Adelphia Recovery Trust v. Goldman, Sachs & Co., et al., No. 11-1858 (2d Cir. 2014)
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Adelphia Recovery Trust, an entity created to represent the non-whole creditors of a debtor corporation that was part of a bankruptcy proceeding, appealed from a grant of summary judgment dismissing its fraudulent conveyance claim against Goldman. The court affirmed on the grounds of judicial estoppel, concluding that, in such a fraudulent conveyance claim, the Trust may recover only property owned by the parent-company debtor. The various schedules and Chapter 11 plan, which were consummated with the agreement of the Trust and its predecessors in interest in the bankruptcy proceeding, all treated the property transferred as owned by a separate subsidiary.
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11-1858-cv Adelphia Recovery Trust v. Goldman, Sachs & Co., et al. 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2011 4 5 (Argued: April 25, 2012 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Decided: April 4, 2014) Docket No. 11-1858-cv - - - - - - - - - - - - - - - - - - - - - - - - - - - - ADELPHIA RECOVERY TRUST, AKA THE ADELPHIA CONTINGENT VALUE VEHICLE, Plaintiff-Counter-Defendant-Appellant, ADELPHIA COMMUNICATIONS CORP., AND ITS AFFILIATED DEBTORS AND DEBTORS IN POSSESSION, OFFICIAL COMMITTEE OF EQUITY SECURITY HOLDERS OF ADELPHIA COMMUNICATIONS CORP., OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF ADELPHIA COMMUNICATIONS CORP., Plaintiffs-Counter-Defendants, v. GOLDMAN, SACHS & CO., Defendant-Appellee, HARRIS NESBITT CORP., DEUTSCHE BANK AG, BANK OF NEW YORK COMPANY, INC., DAI-ICHI KANGYO BANK, LTD., THE INDUSTRIAL BANK OF JAPAN, LIMITED, IBJ WHITEHALL FUNDING 2001 TRUST, MIZUHO CORPORATE BANK, LTD., J.P. MORGAN SECURITIES, INC., MOUNTAIN CAPITAL CLO I, MOUNTAIN CAPITAL CLO II, UBS AG, MELLON BANK, N.A., J.P. MORGAN SECURITIES, INC., DEUTSCHE BANK AG, J.P. MORGAN CHASE BANK, N.A., NATIONWIDE LIFE INSURANCE COMPANY, NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY, NATIONWIDE MUTUAL INSURANCE COMPANY, MARATHON SPECIAL OPPORTUNITY MASTER FUND, LTD., SPRUGOS INVESTMENTS IV, L.L.C., BNP PARIBAS, FIRST HAWAIIAN BANK, NON-AGENT LENDERS, PUTNAM DIVERSIFIED INCOME TRUST, PUTNAM HIGH YIELD ADVANTAGE FUND, PUTNAM HIGH YIELD TRUST, PUTNAM MASTER INCOME TRUST, PUTNAM MASTER INTERMEDIATE INCOME TRUST, PUTNAM PREMIER INCOME TRUST, PUTNAM VARIABLE TRUST PVT DIVERSIFIED INCOME FUND, PUTNAM VARIABLE TRUST PVT HIGH YIELD FUND, PUTNAM FLOATING RATE INCOME FUND, PUTNAM FUNDS TRUST-PUTNAM HIGH YIELD TRUST II, PUTNAM HIGH YIELD FIXED INCOME FUND, PUTNAM HIGH YIELD MANAGED TRUST, PUTNAM 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 MANAGED HIGH YIELD TRUST, PUTNAM STRATEGIC INCOME FUND, TRAVELERS SERIES FUND, INC.-PUTNAM, KZH HOLDING CORPORATION III, KZH CYPRESS TREE-1 LLC, KZH III LLC, KZH ING-2 LLC, KZH LANGDALE LLC, KZH PONDVIEW LLC, KZH SHOSHONE LLC, KZH WATERSIDE LLC, KZH CNC LLC, KZH HIGHLAND-2 LLC, KZH ING-1 LLC, KZH ING-3 LLC, KZH PAMCO LLC, KZH SOLEIL-2 LLC, KZH STERLING LLC, KZH RIVERSIDE LLC, KZH SOLEIL LLC, MERRILL LYNCH PIERCE, FENNER & SMITH INCORPORATED, MERRILL LYNCH CREDIT PRODUCTS LLC, MIZUHO GLOBAL LIMITED, APEXTRIMARAN-CDO I, LTD., CARAVELLE INVESTMENT FUND, L.L.C., CARAVELLE INVESTMENT FUND II, L.L.C., GOLDMAN SACHS CREDIT PARTNERS, L.P., SEI INSTITUTIONAL INVESTMENTS TRUST AND THE SEI INSTITUTIONAL MANAGED TRUST, FIFTH THIRD BANK, FLEET NATIONAL BANK, BANK OF TOKYOMITSUBISHI TRUST COMPANY, N/K/A BANK OF TOKYO-MITSUBISHI UFJ TRUST COMPANY, MITSUBISHI UFJ TRUST AND BANKING CORPORATION, HALCYON FUND, L.P., EXIS HOLDING LTD., RBS CITIZENS, N.A., KZH ENTITIES, DEUTSCHE BANK AG NEW YORK BRANCH, HCM/Z SPECIAL OPPORTUNITIES LLC, PHOENIX-GOODWIN HIGH YIELD FUND, BNY MELLON CAPITAL MARKETS, LLC, CITIGROUP GLOBAL