under the Plan.
Finally, Plaintiffs argue that the wording required by the DIP Financing Order (the
“Acknowledgement”) to be placed in transfer documents for the Co-Borrowing Credit Facilities
means that subsequent purchasers agreed to be bound by the alleged bad conduct of the Agent
Banks and that, even if this wording were not in place, anyone buying the Co-Borrowing debt
paper after March 27, 2002 (when Plaintiffs’ alleged Adelphia’s problems came to public light),
should be charged with actual knowledge of the underlying fraud. Pls.’ Opp. at 71-72.
However, the Acknowledgement does not (and does not purport to) create a new legal right in
Debtors. Per the wording of the Acknowledgement, a Lender must inform its “assignee” that the
Obligation “is subject to all claims and defenses, if any, of the Debtors’ Estates . . . to the same
extent that the Debtors’ Estates had recourse against such Lender.” Plaintiffs’ App. Ex. B. at 1.
While this language can be read to inform a purchaser that Debtors may raise claims or defenses
against that purchaser if those same claims and defenses could have been raised against that
8 See also Estimation Mot. ¶ 40 (“Given that the complaint in the Bank Action does not allege that the Syndicate
Banks individually committed wrongdoing. . . .”); ¶ 67 (“[T]here are no claims that any of the ‘after-market’
Syndicate Banks individually did anything improper.”).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 23 of 55
-16-
K&E 12589418.16
seller,9 the language cannot be read to bind the purchasers to helplessly acquiesce to any claims
or defenses raised by Debtors against all predecessor parties that at one time owned the debt.
In fact, the language does not even mention defenses that may be particular to the
purchaser. Instead, it focuses on the “claims” and the “defenses” that Debtors could have raised
against the seller. Nothing here states that the indemnification rights that the purchaser received
from Debtors directly (under the Prepetition Credit Facilities and again under the Plan) would
not be viable defenses to any claims Debtors could have raised against the seller. Simply put, the
Acknowledgment does not affect the CBNA Lenders’ ability to assert their Plan-based indemnity
right, a right specifically acknowledged in Enron as one that would survive any “taint” by
assignment, against Plaintiffs’ claims.
Plaintiffs’ final suggestion, made without citation to case law, that post-petition public
knowledge of problems at Adelphia can be morphed into concrete allegations of actual
knowledge of the alleged bank fraud at Adelphia by the CBNA Lenders (and therefore somehow
defeat the CBNA Lenders’ indemnification rights) (Pls.’ Opp. at 72) is no more than a last-ditch
attempt to save these bankruptcy causes of action from Plaintiffs’ lack of case law support, lack
of factual support, and contrary prior admissions. As to the lack of case law, Plaintiffs rest their
entire argument on one case — Enron — but as discussed above, even under Enron the CBNA
Lenders should be dismissed.10 As to the lack of facts, nowhere in the Second Amended
9 Plaintiffs’ suggestion that the Acknowledgement creates an endless chain stretching back all the way to the Agent
Banks at the inception of the credit facilities is erroneous on its face. The plain language of the Acknowledgement
states that the “Lender” will not sell the Obligation without notifying the “assignee” that the Obligation is subject to
claims and defenses, if any, to the same extent as if those claims and defenses were raised against “such Lender.”
This is not an endless chain, but a simple connection between seller and purchaser. At its earliest, this chain cannot
stretch back beyond the first use of the Acknowledgement, which Plaintiffs admit did not occur until post-petition
(August 2002) and even then, the DIP Order required the Acknowledgement to be placed only in transfers under the
Co-Borrowing Facilities. See Plaintiffs’ App. Ex. A at 21 n.5.
10 In their attempt to use the Enron decision to support their dearth of factual allegations against the CBNA
Lenders, Plaintiffs misstate the findings of the Enron court. Plaintiffs assert that Judge Scheindlin “found that a
transferee cannot avoid the risk of equitable subordination where it acquires its interest after it knows or reasonably
should have known that the debt was subject to defenses to its enforceability.” Pls.’ Opp. at 79 (purportedly citing
Enron, 379 B.R. at 445). In fact, Judge Scheindlin found that “a claim purchaser with actual notice of the seller’s
(Continued…)
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 24 of 55
-17-
K&E 12589418.16
Complaint do Plaintiffs allege any facts that the CBNA Lenders did anything more than buy
Adelphia debt paper that was traded through loan syndications that had been approved by the full
Adelphia Board. Even post-petition, Plaintiffs point to no facts that the CBNA Lenders knew
more than any member of the public, and knowledge of general problems at Adelphia does not
equate to actual knowledge of or participation in an alleged fraud. And as to the contrary
admissions, Plaintiffs have repeatedly admitted in documents filed with the Bankruptcy Court, in
an ultimately-successful effort to minimize the amount of the Non-Agent Lenders’ litigation
indemnity fund, that the CBNA Lenders are not alleged to have “individually [done] anything
improper.” See, e.g., CCH Mot. at 21 n.13 (citing Plaintiffs’ Estimation Motion).
Plaintiffs’ pleadings in this case, and their prior admissions, establish that the CBNA
Lenders are not alleged to have, and did not, commit gross negligence or willful misconduct.
Under the Plan, each CBNA Lender who did not act with gross negligence or willful misconduct
in relation to the prepetition credit facilities is entitled to dismissal from this case. Moreover,
since any alleged bad acts on the part of the CBNA Lenders would not even constitute an
element of any claim for avoidance of alleged preferential or fraudulent transfers, such
allegations would be irrelevant and the CBNA Lenders would be entitled to dismissal of the
fraudulent transfer and preference avoidance actions against them under the Plan-based
indemnity provisions. For all these reasons, this Court should dismiss all claims against the
CBNA Lenders with prejudice.
receipt of an avoidable transfer may be subject to equitable subordination for its own misconduct.” Enron, 379 B.R.
at 445 (emphasis added). As all bankruptcy claims are “subject to defenses,” Plaintiffs’ misstatement of the Enron
Court’s opinion would nullify one of its stated effects - stability in the markets for distressed debt. See id. at 439
n.76 (“[T]he concerns raised by Industry Amici with respect to the effects of the Bankruptcy Court’s rulings on the
markets for distressed debt are no longer present. . . . Equitable subordination and disallowance arising out of the
conduct of the transferee will not be applied to good faith open market purchasers of claims.”). Instead, Judge
Scheindlin’s true language concerns actual notice of avoidability, and misconduct of the transferee, neither of which
Plaintiffs have alleged against the CBNA Lenders here.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 25 of 55
-18-
K&E 12589418.16
II. THE COURT DOES NOT HAVE JURISDICTION OVER PLAINTIFFS’
BANKRUPTCY CLAIMS BECAUSE PLAINTIFFS DO NOT HAVE STANDING
TO BRING THEM.
Before a federal court can examine the merits of a case, it must first determine that it has
jurisdiction to do so. Lance v. Coffman, 127 S. Ct. 1194, 1196 (2007) (per curiam). In doing so,
the court must consider whether it is faced with a live “case” or “controversy.” Hein v. Freedom
from Religion Found., 127 S. Ct. 2553, 2562 (2007) (recognizing that Article III limits federal
courts to deciding real cases and controversies). And one of the “controlling elements” in
determining the existence of a live case or controversy is standing. ASARCO Inc. v. Kadish, 490
U.S. 605, 613 (1989) (citations omitted).
A plaintiff bears the burden of establishing its standing — both constitutional and
statutory — to assert claims in a litigation.11 CCH Mot. at 30-35. A determination of standing
cannot “rest upon hypothetical facts,” but must rather rest “upon allegations of concrete injury.”
McLean v. Mathews, 466 F. Supp. 977, 980 n.9 (S.D.N.Y. 1976) (citation omitted) (emphasis
added). Therefore, a plaintiff cannot establish standing — and thereby the court’s jurisdiction —
based on injuries that are “hypothetical and unsupported by the record.” In re Matter of FedPak
Sys., Inc., 80 F.3d 207, 212 (7th Cir. 1996).
In their motions, the CBNA Lenders demonstrate that Plaintiffs do not have standing to
bring bankruptcy claims on behalf of the Obligor Debtors because (1) the Obligor Debtors have
paid all of their creditors in full (i.e., none of their creditors are injured) and (2) none of the
Obligor Debtors’ creditors will obtain any benefit from or have any injury redressed by
11 That said, the constitutional standing requirement that a plaintiff suffer a distinct and palpable personal injury
that is likely to be redressed by the requested relief is the benchmark for standing in the federal court system. While
Congress may enact statutes that deny statutory standing to parties who would otherwise have constitutional
standing under Article III, it cannot enact statutes that impart standing upon those who would not otherwise have
constitutional standing. Raines v. Byrd, 521 U.S. 811, 820 n.3 (1997) (“It is settled that Congress cannot erase
Article III’s standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise
have standing.”).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 26 of 55
-19-
K&E 12589418.16
Plaintiffs’ avoidance, subordination or disallowance of the CBNA Lenders’ claims. See CCH
Mot. at 32-43.
Rather than meet the CBNA Lenders’ standing challenge on the merits (because they
cannot), Plaintiffs instead engage in diversions that misrepresent the record, attempt to mislead
the Court and generally distract from the standing analysis. In a nutshell, Plaintiffs contend that
(1) the Court should not even consider the CBNA Lenders’ standing challenge and should
instead interpret the Bankruptcy Court’s earlier rulings that Plaintiffs pled the elements of their
bankruptcy claims to also mean that the Bankruptcy Court ruled that they had perpetual standing
to bring them (Pls.’ Opp. at 34-42); but (2) if the Court considers the CBNA Lenders’ standing
anew, Article 8.5 of the Plan requires it to do so on a hypothetical record pretending that the Plan
was not confirmed and consummated (Pls.’ Opp. at 42); and (3) upon that hypothetical record,
Plaintiffs would have standing (Pls.’ Opp. at 26-28). These arguments, which turn Article III’s
jurisdictional standing requirements on their head, have no merit.12
A. The Court Must Consider The CBNA Lenders’ Standing Challenge On The
Merits.