MARKETS INC., BANK OF TOKYOMITSUBISHI TRUST COMPANY, MITSUBISHI TRUST AND BANKING CORPORATION, CIBC WORLD MARKETS INC., CREDIT SUISSE, NEW YORK BRANCH, SUNTRUST ROBINSON HUMPHREY, INC., CREDIT SUISSE CAPITAL FUNDING, INC., THE BANK OF NEW YORK MELLON, SOCIETE GENERALE, COWEN AND COMPANY, LLC, BMO CAPITAL MARKETS CORP., SUN TRUST BANK, BANK OF AMERICA SECURITIES LLC, Defendants, THE FUJI BANK, LIMITED, THE TORONTO-DOMINION BANK, Defendants-Consolidated-Defendants, TORONTO DOMINION (TEXAS) LLC, THE BANK OF NOVA SCOTIA, CREDIT SUISSE (USA), INC., TD SECURITIES (USA) LLC, Defendants-Consolidated-Defendants-Counter-Claimants, BANK OF AMERICA, N.A., INDOSUEZ CAPITAL FUNDING IIA, LTD., LCM I LIMITED PARTNERSHIP, CALYON NEW YORK BRANCH, CALYON SECURITIES (USA), INC., LIMITED AND INDOSUEZ CAPITAL FUNDING VI, LTD., BANK OF NEW YORK CAPITAL MARKETS, INC., HSBC BANK USA, NATIONAL ASSOCIATION, BANK OF MONTREAL, CITIBANK, N.A. AND CITICORP USA, INC., BARCLAYS BANK PLC, PNC BANK, N.A., DEUTSCHE BANK TRUST COMPANY AMERICAS, SOCIETE GENERALE, S.A., MERRILL LYNCH & CO., INC., MERRILL LYNCH CAPITAL CORP., BANK OF NEW YORK, ABN AMRO BANK, N.V., COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., RABOBANK NEDERLAND NEW YORK BRANCH, MORGAN STANLEY SENIOR FUNDING, INC., Defendants-Counter-Claimants, WACHOVIA BANK, NATIONAL ASSOCIATION, Defendant-Bankruptcy-Movant-Counter-Claimant, 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 WACHOVIA CAPITAL MARKETS LLC, CITIGROUP GLOBAL MARKETS HOLDINGS, INC., COWEN & CO., LLC, SCOTIA CAPITAL (USA), INC., Consolidated-Defendants-Counter-Claimants, CITIGROUP FINANCIAL PRODUCTS, INC., Consolidated-Defendant, ABN AMRO INC., DEUTSCHE BANK SECURITIES, INC., FLEET SECURITIES, INC., CIBC WORLD MARKETS CORP., MORGAN STANLEY & CO. INCORPORATED, BARCLAYS CAPITAL INC., SUNTRUST CAPITAL MARKETS, INC., BANC OF AMERICA SECURITIES LLC., PNC CAPITAL MARKETS LLC, CIBC INC., BMO CAPITAL MARKETS FINANCING, INC., SUNTRUST BANK, THE ROYAL BANK OF SCOTLAND PLC, Counter-Claimants. - - - - - - - - - - - - - - - -- - - - - - - - - - - - B e f o r e: WINTER, WALKER, and CABRANES, Circuit Judges. Appeal from a judgment of the United States District Court 21 for the Southern District of New York (Lawrence M. McKenna, 22 Judge) granting summary judgment to defendant-appellee Goldman, 23 Sachs & Co. and dismissing Adelphia Recovery Trust s fraudulent 24 conveyance claim brought pursuant to 11 U.S.C. § 548(a)(1)(A). 25 We affirm on grounds of judicial estoppel. 26 27 28 29 30 31 32 33 34 35 36 37 38 39 DAVID M. FRIEDMAN (Michael C. Harwood & Howard W. Schub, on the brief), Kasowitz, Benson, Torres & Friedman, LLP, New York, NY, for PlaintiffCounter-Defendant-Appellant. MELVIN A. BROSTERMAN (Claude G. Szyfer and Francis C. Healy, on the brief), Stroock & Stroock & Lavan LLP, New York, NY, for Defendant-Appellee. WINTER, Circuit Judge: The Adelphia Recovery Trust, an entity created to represent 40 the non-whole creditors of a debtor corporation that is party to 41 a bankruptcy proceeding described below, appeals from Judge 42 McKenna s grant of summary judgment dismissing its fraudulent 43 conveyance claim against Goldman, Sachs & Co. In such a 1 fraudulent conveyance claim, the Trust may recover only property 2 owned by the parent-company debtor. 3 Chapter 11 plan, which were consummated with the agreement of 4 appellant and its predecessors in interest in the bankruptcy 5 proceeding, all treated the property transferred as owned by a 6 separate subsidiary. 7 judicial estoppel. 8 9 The various schedules and We, therefore, affirm on grounds of BACKGROUND Adelphia Communications Corp. ( ACC ) was the parent company 10 of some 200 holding and operating subsidiaries (collectively, 11 Adelphia ). 12 cable company in the United States. 