In a blatant attempt to evade any consideration of their standing on the merits, Plaintiffs
contend that (1) the law of the case doctrine, (2) judicial estoppel, and (3) res judicata bar the
CBNA Lenders’ challenge thereto. Not one of these judicially created doctrines, however,
impedes or diminishes the Court’s independent duty to assess its jurisdiction, and thereby
12 Because the Obligor Debtors waived all of their rights to recover on account of the bankruptcy claims Plaintiffs
now seek to prosecute as part of the Plan, Plaintiffs’ claims asserted on their behalf should also be dismissed as
moot. See Altman v. Bedford Cent. Sch. Dist., 245 F.3d 49, 70 (2d Cir. 2001) (“[E]ven as to claims that plaintiffs
originally had standing to assert, the court must determine whether those claims remain live controversies or have
become moot.”); Cook v. Colgate Univ., 992 F.2d 17, 19 (2d Cir. 1993) (“While the standing doctrine evaluates [a
litigant’s] personal stake as of the outset of the litigation, the mootness doctrine ensures that the litigant’s interest in
the outcome continues to exist throughout the life of the lawsuit . . . .” (citation omitted)); Freedom Party of N.Y. v.
N.Y. State Bd. of Elections, 77 F.3d 660, 662 (2d Cir. 1996) (“A case becomes moot when the issues presented are
no longer live or the parties lack a legally cognizable interest in the outcome.” (citation omitted)).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 27 of 55
-20-
K&E 12589418.16
Plaintiffs’ standing, at each stage of a case. And in any event, each doctrine is inapposite to this
case.
1. The law of the case doctrine does not apply to consideration of
jurisdictional issues such as standing and, in any event, is inapplicable
here.
Plaintiffs first contend that the Court must adhere to the Bankruptcy Court’s findings,
made on other parties’ pre-confirmation motions to dismiss, that the Plaintiffs’ Original
Complaint in this action pled the “existence of injured creditors.” See Pls.’ Opp. at 34-37. They
are wrong for at least three reasons.
First, standing is a jurisdictional issue, and courts must, sua sponte, consider whether
jurisdiction exists at every stage of the case. Walsh v. McGee, 918 F. Supp. 107, 112 (S.D.N.Y.
1996) (“Plaintiffs’ law of the case claim . . . fails because questions of subject matter jurisdiction
are generally exempt from law of the case principles.”). See also Fed. Deposit Ins. Corp. v. Four
Star Holding Co., 178 F.3d 97, 100 n.2 (2d Cir. 1999) (“[F]ederal courts are under an
independent obligation to examine their own jurisdiction.” (citation omitted)); Cable Television
Ass’n of N.Y., Inc. v. Finneran, 954 F.2d 91, 94 (2d Cir. 1992) (“[The court] must consider the
question [of jurisdiction] sua sponte whenever there is an indication that jurisdiction is lacking.”
(citations omitted)). The law of the case doctrine cannot now or ever bar this Court from
considering the threshold issue of whether Plaintiffs have standing to bring this lawsuit. Walsh,
918 F. Supp. at 112 (“[I]t is a Court’s obligation to dismiss a case whenever it becomes
convinced that it has no proper jurisdiction, no matter how late that wisdom may arrive.”
(citation omitted) (emphasis in the original)).
Second, none of the Bankruptcy Court’s earlier decisions, including its June 11, 2007
ruling on the Agent Banks’ motions to dismiss, ever considered the “existence of injured
creditors” after consummation of the Plan (or, in other words, Plaintiffs’ standing as it exists
today). Instead, the earlier decisions considered whether the Plaintiffs had pled or could plead
that the Obligor Debtors were insolvent at the time the Obligor Debtors made the alleged
transfers. See Adelphia Commc’ns Corp. v. Bank of Am., N.A., et al (In re Adelphia Commc’ns
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 28 of 55
-21-
K&E 12589418.16
Corp.), 365 B.R. 24, 36-37 (Bankr. S.D.N.Y. 2007). This issue — whether Plaintiff adequately
pled an essential element of preference and constructive fraudulent transfer claims — is an
entirely different issue and involves an entirely different analysis from that of whether the
Obligor Debtors today have injured creditors that could benefit from the relief they request. It
cannot serve as a “law of the case” determination of standing.
Third, where there is a new factual record, the law of the case doctrine is inapplicable.
See Prometheus Radio Project v. Fed. Commc’ns Comm’n, 373 F.3d 372, 389 n.11 (3d Cir.
2004) (reasoning that when there is “a different record” as well as “a different set of parties
participat[ing],” the law of the case doctrine does not apply); Jackson v. State of Ala. State
Tenure Comm’n, 405 F.3d 1276, 1283 (11th Cir. 2005) (“Law of the case doctrine does not apply
. . . because . . . [there is] a different record . . . .” (citation omitted)); The Soc’y of The Roman
Catholic Church of the Diocese of Lafayette, Inc. v. Interstate Fire & Cas. Co., 126 F.3d 727,
736 (5th Cir. 1997) (reasoning that because there is a different record due to additional evidence,
the law of the case doctrine did not apply); see also Pls.’ Opp. at 36 (citing, e.g., Gredd v. Bear,
Stearns Sec. Corp. (In re Manhattan Inv. Fund Ltd.), 343 B.R. 63, 67 (S.D.N.Y. 2006)
(recognizing that the law of the case doctrine does not apply when there is “an intervening
change of controlling law, the availability of new evidence, or the need to correct a clear error or
prevent manifest injustice”) (citations and internal quotation marks omitted)).
Judge Gerber explicitly states that the facts upon which he based his June 11, 2007
decision “were set forth” in his August 30, 2005 opinion — an opinion issued more than a year
before the Plan was confirmed and consummated. See In re Adelphia Commc’ns Corp., 365
B.R. at 31-32 (citing In re Adelphia Commc’ns Corp., 330 B.R. 364 (Bankr. S.D.N.Y. 2005)). In
that same June 11, 2007 decision, he also explicitly acknowledges that his decision may have
been different had he been making it on a post-confirmation record. For example, Judge Gerber
stated that:
• With the benefit of hindsight, the Court believes it to be the case that
many, and perhaps all, of the trade (and other non-affiliate) creditors of the
Debtors to whom bank lenders made loans received distributions in the
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 29 of 55
-22-
K&E 12589418.16
Adelphia chapter 11 cases sufficient to pay those creditors in full, and
that the creditors who were less fortunate in the Adelphia chapter 11 cases
were creditors of structurally junior debtor entities, such as intermediate
holding companies or Adelphia Parent. In re Adelphia Commc’ns Corp.,
365 B.R. at 69 (emphasis added).
• These contentions [that the constructive fraudulent transfer claims must be
dismissed by reason of their borrowers’ solvency] will require serious
consideration in future proceedings - since the Court now knows, with
the benefit of hindsight, that under the Debtors’ recently confirmed (and
now effective) reorganization plan, many unsecured creditor classes
(including many classes of creditors of obligors in the co-borrowing
facilities) received payment of their principal and prepetition interest in
full - an outcome materially at odds with contentions of insolvency. Id.
at 37 n.28 (emphasis added).
Judge Gerber’s decision, having been made on a pre-confirmation different record,
cannot be law of the case on any issue that would be affected by the confirmed and
consummated plan. The same is true for this Court’s decision on certain defendants’ request for
interlocutory appeal of that decision. See Adelphia Recovery Trust v. Bank of Am., N.A., et al.,
No. 05 Civ. 9050, 2008 WL 217057, at *11 (S.D.N.Y. Jan. 17, 2008). Plaintiffs cannot avoid
consideration of their standing by relying on an inapposite finding on a different factual record.
2. Judicial estoppel does not help Plaintiffs establish standing.
In a second attempt to evade consideration of their standing on the merits, Plaintiffs
invoke judicial estoppel. They contend that because the CBNA Lenders agreed to disgorge their
distributions if Plaintiffs prevailed against them in this litigation, the CBNA Lenders are now
estopped from doing anything that would defeat that disgorgement (such as the purportedly
horrific act of defending themselves) and, therefore, cannot challenge Plaintiffs’ standing. Pls.’
Opp. at 42 (“Now, these bank lenders seek to preserve the Court’s approval of the payments to
them [which were subject to disgorgement] while pointing to those very payments as a basis to
defeat the unsecured creditors’ rights and benefits.”). Plaintiffs miss the point. It is not the fact
that the Obligor Debtors paid the CBNA Lenders in full on their secured, senior debt that
precludes Plaintiffs’ standing here. It is, instead, the fact that the Obligor Debtors paid each and
every one of their other creditors in full as well.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 30 of 55
-23-
K&E 12589418.16
As a matter of law, Plaintiffs cannot stop this Court from considering its jurisdiction —
and their standing — by invoking judicial estoppel. Regardless of how the parties conduct their
case, the federal courts have an independent and continuing obligation to ensure that they have
jurisdiction. See Fed. R. Civ. P. 12(h)(3) (“If the court determines at any time that it lacks
subject-matter jurisdiction, the court must dismiss the action.”); A.N. Wight v. Bankamerica
Corp., 219 F.3d 79, 90 (2d Cir. 2000) (“[I]rrespective of how the parties conduct their case, the
courts have an independent obligation to ensure that federal jurisdiction is not extended beyond
its proper limits.” (citation omitted) (emphasis added)). And to have that jurisdiction, Plaintiffs
must have standing to assert their claims. See supra at 18-19. Accordingly, Plaintiffs cannot
escape their duty to establish standing to maintain their bankruptcy claims by simply invoking
judicial estoppel.