13 publicly traded company, was founded by John Rigas in 1986, and 14 members of the Rigas family held several top positions at ACC. 15 After ACC disclosed that it had several billion dollars in 16 fraudulently concealed, off-balance-sheet debt, Rigas family 17 members were forced to resign from their positions and faced 18 various civil and criminal actions. 19 Rigas, 490 F.3d 208 (2d Cir. 2007). 20 At its peak, Adelphia formed the fifth-largest ACC, at all relevant times a See, e.g., United States v. On June 25, 2002, ACC and its subsidiaries entered 21 bankruptcy under Chapter 11. Pursuant to an ensuing plan of 22 reorganization, substantially all assets of ACC and its 23 subsidiaries were liquidated, and all secured creditors of ACC 24 and its subsidiaries were paid in full. 25 unsecured debt of the subsidiaries was also paid in full with 26 interest, and a portion of ACC s unsecured debt was paid. 4 In addition, all Those 1 creditors of ACC who were not paid in full received an interest 2 in any remaining assets that appellant can recover. 3 In July 2003, appellant s predecessor in interest filed suit 4 against over 400 lenders, investment banks, and other financial 5 institutions, seeking damages for their alleged participation in 6 the Rigas family fraud. 7 against Goldman, Sachs & Co. ( Goldman ).1 8 9 This action included the present action Appellant s action against Goldman alleges a fraudulent conveyance under 11 U.S.C. §§ 548(a)(1)(A) and 550(a). It arose 10 out of a 1999 multi-million margin loan that Goldman had extended 11 to Highland Holdings II LLP ( Highland ), an entity owned by the 12 Rigas family (a Rigas family entity, or RFE ) unconnected to 13 Adelphia. 14 Highland, was allegedly used by the Rigases to purchase 15 additional ACC stock and thereby to maintain their control over 16 Adelphia. 17 disclosure of the fraudulent concealment of debt in 2002, Goldman 18 issued several margin calls to Highland. 19 that the Rigases caused ACC to make cash payments of $63 million 20 to cover these margin calls. The loan, which was secured by ACC stock owned by As ACC s stock price decreased following the 1 The complaint alleged On June 17, 2008, the claims asserted on behalf of ACC subsidiary debtors, who had already been paid in full, were dismissed for lack of standing. Adelphia Recovery Trust v. Bank of Am., N.A., 390 B.R. 80, 97 (S.D.N.Y. 2008). The remaining claims were ultimately settled or dismissed against all defendants other than Goldman, Sachs & Co. Although Goldman had also moved for dismissal of the claim against it, the district court allowed the claim to continue to summary judgment to determine whether the source of the payments to Goldman was ACC or a subsidiary. 5 1 Appellant s allegations against Goldman were amended several 2 times at the suggestion of the district court. The court was 3 concerned that [t]he Amended Complaint does not identify which 4 fraudulent conveyances came from ACC and which came from the 5 [subsidiaries]. 6 lacks standing to pursue claims to recover for fraudulent 7 conveyance on behalf of the [subsidiaries]. 8 Trust v. Bank of Am., N.A., No. 05-civ-9050, 2009 WL 1676077, at 9 *2 (S.D.N.Y. June 16, 2009). This omission is significant because [appellant] Adelphia Recovery The district court, therefore, 10 directed appellant to submit a revised version of paragraph 1359 11 of the Amended Complaint. 12 which payments to [Goldman] came from ACC. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 The revised paragraph should identify Id. Pursuant to this order, appellant submitted a revised version of the complaint that alleged, in relevant part: [T]he Rigases caused ACC to commingle funds in the concentration account that it controlled, in the name of [a subsidiary] Adelphia Cablevision LLC, from such sources as customer receipts, liquidation of overnight investment accounts, and transfers from various subsidiary entities . . . in order to satisfy these margin calls. On each date identified in the following charts, the Rigases caused ACC to direct that the funds it had gathered in the concentration account be distributed by Adelphia Cablevision LLC directly to the Margin Lenders or to the RFE for immediate payment over to the Margin Lenders. Rev. Second Am. Compl. ¶ 1359. It appears from this allegation and the record that the pertinent payments were made either: 6 (i) directly to Goldman 1 from a particular account (the Concentration Account ), which 2 contained most of the funds in the cash management system through 3 which the collective cash of ACC and its subsidiaries was 4 managed; or (ii) indirectly from the Concentration Account 5 through an RFE and then to Goldman. 6 action to recover $63 million. 7 Appellant seeks in this In the district court, and here, appellant faced the problem 8 that the payments to Goldman were made in the name of the 9 subsidiary, Adelphia Cablevision LLC, that held the Concentration 10 Account and that has paid all its scheduled creditors, which did 11 not include ACC, in full. 12 to sue the subsidiary. 13 allegation quoted above, that ACC was the real owner of, and 14 payor from, the Concentration Account. 15 v. Bank of Am., N.A., No. 05-cv-9050, 2011 WL 1419617 at *2 16 (S.D.N.Y. Apr. 7, 2011). 17 granted Goldman s motion for summary judgment. 18 stated, it is admitted by [appellant s] own revised pleading 19 that the margin loan payments were not made by ACC but by 20 Adelphia Cablevision LLC, an ACC subsidiary on whose behalf 21 [appellant] does not have standing to sue. 22 23 24 25 Accordingly, appellant lacked standing It therefore argued, based on the amended Adelphia Recovery Trust The district court disagreed and Id. The court Id. This appeal followed. DISCUSSION We review de novo whether Goldman was entitled to summary judgment as a matter of law. See, e.g., Miller v. Wolpoff & 7 1 Abramson, L.L.P., 321 F.3d 292, 300 (2d Cir. 2003); Mario v. P&C 2 Food Mkts., Inc., 313 F.3d 758, 763 (2d Cir. 2002). 3 The sole issue is whether the amended complaint states a 4 valid claim of a fraudulent conveyance under 11 U.S.C. 5 §§ 548(a)(1)(A) and 550(a). 6 relevant part: Section 548(a)(1)(A) provides, in 7 8 9 10 11 12 13 14 15 16 17 18 19 The trustee may avoid any transfer . . . of an interest of the debtor in property . . . that was made or incurred on or within 2 years before the date of the filing of the [bankruptcy] petition, if the debtor voluntarily or involuntarily . . . made such transfer . . . with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made[,] . . . indebted. 11 U.S.C. § 548(a)(1)(A). 20 to transfers of property of the debtor, Begier v. IRS, 496 U.S. 21 53, 58 (1990), which includes all legal or equitable interests 22 of the debtor in property as of the commencement of the case, 11 23 U.S.C. § 541(a)(1). 24 were transfers of the property of ACC, or should be deemed to be 25 so, is the issue on appeal. The avoidance power thus applies only Whether the margin loan payments to Goldman 26 Appellant argues that we should follow decisions of the 27 Fifth and Tenth Circuits, Matter of Southmark Corp., 49 F.3d 1111 28 (5th Cir. 1995) and In re Amdura Corp., 75 F.3d 1447 (10th Cir. 29 1996), to determine whether ACC was the true owner of the 30 commingled Concentration Account. 31 to support a principle of attributing ownership of funds 32 aggregated in a communal account to a parent when the parent 8 Together, these cases are said 1 exercises complete dominion over the funds, and has all legally 2 cognizable indicia of ownership. 3 determined that because Southmark owned and controlled the cash 4 management account, the subsidiary s settlement payment from that 5 account to its former president and director could be avoided by 6 Southmark because the funds were part of, and under complete 7 control by, Southmark s estate. 