But even if they could, their argument that judicial estoppel somehow bars the CBNA
Lenders from defending themselves in this litigation is absurd. The judicial estoppel doctrine
applies when (1) a party’s later position is clearly inconsistent with its earlier position, and (2)
the previous court adopted the inconsistent position. See Pereira v. Dow Chem. Co. (In re Trace
Int’l Holdings, Inc.), 301 B.R. 801, 806 (Bankr. S.D.N.Y. 2003); see also New Hampshire v.
Maine, 532 U.S. 742, 750 (2001). The CBNA Lenders’ agreement, as part of the Plan, to
disgorge their distributions if Plaintiffs prevail on their claims is not inconsistent with — much
less clearly inconsistent with — their current position that (1) they can defend themselves in this
lawsuit and (2) one of their defenses is that Plaintiffs do not have standing to bring their
bankruptcy claims. This is particularly true in light of the fact that the Plan, for which Plaintiffs
were proponents, specifically preserves the CBNA Lenders’ right to raise defenses to Plaintiffs’
claims.13 See Plan Art. 9.2(b); 16.4. Judicial estoppel does not bar the CBNA Lenders from
raising a challenge to Plaintiffs’ standing.
13 If anything, Plaintiffs themselves are judicially estopped from arguing that the CBNA Lenders cannot raise their
standing defense. In re Trace Int’l Holdings, Inc., 301 B.R. at 806 (Trustee had previously argued that an obligation
(Continued…)
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 31 of 55
-24-
K&E 12589418.16
3. Res judicata does not prevent this Court from independently assessing
jurisdictional issues such as standing.
In a final attempt to evade consideration of their standing on the merits, Plaintiffs invoke
res judicata. They speciously assert that the Bankruptcy Court, by approving the Plan, has
already ruled that Plaintiffs have perpetual standing in this case to bring their bankruptcy claims,
thereby barring this Court from now considering the same question. Pls.’ Opp. at 42. They are
wrong again.
Res judicata bars consideration of pending claims that an earlier court already
specifically considered and disposed of on their merits. See Pls.’ Opp. at 40-41. Here, Plaintiffs
claim that the Debtors’ Plan (as approved by the Bankruptcy Court) “repeatedly and
conclusively” found that Plaintiffs would have perpetual standing (in this Court) to bring their
bankruptcy claims, notwithstanding the fact that the Obligor Debtors might subsequently satisfy
all claims asserted against their respective estates. See Pls.’ Opp. at 42 (arguing that the Plan
states “repeatedly and conclusively that confirmation of the Primary Plan . . . would not change
the standing that previously existed to bring these claims”) (emphasis added). But the Plan says
no such thing. In fact, the Plan never once addresses — much less determines — Plaintiffs’
standing to maintain their claims in this lawsuit (and, instead, explicitly preserves all of the
CBNA Lenders’ defenses to the lawsuit). See Plan Art. 9.2(b); 16.4.
Nor could the negotiated Plan — or the Bankruptcy Court — have consensually
established Plaintiffs’ standing, as it is black letter law that parties cannot contract around
standing. See In re Combustion Eng’g, Inc., 391 F. 3d 190, 228-29 (3rd Cir. 2004) (holding that
“Congress has vested the bankruptcy courts with ‘limited authority’” and “[w]here a court lacks
subject matter jurisdiction over a dispute, the parties cannot create it by agreement even in a plan
of reorganization.”) (emphasis added) (citing Bd. of Governors of Fed. Reserve Sys. v. MCorp
was debt and then later claimed that the redemption obligation was not antecedent debt.). See also Reply Brief in
Support of Joint Motion of Various Lenders to Dismiss the Avoidance and Subordination Claims, Point III, at 31-33,
in which the CBNA Lenders join.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 32 of 55
-25-
K&E 12589418.16
Fin., Inc., 502 U.S. 32, 40 (1991)); In re Resorts Int’l, Inc., 372 F.3d 154, 161 (3d Cir. 2004); In
re Nasdaq Market-Makers Antitrust Litig., 176 F.R.D. 99, 103 (S.D.N.Y. 1997) (“Standing is a
jurisdictional matter which must be resolved by the court; parties cannot either waive or confer
standing by agreement.”); Barhold v. Rodriguez, 863 F.2d 233, 234 (2d Cir.1988) (“[P]arties do
not have the power to confer such jurisdiction upon the Court by conceding the standing of
certain plaintiffs.”); Rosen v. Tenn. Comm’r of Fin. and Admin., 288 F.3d 918, 931 (6th Cir.
2002) (“Parties cannot confer standing purely by agreement . . . .”); White’s Place, Inc. v.
Glover, 222 F.3d 1327, 1328 (11th Cir. 2000) (“We cannot proceed without determining that
standing exists, even if both parties concede jurisdiction.”); Wilson v. Glenwood Intermountain
Props. Inc., 98 F.3d 590, 593 (10th Cir.1996) (“[P]arties cannot confer subject matter
jurisdiction on the courts by agreement”).
Accordingly, because the Bankruptcy Court never considered — much less determined
— whether Plaintiffs have perpetual standing to bring their bankruptcy claims, res judicata
cannot bar consideration of the CBNA Lenders’ standing challenge. This Court must
independently assess whether the Plaintiffs have standing to determine whether it has jurisdiction
to hear this case. FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990) (“The federal courts
are under an independent obligation to examine their own jurisdiction, and standing is perhaps
the most important of the jurisdictional doctrines.” (citation and internal quotation marks
omitted)).
B. The Plan Does Not Contemplate Or Create The Pretend Reality Upon Which
Plaintiffs Premise Their Claims.
Plaintiffs spend much of their Opposition arguing that various provisions of the Plan
require this Court to rule based on a record that might have been. It does not. The Court must
rule on the actual record that exists today and, in doing so, it should dismiss Plaintiffs’
bankruptcy claims.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 33 of 55
-26-
K&E 12589418.16
1. Article 8.5 of the Plan contemplates that Plaintiffs could continue this
litigation even though they paid the bank claims — no more, no less.
Because Plaintiffs understand that they cannot establish standing on the record now
before the Court, Plaintiffs assert that Article 8.5 of the Plan requires this Court to ignore the
actual record and instead determine Plaintiffs’ standing based on a hypothetical record — one
where the Plan, its resolution of Intercompany Claims and veil-piercing claims, its payment of
the Obligor Debtors’ creditors, and its consummation without substantive consolidation never
occurred. As part of this argument, Plaintiffs tell the Court that the terms of the Plan, including
Article 8.5, provide that “confirmation of the Primary Plan and the conditional resolution of the
Inter-Creditor Dispute and payment to the bank lenders (subject to disgorgement) were without
prejudice to and would not change the standing that previously existed to bring these claims.”
Pls.’ Opp. at 42. Neither Article 8.5 nor any other provision of the Plan says anything to this
effect.
What Article 8.5 of the Plan does say is this:
Entry of the [Confirmation] Order shall be deemed entry of a Final
Order constituting an Inter-Creditor Dispute Resolution, as of the
Effective Date, of all issues related to the Inter-Creditor Dispute.
All issues relating to the Inter-Creditor Dispute shall be deemed
fully settled and compromised, and all proceedings relating to the
Inter-Creditor Dispute shall be deemed dismissed with prejudice.
On the Effective Date, all Persons shall be barred and enjoined
from initiating and shall be deemed to have waived and released
any Cause of Action, Administrative Claim or Claim to determine
any issue which is the subject of the Inter-Creditor Dispute other
than a Cause of Action to interpret the meaning of the Global
Settlement or the [Confirmation] Order; provided, however that
entry of the [Confirmation] Order and the Inter-Creditor Dispute
Resolution shall not prejudice, diminish, affect, or impair the
Bank Actions, Bank Third Party Claims, Investment Bank Third
Party Claims, Defensive Claims or Estate Bank Defenses.
Plan Art. 8.5(a) (emphasis added).
Notably, neither Article 8.5 nor any other Plan provision establishes (or even addresses)
Plaintiffs’ standing to bring their claims either before or after the so-called “Inter-Creditor
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 34 of 55
-27-
K&E 12589418.16
Dispute Resolution.” To the contrary, Article 8.5 explicitly acknowledges the CBNA Lenders’
affirmative right to raise defenses (including standing) to Plaintiffs’ claims.14 Moreover, neither
Article 8.5 nor any other Plan provision provides, as Plaintiffs contend, for a “conditional”
resolution of the so-called “Inter-Creditor Dispute.” In fact, Article 8.5 itself explicitly affirms
that “[a]ll issues related to the Inter-Creditor Dispute shall be deemed fully settled and
compromised, and all proceedings relating to the Inter-Creditor Dispute shall be deemed
dismissed with prejudice.” See Plan Art. 8.5(a) (emphasis added). Plaintiffs’ unfounded
interpretation of the Plan is as imaginative as the pretend reality in which they now profess their
standing.
In fact, Article 8.5 — and every other Plan provision that, according to Plaintiffs, requires
this Court to rule on a hypothetical record — does nothing more than clarify that the Debtors’
payments of the bank claims under the Plan (subject to disgorgement) would not require
dismissal of this lawsuit.15 See Plan Art. 8.5 (“entry of the [Confirmation] Order and the Inter-
Creditor Dispute Resolution shall not prejudice, diminish, affect, or impair the Bank Actions”).
The prospect of such a dismissal was a real concern. Legions of cases hold that if a debtor fails
to reserve its rights to institute or continue litigation after the confirmation of a Plan or payment
14 In fact, Plaintiffs’ argument that Article 8.5 of the Plan precludes the CBNA Lenders from challenging standing
is belied by Article 9.2(b) of the Plan, which provides that “Defensive Claims shall be fully preserved and may be
asserted in response to the Bank Actions; provided, however, such Defensive Claims may be asserted . . . solely for
purposes of limiting, reducing, offsetting or defeating the liability of such defendant to any Debtor Party.” Plan Art.
9.2(b) (emphasis added). It is similarly belied by Article 16.4, which provides that “[t]he terms of this Plan and the
Confirmation Order shall not have the effect of . . . (b) impairing or prejudicing in any respect the right of (i) a
holder of a Bank Claim . . . to assert (x) solely on a defensive basis and not for any affirmative recovery against any
Debtor Party, any Defensive Claims . . . .” The Plan defines “Defensive Claims” as “collectively (a) any and all
defenses (including, without limitation, judgment reduction, laches or in pari delicto) of any defendant that may be
asserted against any Debtor Party in response to or in connection with the Bank Actions . . . .” Plan Exhibit A at A-
15.
15 Plaintiffs also assert that Article 16.18, which provides that the Plan “shall not constitute or be construed as an
admission of any fact or liability, stipulation, or waiver,” bars the CBNA Lenders from arguing that the Plan is
“evidence of some concession by the Trust[.]” Pls.’ Opp. at 28. The CBNA Lenders do not argue that the Plaintiffs
have admitted or conceded their lack of standing by way of the Plan. Rather, the CBNA Lenders contend simply
that the effect of the confirmed Plan and the consummation thereof is that Plaintiffs do not have standing.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 35 of 55
-28-
K&E 12589418.16
of a creditor’s claim, the subsequent prosecution of that litigation may be barred by res judicata.
See, e.g., Sure-Snap Corp. v. State Street Bank & Trust Co., 948 F.2d 869, 870 (2d Cir. 1991)
(finding debtor’s lender liability claims were barred by res judicata when debtor paid a bank’s
secured claim under a confirmed plan that did not expressly reserve the debtor’s right to move
forward on lender liability claims); Corbett v. MacDonald Moving Servs., Inc., 124 F.3d 82, 88
(2d Cir. 1997) (recognizing that when considering whether a debtor can maintain a claim against
a creditor post-confirmation, the court must also consider “whether an independent judgment in a
separate proceeding would ‘impair, destroy, challenge, or invalidate the enforceability or
effectiveness’ of the reorganization plan.” (citing Sure-Snap, 948 F.2d at 875-76)); Tracar, S.A.
v. Silverman (In re Am. Preferred Prescription, Inc.), 266 B.R. 273, 278-80 (E.D.N.Y. 2000)
(finding that res judicata barred subsequent efforts to expunge a claim that the bankruptcy plan
had allowed and equitably subordinated).
Accordingly, and contrary to Plaintiffs’ self-serving attempt to pervert the plain meaning
of the Plan, Article 8.5 does not evidence an agreement by the parties to the Plan (endorsed by
the Bankruptcy Court) that this Court can and should decide Plaintiffs’ lawsuit on a hypothetical
record where it is assumed that Plaintiffs have perpetual standing.16 Rather, it reflects the
parties’ agreement that Plaintiffs would be able to continue their litigation against the banks
notwithstanding the Debtors’ agreement to pay the banks’ claims (subject to disgorgement)
under the Plan. That is all — no more, no less.
16 As already discussed, the parties could not have agreed to this in any event, as parties cannot contract to create
jurisdiction where none would otherwise exist. See In re Nasdaq Market-Makers Antitrust Litig., 176 F.R.D. 99,
103 (S.D.N.Y. 1997) (“Standing is a jurisdictional matter which must be resolved by the court; parties cannot either
waive or confer standing by agreement.”) (citation omitted); Barhold v. Rodriguez, 863 F.2d 233, 234 (2d Cir. 1988)
(“[P]arties do not have the power to confer such jurisdiction upon the Court by conceding the standing of certain
plaintiffs.”) (citation omitted).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 36 of 55
-29-
K&E 12589418.16
2. Claims that are deemed resolved are resolved.
In their pretend reality, Plaintiffs have redefined the word “deemed.” The word no longer
means “determined” or “decided.” Instead, in Plaintiffs’ world, the word apparently means “not
really,” or “until we say differently.” Plaintiffs do not get to make up new definitions for words
when the words they agreed to no longer suit them.
In their Opposition, Plaintiffs argue that the Intercompany Claims and veil-piercing
claims that the Plan “deemed resolved” actually continue to exist in this litigation because
“deemed resolved” — as opposed to simply “resolved” — really means “not resolved.” See Pls’
Opp. at 27-28. This self-serving argument flies in the face of other Plan provisions to which
Plaintiffs willingly give full effect. As just one example, the Plan specifically defines the phrase
“Deemed Value” to mean an agreed-upon formula used to determine the value of cash and Time
Warner stock that certain creditors were to receive under the Plan. See Plan at A-15. Those
creditors entitled to receive “Deemed Value” would certainly be shocked if Plaintiffs asked them
for a “do over” to adjust and reallocate the value of what they had or were to receive, as it was
only a “deemed” — not an actual — value.
Likewise, Article 11.4 of the Plan is titled “Deemed Disallowance” and provides in
relevant part: “Claims (including Claims filed against any of the JV Debtors) filed by an
Indenture Trustee for tort or other claims, other than claims for principal, interest, fees and
expenses against the issuer(s) and guarantor(s) of the respective debt securities under the
Indenture(s) under which the Indenture Trustee serves, shall be deemed disallowed.” Plan Art.
11.4. Under Plaintiffs’ definition of “deemed,” the Indenture Trustees could now come forward
to recover on their quite substantial claims from Plaintiffs notwithstanding the fact that the Plan
“deemed” them disallowed. It is difficult to imagine that Plaintiffs, who have now substantially
consummated the Plan (under which, of course, they reserved no funds to pay these “deemed”
disallowed claims), would agree in this context that “deemed disallowed” means anything but
actually disallowed.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 37 of 55
-30-
K&E 12589418.16
Yet Plaintiffs seek this very result with respect to the provisions of the Plan that now bar
their standing. For example, Article 2.3 of the Plan, which deals with Intercompany Claims and
veil-piercing claims, provides as follows:
Intercompany Claims shall be deemed resolved as a result of the
settlement and compromise embodied in this Plan and therefore
holders thereof shall not be entitled to vote on the Plan, or receive
any Plan Distribution or other allocations of value.
Plan Art. 2.3 (emphasis added). And as noted above, Article 8.5 says:
All issues related to the Inter-Creditor Dispute shall be deemed
fully settled and compromised, and all proceedings relating to the
Inter-Creditor Dispute shall be deemed dismissed with prejudice.
Plan Art. 8.5 (emphasis added). Notwithstanding that the phrases “resolved,” “fully settled” and
“dismissed with prejudice” each have a clear and necessary meaning in a settlement document
such as the Plan, Plaintiffs argue that the use of the word “deemed” before these phrases
modifies them to mean “might be resolved” or “could be settled” or “could possibly be dismissed
with prejudice.” This is nonsensical. It is also contrary to the accepted and historic use of the
word.
In fact, the word “deemed” has a certain and definite meaning. Deemed17 is the
imperative and past participle of the verb deem, which is defined by Webster’s Online dictionary
as:
To sit in judgment upon, decide, to come to view, judge, or classify
after some reflection.18
Roget’s Thesaurus provides as synonyms for deem:
View as, consider as, take as, hold as, conceive as, regard as,
esteem as, look upon as, account as, set down as; surmise.19
17 See Webster’s Third New International Dictionary 589 (1986).
18 Id., http://www.webters-online-dictionary.org/definition/deem.
19 See Mawson, C.O.S. Roget’s International Thesaurus, http://www.bartleby.com/110/484.html (1922).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 38 of 55
-31-
K&E 12589418.16
And the word deemed has a long and historic usage in American political and legal life in
affirming the importance of what comes after it — not undercutting it. The U.S. Constitution, for
example, uses the word deem as synonymous with the words determined or decided — not
possibly, maybe, or hypothetically:
The Congress, whenever two thirds of both Houses shall deem it
necessary, shall propose Amendments to this Constitution, or, on
the Application of the Legislatures of two thirds of the several
States, shall call a Convention for proposing Amendments, which,
in either Case, shall be valid to all Intents and Purposes, as Part of
this Constitution, when ratified by the Legislatures of three fourths
of the several States, or by Conventions in three fourths thereof, as
the one or the other Mode of Ratification may be proposed by the
Congress; Provided that no Amendment which may be made prior
to the Year One thousand eight hundred and eight shall in any
Manner affect the first and fourth Clauses in the Ninth Section of
the first Article; and that no State, without its Consent, shall be
deprived of its equal Suffrage in the Senate.
U.S. Const. Art. V.
And in one of the seminal decisions from U.S. jurisprudence, the Supreme Court’s 1803
decision in Marbury v. Madison, 5 U.S. 137, 176 (1803), the Supreme Court stated: “The
principles, therefore, so established, are deemed fundamental.” (emphasis added). They were
not “conditionally” fundamental — or fundamental only when it suited the Court.
Abraham Lincoln also used the word “deemed” in the affirmative, as something
determined or decided, in the Emancipation Proclamation:
That the Executive will, on the first day of January aforesaid, by
proclamation, designate the States and parts of States, if any, in
which the people thereof, respectively, shall then be in rebellion
against the United States; and the fact that any State or the
people thereof, shall on that day be, in good faith, represented in
the Congress of the United States by members chosen thereto at
elections wherein a majority of the qualified voters of such
States shall have participated, shall, in the absence of strong
countervailing testimony, be deemed conclusive evidence that
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 39 of 55
-32-
K&E 12589418.16
such State, and the people thereof, are not then in rebellion
against the United States.20
Plaintiffs’ redefinition of the word “deemed” as meaning “maybe, perhaps or when we
want it to” is completely unfounded in both the Plan, the law, and in the English language itself.