8 the court held that funds in a commingled cash management account 9 belonged to the parent Amdura, even though subsidiaries had 10 contributed to the account, because Amdura was listed as the 11 owner and possessed all other legally cognizable indicia of 12 ownership. 13 In Southmark, the court 49 F.3d at 1117. And in Amdura, 75 F.3d at 1451. However, neither decision was rendered in a legal context 14 similar to the one before us or involved application of the 15 judicial estoppel doctrine. 16 proceedings here, the Concentration Account was listed as an 17 asset only of two successive ACC subsidiaries, not the property 18 of ACC. 19 the property of ACC appeared for the first time late in the 20 present litigation, as described above, and well after 21 consummation of the plan of reorganization. 22 23 Throughout the reorganization The theory that the Concentration Account was actually Appellant s (or its predecessors in interest) position in the bankruptcy proceedings regarding ownership of the account is 9 1 inconsistent with the claim it makes on appeal.2 2 importance to bankruptcy proceedings of determining with finality 3 a debtor s ownership of particular assets, we hold that 4 appellants are estopped from pursuing a claim that would 5 reattribute asset ownership based on a determination of asset 6 ownership among the various entities agreed to by the pertinent 7 parties, after a plan of reorganization has been confirmed and 8 substantially consummated. 9 a) Principles of Judicial Estoppel Given the 10 In New Hampshire v. Maine, the Supreme Court made clear that 11 the exact criteria for invoking judicial estoppel will vary based 12 on specific factual contexts, and that courts have uniformly 13 recognized that its purpose is to protect the integrity of the 14 judicial process by prohibiting parties from deliberately 15 changing positions according to the exigencies of the moment. 16 532 U.S. 742, 749-51 (2001) (internal citations and quotation 17 marks omitted). 18 19 20 New Hampshire explains that, Courts have observed that the circumstances under which judicial estoppel may appropriately be invoked are probably not 2 Attribution of the Concentration Account to ACC required an explicit claim of ownership by ACC in the bankruptcy proceeding. First, bank statements listed the account holder s Taxpayer ID Number as that corresponding to the ACC subsidiary National Cable Acquisition Associates. Second, within Adelphia the Concentration Account was referred to as the Adelphia Cablevision (an ACC subsidiary) account, and Adelphia Cablevision was the entity that made and received payments involved with the Account. Finally, any of ACC, its subsidiaries, or RFEs could direct that money be paid from the Account on their behalf by wire or check regardless of how much they had contributed to the account, and if at any time the payments on behalf of these entities exceeded the entity s contribution to the Account, an intercompany payable to Adelphia Cablevision by those entities was created. 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 reducible to any general formulation of principle. Nevertheless, several factors typically inform the decision whether to apply the doctrine in a particular case: First, a party s later position must be clearly inconsistent with its earlier position. Second, courts regularly inquire whether the party has succeeded in persuading a court to accept that party s earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled. . . . A third consideration is whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. In enumerating these factors, we do not establish inflexible prerequisites or an exhaustive formula for determining the applicability of judicial estoppel. Id. at 750-51. (internal citations and quotation marks omitted). 24 Although we have recognized that [t]ypically the application of 25 judicial estoppel requires showing unfair advantage against the 26 party seeking estoppel, DeRosa v. Nat l Envelope Corp., 595 F.3d 27 99, 103 (2d Cir. 2010) (requiring a party to show a clearly 28 inconsistent position, adoption of that position by a court in an 29 earlier proceeding, and unfair advantage against the party 30 seeking estoppel in the ADA context), we have not required this 31 element in all circumstances. See Maharaj v. BankAmerica Corp., 32 128 F.3d 94, 98 (2d Cir. 1997) (not requiring the element of 33 unfair advantage); Mitchell v. Washingtonville Cent. Sch. Dist., 34 190 F.3d 1, 6 (2d Cir. 1999) (same). 35 Hampshire s admonishment that the application of the judicial 36 estoppel doctrine depends heavily on the specific factual 37 context[] before the court. 531 U.S. at 751. 11 This is consistent with New We do note, 1 though, that every case emphasizes that [b]ecause the doctrine 2 is primarily concerned with protecting the judicial process, 3 relief is granted only when the risk of inconsistent results with 4 its impact on judicial integrity is certain. Republic of Ecuador 5 v. Chevron Corp., 638 F.3d 384, 397 (2d Cir. 2011) (internal 6 quotation marks omitted). 7 Our holding in this regard is shaped by the context of a 8 complicated bankruptcy proceeding involving 250 related, 9 insolvent entities, and the risk to judicial integrity if we were 10 to allow a party, after the consummation of a bankruptcy, to take 11 a position that unravels key decisions in the proceedings. 12 first turn to a description of the legal mechanics of such a 13 proceeding. 14 b) The Bankruptcy Context We 15 Following a filing for Chapter 11 bankruptcy reorganization, 16 the debtor must file a list of creditors[,] a schedule of assets 17 and liabilities[,] a schedule of current income and current 18 expenditures[, and] a statement of the debtor s financial 19 affairs. 20 exclusive period in which to submit a plan of reorganization, 11 21 U.S.C. § 1121(b), and a disclosure statement containing adequate 22 information to allow interested parties to evaluate that plan. 23 11. U.S.C. § 1125(a)-(b). 24 asset schedules. 25 Co., 948 F.2d 869, 873 (2d Cir. 1991); see also Chartschlaa v. 26 Nationwide Mut. Ins. Co., 538 F.3d 116, 122 (2d Cir. 2008) (The 11 U.S.C. § 521(a)(1). The debtor is given a 120-day This plan includes items like complete See Sure-Snap Corp. v. State St. Bank & Trust 12 1 bankruptcy estate includes all legal or equitable interests of 2 the debtor in property as of the commencement of the case and 3 [i]t would be hard to imagine language that would be more 4 encompassing than this broad definition. (internal citations and 5 quotation marks omitted)). 6 The debtor is given 180 days, extendable up to 20 months by 7 the court, from filing for Chapter 11 relief in which to obtain 8 the approval of each class of claims or interests that is 9 impaired under the plan. 11 U.S.C. § 1121(c)-(d). If the debtor 10 fails to file a plan or the debtor s exclusive filing period 11 expires without acceptance of a proposed plan by the parties in 12 interest, any party in interest can file a competing plan and 13 seek approval by the parties in interest. 14 Both the debtor s plan and any competing plan must meet various 15 mandatory provisions and may meet various discretionary 16 provisions. 17 mandatory requirements is that the plan designate classes of 18 claims and classes of interests and specify how these classes 19 will be treated under the plan. 20 11 U.S.C. § 1121(c). 