It exists only in Plaintiffs’ pretend reality. But as the CBNA Lenders reiterate time and time
again, this case must be decided in the reality that actually exists. In that reality, the use of the
word “deemed” before a word reinforces, rather than detracts from, its meaning.
C. Plaintiffs Do Not Have Standing To Assert Their Bankruptcy Claims.
To establish standing, Plaintiffs must demonstrate both that (1) the Obligor Debtors’
creditors were injured on account of any alleged unlawful acts and (2) the relief Plaintiffs seek
can redress those injuries. As set forth below, Plaintiffs can establish neither of these
jurisdictional prerequisites.
1. Plaintiffs do not have standing to assert their bankruptcy claims
because they cannot establish that any creditors of the obligor debtors
were injured on account of the alleged transfers.
To establish both constitutional and statutory standing, Plaintiffs must be able to show the
existence of at least one creditor of an Obligor Debtor who was injured (i.e., whose claims were
not satisfied) on account of the Obligor Debtors’ allegedly improper transfers. It is beyond
dispute, however, that each of the Obligor Debtors here has paid all of its bona-fide creditors in
full.21 In re Adelphia Commc’ns Corp., 368 B.R. 140 (Bankr. S.D.N.Y. 2007) (finding that the
20 Abraham Lincoln, Former President of the United States, Emancipation Proclamation (Jan. 1, 1863) (emphasis
added).
21 The fact that Plaintiffs may have pled (albeit cryptically if at all) that the Obligor Debtors did not satisfy all of
their creditors is of no import. The Court may take judicial notice of the Plan and of the status reports Plaintiffs
have filed (which constitute admissions) showing that the Obligor Debtors (therein referred to as “Subsidiary
Debtors”) have all paid their creditors in full, with interest. Colotone Liquidating Trust v. Bankers Trust N.Y. Corp.,
243 B.R. 620, 622 n.2 (S.D.N.Y. 2000) (taking judicial notice of the confirmation order, plan of reorganization and
the related trust instrument); Buttes Gas & Oil Co. v. Cal. Reg’l Water Quality Control Bd. (In re Buttes Gas & Oil,
Co.), 182 B.R. 493, 494 (Bankr. S.D. Tex. 1994) (taking judicial notice of the docket sheet and Bankruptcy Court
file, and concluding therefrom that all of the debtor’s creditors are being paid pursuant to the plan). See Joint App.,
Ex. 8 at DSS2-26-DSS2-30 (Disclosure Statement); Plan Art. 5.2; Joint App., Ex. 12 (Status Report); Fourth Post-
Confirmation Status Report, Docket No. 13996 in In re Adelphia Commc’ns, Corp., Case No. 02-41729 (Bankr.
S.D.N.Y.) (all showing that Obligor Debtors have all paid their creditors in full). And to the extent that these
(Continued…)
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 40 of 55
-33-
K&E 12589418.16
Obligor Debtors could pay their unsecured creditors in full, with interest). Plaintiffs therefore
cannot satisfy this most fundamental component of standing. See also CCH Mot. at 32-35.
In an attempt to revive their claims, Plaintiffs (relying on their argument that the Court
must ignore the Plan in this litigation — at least where such ignorance benefits them) argue that,
for purposes of considering their standing, the Court should recognize (1) the hypothetical injury
that hypothetical creditors would have been assumed to have suffered had the Plaintiffs been able
to substantively consolidate the more than 250 individual Adelphia estates and (2) the
hypothetical existence of Intercompany Creditors who settled and compromised their
Intercompany Claims as part of the Plan. Pls.’ Opp. at 47-49. But the jurisdictional bar of
standing requires Plaintiffs to establish real parties in interest (here, actual creditors of an
Obligor Debtor) and real injuries. As Plaintiffs cannot do this, the Court cannot exercise
jurisdiction over their bankruptcy claims.
a. The hundreds of Adelphia estates were not and cannot be
substantively consolidated.
While conceding that the more than 250 Adelphia estates are not substantively
consolidated, Plaintiffs nonetheless argue that because they could have sought substantive
consolidation as part of the Plan, the Court now must pretend that (1) the estates are
substantively consolidated and (2) this hypothetical substantive consolidation gave rise to a
hypothetical injury to the hypothetical creditors of the hypothetically consolidated estates —
thereby giving them standing for their claims.22 This is both contrary to established law and
factually disingenuous.
documents prove Plaintiffs’ allegations fallacious, the Court may disregard Plaintiffs’ allegations in favor of the
actual facts. Rieger v. Drabinsky (In re Livent, Inc. Noteholders Sec. Litig.), 151 F. Supp. 2d 371, 405-06 (S.D.N.Y.
2001) (finding that “a court need not feel constrained to accept as truth conflicting pleadings . . . that are
contradicted either . . . by documents upon which its pleadings rely, or by facts of which the court may take judicial
notice”) (citations omitted).
22 Stepping back, had Plaintiffs substantively consolidated the bankruptcy estates, each of the more than 250
Adelphia estates would have been merged into one estate, and all of the estates’ collective assets would have been
pooled for pro-rata distribution to creditors of the merged estates. This is not what happened, however, and as it
(Continued…)
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 41 of 55
-34-
K&E 12589418.16
First, the Court cannot consider standing on a hypothetical record. Instead, in order to
find standing, the Court must find that the Obligor Debtors’ creditors suffered actual injuries in
fact, and not hypothetical injuries. An “injury in fact” which requires an invasion of a legally
protected interest cannot be “conjectural or hypothetical.” Friends of the Earth, Inc. v. Laidlaw
Envtl. Servs., 528 U.S. 167, 180 (2000) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560
(1992)). The injury must be “concrete and particularized” and “actual or imminent.” Lujan, 540
U.S. at 560 (citations omitted). Standing cannot “rest upon hypothetical facts” but must rather
rest “upon allegations of concrete injury.” McLean v. Mathews, 466 F. Supp. 977, 980 n.9
(S.D.N.Y. 1976) (emphasis added). Therefore, courts have found that when a plaintiff’s alleged
injuries are “hypothetical and unsupported by the record[,]” constitutional standing is not
established. In re Matter of FedPak Sys., Inc., 80 F.3d 207, 212 (7th Cir. 1996). As Plaintiffs’
substantive consolidation theory provides this Court with nothing more than a hypothetical
injury, it does not afford Plaintiffs standing to raise the bankruptcy claims.
Second, even if the Court could rule in Plaintiffs’ pretend reality, Plaintiffs’ suggestion
that there could ever be a reality in which the individual Adelphia estates were substantively
consolidated is patently unreasonable. In confirming the Plan, the Bankruptcy Court specifically
found that it was “highly unlikely that the Second Circuit’s requirements for substantive
consolidation, as described in Augie Restivo, could be satisfied.” In re Adelphia Commc’ns
Corp., 368 B.R. at 237 n.204 (citing Union Sav. Bank v. Augie/Restivo Baking Co., Ltd. (In re
Augie/Restivo Banking Co.), 860 F.2d 515 (2d Cir. 1988)); see also In re Adelphia Commc’ns,
368 B.R. at 219 (“I think the ACC Bondholder Group was plainly right in theorizing that
substantive consolidation would be a highly unlikely result.”).23 Plaintiffs themselves have
stands today, each of the more than 250 Adelphia estates is a separate legal entity with its own assets, its own
liabilities and its own creditors, and each of these individual estates is responsible only for satisfying its own
creditors.
23 See also Transcript Of Court Decision On Joint Motion In Aid, Rate And Computation Of Post-Petition Interest
at 15, Docket No. 11149 in In re Adelphia Commc’ns, Corp., Case No. 02-41729 (Bankr. S.D.N.Y. April 27, 2006)
(Continued…)
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 42 of 55
-35-
K&E 12589418.16
reiterated this reality, acknowledging that substantive consolidation is an extraordinary remedy
that the Adelphia estates were not likely to obtain. See Memorandum of Law in Support of
Confirmation of Plan for Adelphia Communications Corporation and Certain Affiliated Debtors
at 107, Docket No. 12662 in In re Adelphia Commc’ns, Corp., Case No. 02-41729 (Bankr.
S.D.N.Y.) (recognizing that substantive consolidation is only available in cases that meet
stringent standards for application of such equitable remedy). For them to now take an
inconsistent position is disingenuous (and, on the legal standard they set forth in their opposition
brief, subject to judicial estoppel). See Pls.’ Opp. at 42 (citing, e.g., New Hampshire v. Maine,
532 U.S. 742, 751 (2001)).
Even more disingenuous, however, is Plaintiffs’ argument that they could still
substantively consolidate the individual Adelphia estates if they opted to do so. They cannot.24
The Plan has been substantially consummated. Plan Proponent’s Memorandum in Response to
Brief on Mootness at 4-5, 9, Docket No. 10 in In re Adelphia Commc’ns, Corp., Case No. 07-
1172 (S.D.N.Y.) (where Plaintiffs assert that the Plan has been substantially consummated and
cannot be unraveled to allow the ACC Bondholders to proceed with their appeal of the Plan). To
substantively consolidate at this stage (and assuming that the Court would even give them
permission to do so in the first place), Plaintiffs would need to (1) recover all of the Plan’s
distributions, (2) pool those distributions and then (3) redistribute the pooled distributions
equally among the creditors of the more than 250 individual Adelphia entities (a particularly
(“On balance, I think the fact that parent creditors must recover from the entity with whom they dealt — and that the
parent’s interest in its subs was in law and substance equity — is a matter not just of form, but also of substance.
For purposes of analysis in a multi-debtor, parent/subsidiary, case where creditors would have justifiably focused on
what we refer to in bankruptcy parlance as ‘structural seniority,’ that structural seniority must be taken into account.
And I believe that the ‘structural seniority’ of subsidiaries and subsidiary creditors’ rights of priority to subsidiary
assets was something that senior creditors know about, or should have when they bought their bonds.”); see also In
re Adelphia Commc’ns Corp., 368 B.R. 140 (Bankr. S.D.N.Y. 2007).