11 U.S.C. §§ 1122, 1123(a), (b). Foremost among the 11 U.S.C. §§ 1122, 1123(a). Once a conforming plan has been proposed, parties in 21 interest can vote to approve it. 22 one class of impaired non-insider claims -- claims that will not 23 be paid completely or will have some other right altered under 24 the plan -- the court can confirm the plan and bind all creditors 25 if the plan is feasible, was proposed in good faith, and is in 26 compliance with the Bankruptcy Code. 13 Following approval by at least 11 U.S.C. § 1129(a)(10), 1 (b); Fed. R. Bankr. P. 3020(b)(2). 2 the debtor is discharged from any prepetition debts, subject to 3 specific exceptions not relevant here, as long as the confirmed 4 bankruptcy plan is followed. 5 c) Application of Judicial Estoppel 6 Once the plan is confirmed, 11 U.S.C. §§ 1141(d)(1), 523. As the recitation of bankruptcy procedures and time frames 7 makes clear, debtors and creditors have ample periods of time 8 within which to finalize asset ownership schedules and fashion a 9 plan dependent upon those schedules. 10 In the present case, ACC filed for bankruptcy on June 25, 11 2002; the ultimately-confirmed plan was proposed on October 16, 12 2006; and the plan was confirmed on January 5, 2007, leaving over 13 four and a half years to sort out whether ACC or a subsidiary 14 owned the Concentration Account assets. 15 proceedings did ACC or any party attribute ownership of the 16 Concentration Account assets to ACC. 17 filing and again in February 2004, the ACC subsidiary ACC 18 Operations, Inc. identified the Concentration Account as its 19 property; ACC did not. 20 liabilities in January and May 2005 listed the ACC subsidiary 21 Adelphia Cablevision as the owner of the Account in concluding 22 that intercompany transfers between a Debtor on the one hand, 23 and Adelphia Cablevision [as owner of the Concentration Account] 24 on the other hand, have been netted in the Intercompany Schedule, 25 creating either a net payable or receivable intercompany balance 26 between each such Debtor and Adelphia Cablevision. At no time during these At the time of bankruptcy Amendments to the schedules of 14 ACC never 1 claimed the Account as one of its assets until such a claim of 2 ownership was asserted in the present proceeding in 2009. 3 did any other party assert such a claim or seek a substantive 4 consolidation of ACC and Adelphia Cablevision s bankruptcies, as 5 permitted in bankruptcy proceedings to remedy circumstances where 6 formally separate entities commingle and subject their collective 7 assets to single control. 8 860 F.2d 515, 518-19 (2d Cir. 1988). 9 Nor See In re Augie/Restivo Baking Co., Further, the bankruptcy plan undeniably was substantially 10 consummated as early as 2007. 11 B.R. 84, 94 (S.D.N.Y. 2007). 12 defined in 11 U.S.C. § 1101(2), requires the transfer of all or 13 substantially all of the property in the plan, assumption by 14 the debtor . . . of all or substantially all of the property 15 dealt with by the plan, and commencement of distribution under 16 the plan. 17 Time Warner shares, and $9.5 billion in tradeable Adelphia 18 Contingent Value Vehicle shares (shares set up as an interest in 19 Adelphia recoveries against third party lenders and accountants) 20 were distributed to claimholders as of early March 2007, just 21 after confirmation of the plan. 22 Adelphia s assets have been liquidated, returning approximately 23 $18 billion to claimholders. 24 In re Adelphia Comm cns Corp., 367 Substantial consummation, as Over $6 billion in cash, $117 million in tradeable Since then, substantially all In the bankruptcy context, whether a party s position with 25 regard to the ownership of assets is inconsistent with its later 26 claims is largely informed by the bankruptcy court s treatment of 15 1 those claims. See Galin v. United States, No. 08-cv-2508, 2008 2 WL 5378387, at *10 (E.D.N.Y. Dec. 23, 2008) ( adoption in 3 judicial estoppel is usually fulfilled . . . when the bankruptcy 4 court confirms a plan pursuant to which creditors release their 5 claims against the debtor (quoting Negron v. Weiss, No. 06-cv- 6 1288, 2006 WL 2792769, at *3 (E.D.N.Y. Sept. 27, 2006))). 