24 Nor can Plaintiffs claim that veil-piercing claims are still available. We join in the Nominal Agents’ argument
as discussed in the Reply Brief of Various Lenders, pages 21-24, that veil-piercing claims were also extinguished
under the Plan.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 43 of 55
-36-
K&E 12589418.16
difficult task given that there would be no Plan to govern this novel distribution). Plaintiffs
themselves have confessed this would “not only be impracticable (if not impossible), it would
be grossly inequitable.” Id. at 11.
On this point, they were right. In consummating the Plan, the Debtors distributed (1)
more than $6.49 billion in cash to more than 8,000 claimants; (2) approximately 111,789,000
freely tradable shares of Time Warner Cable (“TWC”) Class A Common Stock to approximately
13,500 claimants; and (3) more than 9.56 billion freely tradable CVV Interests to more than
8,000 claimants and more than 23,000 equityholders. Id. at 4-5. Plaintiffs have admitted that it
would be “impossible” for them to identify and locate the more than 52,500 claimants and
equity-holders who received distributions (and, where applicable, their successors), request that
those parties disgorge their distributions, and effectively sue those who refuse to comply. Id. at
15. The District Court, in fact, adopted this position when it denied certain creditors of the
Obligor Debtors’ parent, grandparent and great-grandparent entities the right to continue
prosecuting their appeal of the Plan in light of the Plan’s substantial consummation. In re
Adelphia Commc’ns Corp., 371 B.R. 660, 677 (S.D.N.Y. 2007) (adopting the Plaintiffs’ view
that substantial consummation and Plaintiffs’ inability to unravel the Plan rendered the ACC
Bondholders’ appeal of the Bankruptcy Court’s confirmation of the Plan equitably moot).
Given that Plaintiffs have freely admitted the impossibility of unraveling the Plan — an
unraveling that is essential to substantive consolidation — their assertion that the estates can be
substantively consolidated is shameless. It is also plainly wrong under the doctrines of judicial
estoppel and equitable mootness. See id. (adopting the Plaintiffs’ view that substantial
consummation and Plaintiffs’ inability to unravel the Plan rendered the ACC Bondholders’
appeal of the Bankruptcy Court’s confirmation of the Plan equitably moot); G.E. Cattle Co. v.
United Producers, Inc. (In re United Producers), 353 B.R. 507, 513 (B.A.P. 6th Cir. 2006)
(dismissing appeal attacking the confirmation of a Chapter 11 plan under principles of equitable
mootness because “requested relief [could not] be granted without totally dismantling the
substantially consummated plan” ). See also New Hampshire, 532 U.S. at 751 (“judicial estoppel
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 44 of 55
-37-
K&E 12589418.16
forbids use of intentional self-contradiction . . . as a means of obtaining unfair advantage) (citing
Scarano v. Cent. R.R. Co. of N.J., 203 F.2d 510, 513 (3d Cir. 1953) (internal quotation makes
omitted)). Plaintiffs cannot now substantively consolidate the Adelphia estates. Nor can they
pretend that they did.
b. There are no existing Intercompany Creditors.
In their attempt to rewrite history, Plaintiffs also assert that the Court should pretend that
Intercompany Claims were not “resolved” or “compromised and settled” when determining
whether the Obligor Debtors have any injured creditors. Specifically, and again living in the
pretend reality they propound, Plaintiffs assert that the Court should instead assume that
(1) Intercompany Creditors retained (rather than resolved and released) their disputed claims
under the Plan and (2) these hypothetical claims now give rise to hypothetical injuries to these
hypothetical creditors. Pls.’ Opp. at 47. But just as the Court cannot assume jurisdiction based
on a hypothetical or pretend reality where the Debtors’ estates were substantively consolidated, it
also cannot assume jurisdiction based on disputed claims that the Plan already resolved.25 See
supra, Section II(A)(1)(c) (the Court does not have jurisdiction over hypothetical parties and
hypothetical injuries).
Despite Plaintiffs’ attempt to create ambiguity through the Plan’s so-called “neutrality,”
the Plan unambiguously states that Intercompany Claims (and the related “Inter-Creditor
25 Putting aside the legal barrier to jurisdiction, Plaintiffs’ request inappropriately asks this Court to relitigate the
complex, factual Intercompany Claims that the Plaintiffs willingly compromised in the Bankruptcy Court litigation.
In the Disclosure Statement, Plaintiffs acknowledged that “were the Resolution Process [i.e., the process the Court
utilized to resolve the Intercompany Claims] to be litigated to conclusion before the Bankruptcy Court, a
considerable number of additional hearings would need to be held [beyond the more than the 20 days of hearings
that had already taken place] — likely extending over a period of months (and, perhaps, with appeals, years) — and
additional discovery may need to be conducted.” Joint App., Ex. 8 at DSS2-15 (Disclosure Statement). The
Bankruptcy Court echoed this understanding when noting that “most significantly, the complexity of the underlying
litigation, and the huge expense and delay that would be occasioned by prosecuting it” was a key factor in its
decision to approve the Global Settlement embodied in the Plan. In re Adelphia Commc’ns Corp., 368 B.R. at 246.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 45 of 55
-38-
K&E 12589418.16
Dispute”) are “resolved” and “settled and compromised.” See Plan Art. 2.1. On this point, the
Plan specifically provides:
• The treatment of Claims against and Equity Interests in the Debtors under
this Plan represents, among other things, the settlement and compromise
of the Inter-Creditor Dispute pursuant to the Global Settlement. Id.
(emphasis added).
• The [Confirmation] Order shall contain findings of fact and conclusions of
law, as the case may be, resolving the Inter-Creditor Dispute and
discontinuing such litigation, with prejudice. Id. (emphasis added).
• All findings of fact and conclusions of law contained in the
[Confirmation] Order shall be binding, for all purposes, on all Persons
with respect to any and every Administrative Claim or Claim against any
Equity Interest in a Debtor or JV Debtor, including any Administrative
Claim, Claim or Equity Interest that is derivative of an Intercompany
Claim or an intercompany relationship between and among the Debtors
or JV Debtors. Id. (emphasis added).
• Intercompany Claims shall be deemed resolved as a result of the
settlement and compromise embodied in this Plan and therefore holders
thereof shall not be entitled to vote on the Plan, or receive Plan
Distribution or other allocations of value.26 Id. Art. 2.3 (emphasis
added).
26 As previously discussed, Plaintiffs make much of the fact that this section of the Plan says that Intercompany
Claims are “deemed resolved” as opposed to simply “resolved.” This is of no consequence. Regardless of the
language used, the incontrovertible fact is that Intercompany Creditors waived all rights to recover anything on
account of their purported Intercompany Claims. Moreover, on the record before the Bankruptcy Court, it is likely
that these claims never existed at all. Joint App., Ex. 10 at 74 (Bench Decision on Confirmation) (noting the
difficulty of basing a legitimate Intercompany Claim on a non-cash transaction whose sole apparent purpose was to
manipulate covenants, and had no economic substance); id. at 101 (“If a thoughtful judgment call had been made
during the prepetition period that there were good reasons for employing the debt, or hybrid, methods of accounting,
this would be a close issue. But the testimony was repeated, and dramatic, that the debt method was chosen simply
because it was easier. Whether or not such a decision makes for sound accounting, it is insufficient support for
finding the existence of a claim . . . this is an area where the Arahova Noteholders Committee would almost
certainly win.”); id. at 113 (noting that the Court would “almost certainly be unwilling to find claims” based on
intercompany dividends). See also Memorandum of Law in Support of Confirmation of Plan for Adelphia
Communications Corporation and Certain Affiliated Debtors at 107 n.121, 109, Docket No. 12662 in In re Adelphia
Commc’ns, Corp., Case No. 02-41729 (Bankr. S.D.N.Y.) (where Committee, Plaintiffs’ predecessor, argued that the
Bankruptcy Court should confirm the Plan over the ACC bondholders’ objection because “the elimination of
intercompany claims” was the primary “premise for settlement of litigation that is destructive to the debtors’ estates
and creditors’ recoveries.”); id. at 9 (arguing that that pursuant to the Bankruptcy Court’s MIA Hearing I Order in
the MIA process, the Debtors’ May 2005 schedules (upon which alleged Intercompany Claims are based) are not
entitled to any presumptive validity, since those schedules were challenged). In any event, the Intercompany Claims
against the Obligor Debtors have been fully settled and compromised, and the prior holders of such Intercompany
Claims cannot be viewed as injured creditors for purposes of a standing analysis.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 46 of 55
-39-
K&E 12589418.16
• Pursuant to the Global Settlement, holders of Intercompany Claims shall
not be entitled to Plan Distributions, as described in this Plan, and shall
be subject to such findings of fact and conclusions of law as the
Bankruptcy Court may make in connection with the entry of the
Confirmation Order. Id. Art. 5.3 (emphasis added).
• All issues related to the Inter-Creditor Dispute shall be deemed fully
settled and compromised, and all proceedings relating to the Inter-
Creditor Dispute shall be deemed dismissed with prejudice. Id. Art. 8.5(a)
(emphasis added).
Having now waived any right to payment under the Plan, the former Intercompany Creditors
cannot be viewed as creditors — much less injured creditors — for purposes of determining
Plaintiffs’ standing to bring their bankruptcy claims in this case. See 11 U.S.C. § 101(10)
(defining a creditor as an entity that has a claim against a debtor), § 101(5)(A) (defining a claim
as a “right to payment”). This Court does not have jurisdiction over Plaintiffs’ bankruptcy
claims, and they must therefore be dismissed.
2. Plaintiffs do not have standing to assert their bankruptcy claims
because their requested relief cannot redress the Obligor Debtors’
creditors’ purported injuries.
Even assuming Plaintiffs could establish that the Obligor Debtors have injured (i.e.,
unpaid) creditors, they would still have to show that the relief they seek in this lawsuit would
(1) for purposes of constitutional standing, redress those creditors’ injuries and (2) for purposes
of statutory standing, provide a benefit to those creditors. The effect of this lawsuit on the
Obligor Debtors’ creditors — as opposed to some amorphous “Adelphia” creditors — is the
focal point of this analysis. And because the Obligor Debtors’ creditors did not receive CVV
interests, and therefore cannot benefit directly, indirectly or at all from this lawsuit, Plaintiffs
cannot establish either constitutional or statutory standing. See also CCH Mot. at 37-43.
Plaintiffs attempt to divert attention from this plain reality by advancing three arguments.
First, they argue that the Obligor Debtors’ creditors directly benefit from Plaintiffs’ prosecution
of the bankruptcy claims because the Plan’s appointment of Plaintiffs as representatives of the
Obligor Debtors’ estates benefited the “Adelphia” estate. Second, they argue that “Adelphia”
creditors will indirectly benefit from their prosecution of the avoidance claims because the
proceeds of avoidance will increase the value of the CVV. And finally, Plaintiffs argue that the
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 47 of 55
-40-
K&E 12589418.16
Bankruptcy Code’s avoidance statutes do not require them to demonstrate that any of the Obligor
Debtors’ creditors will benefit at all from this lawsuit in order to establish standing. All of these
arguments fail.
a. Plaintiffs have not established a direct benefit to the Obligor
Debtors’ creditors.
Citing to Maxwell Newspapers, 189 B.R. 282 (Bankr. S.D.N.Y. 1995), Plaintiffs first
contend that they have standing to bring the Obligor Debtors’ avoidance claims because the
Obligor Debtors benefited from Plaintiffs’ appointment under the Plan to prosecute those claims.
Maxwell, however, did not even consider the statutory and constitutional standing issues that the
CBNA Lenders raise here. Accordingly, it does not apply in this case.
In fact, nobody in Maxwell had any reason to question the transferor debtor’s
constitutional or statutory standing to bring avoidance claims in its own right; after its plan was
confirmed, the debtor had an entire class of its own unpaid creditors who stood to receive the
proceeds of any recovery on those claims. Id. at 286. Rather, the issue in Maxwell was whether
the debtor’s unpaid creditors had standing under Section 1123 of the Bankruptcy Code, which
provision allows the bankruptcy court to appoint an estate representative to prosecute a debtor’s
claims after confirmation of a plan. Maxwell, 189 B.R. at 286-87. The court concluded that the
unpaid creditors had standing under Section 1123 of the Bankruptcy Code to pursue the debtor’s
avoidance claims as representatives of the estate because their rights to pursue the claims
derived from a Plan settlement that benefited the debtor’s estate as a whole.27 Maxwell, 189 B.R.
at 287.
27 While agreement on a Plan may be sufficient to satisfy “representative standing” under Section 1123(b)(3)(B) of
the Bankruptcy Code, agreement upon a plan is not itself a sufficient benefit to establish statutory or constitutional
standing where the transferor debtor’s creditors are not entitled to the proceeds of avoidance litigation. Indeed, if
that were the case, then standing could never be an issue in a case where there is a confirmed plan. See Whiteford
Plastics Co. v. Chase Nat’l Bank of N.Y. City, 179 F.2d 582, 584 (2d Cir. 1950) (holding, in the context of a
confirmed plan, that estate representative did not have statutory standing to raise bankruptcy claims); In re Oceana
Int’l, Inc., 376 F. Supp. 956, 962 (S.D.N.Y. 1974) (same); Galerie Des Monnaies of Geneva, Ltd. v. Deutsche Bank,
A.G., N.Y. Branch (In re Galerie Des Monnaies of Geneva, Ltd.), 55 B.R. 253, 260 (Bankr. S.D.N.Y. 1985) (same);
Centennial Indus., Inc. v. NCR Corp. (In re Centennial Indus. Inc.), 12 B.R. 99, 102 (Bankr. S.D.N.Y. 1981)
(Continued…)
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 48 of 55
-41-
K&E 12589418.16
Maxwell, although wholly inapplicable to Plaintiffs’ contention that the Obligor Debtors’
would have standing in their own right to pursue their bankruptcy claims (thereby affording
Plaintiffs, as the appointed representatives, standing to bring the claims as well), does highlight a
fundamental distinction which Plaintiffs gloss over to create confusion here: the distinction
between a non-debtor’s standing to assert a debtor’s contract, tort and bankruptcy claims as a
representative of the debtor’s estate on the one hand, and the underlying debtor’s standing to
assert and maintain those same claims in its own right on the other hand. To assert claims on
behalf of a debtor, a non-debtor must establish both its own and the underlying debtor’s standing.
See Join-In Int’l (U.S.A.) Ltd. v. N.Y. Wholesale Distribs. Corp., 56 B.R. 555, 560-61 (Bankr.
S.D.N.Y. 1986) (finding that even when a plan specifically retains jurisdiction over the adversary
proceeding (by assigning a representative to pursue that action post-confirmation), “a separate
aspect is the question of whether these debtors may continue to prosecute the actions.”)
(emphasis added)).
The first inquiry, which is whether a non-debtor party has standing to sue as a debtor’s
representative (i.e., “representative standing”), is conducted under Section 1123 of the
Bankruptcy Code. See 11 U.S.C. § 1123(b)(3)(B) (“[A] plan may provide for the retention and
enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such
purpose, of any such claim or interest[.]”). To establish “representative standing,” a non-debtor
party must show that (1) its appointment to prosecute the claims at issue (2) benefits the estate as
a whole. Maxwell, 189 B.R. at 287. While “representative standing” was the fundamental issue
in Maxwell, it is not at issue here (making Plaintiffs’ reliance on Maxwell unfounded).
The second inquiry, which is whether the underlying debtor would itself have standing to
assert a particular claim, is governed by constitutional standing principles and, where applicable,
(analyzing statutory standing of estate representative to raise bankruptcy claims in the context of a confirmed plan);
Tex. Consumer Fin. Corp. v. First Nat’l City Bank, 365 F. Supp. 427, 431-32 (S.D.N.Y. 1973) (same).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 49 of 55
-42-
K&E 12589418.16
the statute from which the debtor’s claim derives. This inquiry is separate and distinct from that
of “representative standing.” See Join-In Int’l, 56 B.R. at 561. And in the context of bankruptcy
claims, it requires the non-debtor party to show that the prosecution of the action will benefit the
debtor’s own unpaid creditors (as opposed to, for example, creditors of the debtor’s great-great
grandparents, as Plaintiffs seek to do here), thereby redressing their injuries. See, e.g., Whiteford
Plastics Co., 179 F.2d at 584 (determining, on a post-confirmation record, that there was no
standing because “the creditors have received cash or stock for their claims, and there is no
reason to safeguard their rights further”).
Thus, to assert a claim belonging to a debtor, a non-debtor party must separately and
distinctly establish (1) that it has “representative standing” to bring the claim on behalf of the
debtor’s estate; and (2) that the underlying debtor would have had standing to bring the claim in
its own right. Courts must ensure that a non-debtor satisfies both inquiries (as to each particular
cause of action) before they can assume jurisdiction over an estate representative’s claims. And
in this case, where Plaintiffs cannot establish that the Obligor Debtors would have standing in
their own right to pursue the bankruptcy claims for the benefit of their own creditors, Plaintiffs
cannot maintain their claims. Plaintiffs’ reliance on Maxwell is misplaced, and the bankruptcy
claims must be dismissed.
b. Plaintiffs have not established an indirect benefit to the
Obligor Debtors’ creditors.
Plaintiffs next contend that even if they cannot show a direct benefit flowing from their
avoidance actions to the Obligor Debtors’ creditors (which they cannot), all they really need to
show is “some positive benefit” to the “estate,” be it direct or indirect, to establish standing to
bring the Obligor Debtors’ avoidance actions. See Pls.’ Opp. at 44-55. This contention is flawed
in two respects. First, Plaintiffs are once again implicitly assuming that all of the more than 250
Adelphia estates are one and the same, conveniently forgetting (or consciously disregarding) that
the only “estate” at issue for purposes of determining their standing to bring an Obligor Debtor’s
avoidance claims is the estate of the Obligor Debtor on whose behalf they assert the claims.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 50 of 55
-43-
K&E 12589418.16
Second, while courts have found that creditors can benefit indirectly from avoidance actions, and
that this indirect benefit can be sufficient to establish statutory standing, there still must be at
least one creditor who will receive this indirect benefit. An examination of the very cases
Plaintiffs cite to support their novel “some positive benefit” argument demonstrates why their
argument must fail.
The first case Plaintiffs cite is NextWave Personal Communications, Inc. v. Federal
Communications Commission (In re NextWave Personal Communications), 235 B.R. 305
(Bankr. S.D.N.Y. 1999), reversed on other grounds, FCC v. Nextwave Pers. Commc’ns, Inc.,
200 F.3d 43 (2d Cir. 1999). NextWave involved just one debtor entity, NextWave, described as
“a small company with few creditors.” Pls.’ Opp. at 51. Pre-confirmation, NextWave sought to
avoid an allegedly fraudulent obligation to the FCC in an amount greater than that “necessary to
benefit NextWave’s bona fide creditors.” Id. (quoting NextWave, 235 B.R. at 306). The Court,
recognizing (1) the existence of unpaid NextWave creditors and (2) that avoidance would allow
NextWave to pay those creditors’ claims, allowed NextWave to avoid its obligation to the FCC
in an amount potentially greater than that necessary to satisfy NextWave’s creditors. NextWave,
235 B.R. at 308-09. The NextWave scenario — which expressly recognized that the proposed
avoidance would allow NextWave to pay its own bona-fide creditors’ claims — is much
different than the scenario Plaintiffs now put before this Court. Plaintiffs here cannot point to
even one creditor of an Obligor Debtor who will be paid as a result of the avoidance they
propose, as recovery from their bankruptcy claims will flow to the third party beneficiaries of the
CVV.28 See CCH Mot. at 37. Far from supporting Plaintiffs’ case, NextWave actually supports
the moving parties.
28 Similarly, this requirement that at least one creditor benefit from avoidance renders Moore v. Bay, 284 U.S. 4
(1931), and Acequia, Inc. v. Clinton (In re Acequia Inc.), 34 F.3d 800 (9th Cir. 1994), inapplicable to Plaintiffs’
arguments. In both Moore and Acequia, the transferor debtor seeking avoidance had at least one existing creditor
that would benefit from that avoidance. Here, the Obligor Debtors have no existing creditors at all.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 51 of 55
-44-
K&E 12589418.16
Plaintiffs’ reliance on Calpine and TWA for the proposition that the Obligor Debtors’
creditors will benefit from the bankruptcy claims is similarly misplaced.29 In both Calpine and
TWA, the operative plans of reorganization satisfied certain unsecured creditor claims with stock
in the reorganized debtor. Because the operative plans did not provide claimants with a
possibility of receiving directly the proceeds from any avoidance actions, the defendants in those
actions argued for dismissal of the avoidance claims on the grounds that no creditors would
benefit from the pursuit thereof. In each case, the court disagreed, finding that any recovery in
the avoidance actions would increase the value of the reorganized company, and could therefore
indirectly benefit the creditors who had been given equity in the company under the operative
plans. Calpine, 377 B.R. at 814 (noting that “unsecured creditor claims would be satisfied in
whole or in part with distributions of equity in the reorganized company”); TWA, 163 B.R. at
973 (“[T]he unsecured creditors w[ould] benefit from the enhanced value of [a] reorganized
TWA by reason of being shareholders of the reorganized debtor.”).
Here, however, no creditors of the Obligor Debtors will benefit — directly or indirectly
— if Plaintiffs prevail on their bankruptcy claims. Instead, any proceeds of the bankruptcy
claims will be placed in the CVV for distribution to the CVV’s beneficiaries, none of whom
include the Obligor Debtors’ creditors. See CCH Mot. at 37. Whether Plaintiffs win or lose the
bankruptcy claims, the Obligor Debtors’ creditors will get nothing. And as such, Plaintiffs lack
standing to raise them at all.
c. Plaintiffs’ assertion that they need not establish a benefit to the
Obligor Debtors’ creditors to avoid transfers fails.
Finally, Plaintiffs contend that they need not show that the Obligor Debtors’ creditors
will benefit at all from Plaintiffs’ avoidance of the allegedly fraudulent transfers in order to
assert their avoidance claims because the governing statutes do not explicitly state that avoidance
29 Calpine Corp. v. Rosetta Res. Inc. (In re Calpine Corp.), 377 B.R. 808 (Bankr. S.D.N.Y. 2007); Trans World
Airlines, Inc. v. Travellers Int’l AG (In re Trans World Airlines, Inc.), 163 B.R. 964 (Bankr. D. Del. 1994).
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 52 of 55
-45-
K&E 12589418.16
(as distinct from “recovery”) must be for the “benefit of the estate.”30 Pls.’ Opp. at 55-59. This
argument, which even Plaintiffs apparently concede would not apply to preference or equitable
subordination claims, fails for at least two reasons.
First, binding and applicable Second Circuit law, including Vintero and Whiteford
Plastics, requires that Plaintiffs demonstrate that the Obligor Debtors’ creditors will benefit from
the prosecution of this lawsuit in order to establish standing under the Bankruptcy Code’s
avoidance statutes.31 See, e.g., Vintero Corp. v. Corporacion Venezolana De Fomento (In re
Vintero Corp.), 735 F.2d 740, 742 (2d Cir. 1984);, Whiteford Plastics, 179 F.2d at 584 (holding
that “[i]t would be [a] mockery of justice to say that the alleged bankrupt may claim through and
in the right of creditors whose debts have been paid and discharged; that he may avoid a
transaction, valid as to himself but voidable as to creditors, in the right of non-existing
creditors”). Notwithstanding Plaintiffs’ empty contention that this binding precedent was
somehow abrogated by Congress’ enactment of the Bankruptcy Code (Pls.’ Opp. at 59 n.42),
courts in this District continue to routinely apply the principles underlying Vintero and Whiteford
Plastics long after the Bankruptcy Code’s enactment. See Balaber-Strauss v. Town of Harrison
(In re Murphy), 331 B.R. 107, 122 (Bankr. S.D.N.Y. 2005) (applying Vintero and holding that
avoidance actions can only be pursued if there is some benefit to creditors); In re Crowthers
McCall Pattern, Inc., 120 B.R. 279, 285 n.7 (Bankr. S.D.N.Y. 1990) (applying Whiteford
30 They then go on to assert that while Section 550 of the Bankruptcy Code (the recovery statute) would require
them to show a benefit to the estate in order to “recover” any transfer they avoid, they will never need to invoke that
statute because the Plan requires the banks to affirmatively disgorge the value of any avoided obligations, thus
obviating the need to rely on the “recovery” provision of Section 550. This, they conclude, provides them a
loophole so that they need not ever show that the Obligor Debtors’ estates will benefit from their pursuit of the
bankruptcy claims. Pls.’ Opp. at 58.
31 Plaintiffs claim that the CBNA Lenders “seize upon six words in section 550 of the Bankruptcy Code (the
section that prescribes various remedies for recovery of avoided transfers ) — ‘for the benefit of the estate’” to argue
that fraudulent conveyance actions must be brought for the benefit of unpaid creditors. Pls.’ Opp. at 44-45. The
CBNA Lenders do no such thing. In fact, their motions are clear that the requirement that avoidance benefit
creditors derives from Second Circuit law, not from Section 550 of the Bankruptcy Code. See, e.g., CCH Mot. at
32-35, 43-45.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 53 of 55
-46-
K&E 12589418.16
Plastics to hold that avoidance actions cannot be brought to provide recovery to shareholders); In
re RCM Global Long Term Capital Appreciation Fund, 200 B.R. 514, 523 (Bankr. S.D.N.Y.
1996) (applying Vintero and Whiteford Plastics to hold that “where avoidance would benefit
only the equity, the debtor in possession lacks standing to maintain a fraudulent conveyance
action”); In re Liggett, 118 B.R. 219, 222 (Bankr. S.D.N.Y. 1990) (applying Whiteford Plastics
and Vintero and recognizing that “it is well settled in the Second Circuit, that avoiding powers
may be exercised by a debtor in possession only for the benefit of creditors, and not for the
benefit of the debtor itself”). See also Pls.’ Opp. at 51 (citing NextWave, 235 B.R. at 308 (Bankr.
S.D.N.Y.) (noting it would be “inappropriate to use the avoiding powers if the benefit accrued
only to the equity”)).32 See also CCH Mot. at 46 (courts will not read the Bankruptcy Code to
abrogate earlier bankruptcy practice absent a clear directive from Congress, which is not present
here). This Court, too, is bound to apply these principles and follow this established precedent.33
Second, even assuming that Plaintiffs have correctly construed the statutory standing
requirements for fraudulent conveyance actions, they must still separately establish constitutional
standing. See Raines v. Byrd, 521 U.S. 811, 820 n.3 (1997) (“It is settled that Congress cannot
erase Article III’s standing requirements by statutorily granting the right to sue to a plaintiff who
would not otherwise have standing.”). To do so, they must demonstrate that prosecution of the
fraudulent conveyance actions will effectively redress an injury suffered by the Obligor Debtors’
creditors. Here, where the Plan specifically assigns the proceeds of any recovery Plaintiffs
obtain to the beneficiaries of the CVV, none of whom include the Obligor Debtors’ creditors,
32 Plaintiffs assert that the CBNA Lenders did not cite any post-Bankruptcy Code cases in their motions that would
require a transferor debtor to establish that its avoidance action would benefit one or more of its creditors. To the
contrary, the CBNA Lenders cite cases for this proposition throughout. CCH Mot. at 30-43; Pls.’ Opp. at 59.
33 The Second Circuit precedent is, in fact, well founded in the law. As the CBNA Lenders discussed at length in
their moving papers, the fact that the recovery provision of the Bankruptcy Code (Section 550) uses the words “for
the benefit of the estate,” while the avoidance provisions (Sections 544 and 548) do not, does not mean that
Congress intended to allow a debtor a do-over (at the expense of parties with whom it did business) when that do-
over would do nothing to benefit an injured creditor. CCH Mot. at 39.
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 54 of 55
-47-
K&E 12589418.16
they cannot do so. See CCH Mot. at 37. Because Plaintiffs cannot establish constitutional
standing, their bankruptcy claims must be dismissed.
CONCLUSION
For the reasons set forth above and in the CBNA Lenders opening briefs, the Court
should dismiss Counts 1-12, 33, 41, 42, 50-52 of Plaintiffs’ Second Amended Complaint.
Dated: March 31, 2008
/s/ Richard L. Wynne
Richard L. Wynne (S.B.N. 120349)
KIRKLAND & ELLIS LLP
Citigroup Center
153 East 53rd Street
New York, New York 10022-4675
Richard L. Wynne (RW 5630)
Bennett L. Spiegel (BS7153)
-and-
777 South Figueroa Street
Los Angeles, California 90017
Telephone: (213) 680-8400
Facsimile: (213) 680-8500
Melissa D. Ingalls (admitted pro hac vice)
Erin N. Brady (admitted pro hac vice)
Laura A. Thomas (admitted pro hac vice)
Attorneys for The Non-Agent Lenders
Case 1:05-cv-09050-LMM -RLE Document 647 Filed 03/31/08 Page 55 of 55