7 Determination of the ownership of assets is at the core of the 8 bankruptcy process, and particularly the creation of a bankruptcy 9 reorganization plan, which involves a schedule of all [the 10 debtors ] liquid assets and liabilities, and thereafter 11 operates, with full preclusive effect, to bind its debtors and 12 creditors as to all the plan s provisions, and all related, 13 property or non-property based claims which could have been 14 litigated in the same cause of action. 15 F.2d at 873 (citing 11 U.S.C. §§ 521(a)(1), 1141(a)). Sure-Snap Corp., 948 16 It is therefore crucial, both for the sake of finality and 17 the needs of debtors and creditors, that claims to ownership of 18 various assets be determined in the bankruptcy proceedings. 19 Particularly when, as here, the assets in question were claimed 20 by other parties during the bankruptcy proceeding without 21 objection, a debtor s subsequent claim to those assets in a 22 different proceeding must be seen as inconsistent with its prior 23 silence.3 Cf. Chartschlaa, 538 F.3d at 123 ( The Bankruptcy Code 3 A party may be bound by the position taken by its predecessors in interest in prior proceedings. See, e.g., Secured Equities Invs., Inc. v. McFarland, 753 N.Y.S.2d 264, 264 (4th Dep t 2002)). 16 1 is premised on full and complete disclosure of the debtor s 2 finances. ). 3 involving strategic denials or affirmations of asset ownership 4 timed to the legal exigencies of the moment, precisely what the 5 doctrine is intended to prevent. 6 Any other holding would encourage sharp practices, The bankruptcy court s treatment of the asset schedules in 7 the present matter underlies their importance and the need for 8 finality. 9 Adelphia entities underwent a massive restatement of their In order for the reorganization to proceed, the 10 accounting records, which sought to provide separate, audited 11 financials for each insolvent entity. In re Adelphia, 368 B.R. at 12 150-51. 13 central importance to this process. 14 difficulties the bankruptcy court encountered was the issue of 15 intercompany transfers between the various entities controlled by 16 the Rigas family. See id. at 152. 17 depended on the parties adoption of the so-called Bank of 18 Adelphia Paradigm, 4 which tracked intercompany transfers through 19 a single RFE subsidiary that controlled the main account: 20 Adelphia Cablevision. 21 listed as the owner of the Concentration Account in both the The allocation of assets to the various entities was of One of the foremost The resolution of this problem Id. at 151-53. 4 Adelphia Cablevision was [I]ntercompany transactions (e.g., cash receipts, disbursements, acquisition accounting and cost allocations) were deemed to have been made by or to a single entity, Adelphia Cablevision, LLC (the Bank of Adelphia ). This methodology, often referred to as the Bank of Adelphia Paradigm, aggregated intercompany transaction balances consistent with the actual flow of funds within the Debtor s cash management system. In re Adelphia, 368 B.R. at 151. 17 1 January and May amendments to the debtors schedules of assets 2 and liabilities, and neither ACC nor appellant s predecessors in 3 interest contested that determination. 4 The asset schedules thus played a key role in both the 5 bankruptcy court s supervision of the process and in the parties 6 understanding of the plan. 7 discussion of substantive consolidation, such relief was highly 8 unlikely because the Debtors have issued restated financial 9 statements and filed the May 2005 Schedules, thus evidencing an As the district court noted in its 10 ability to generally determine the assets and liabilities of each 11 Debtor. 12 519) (internal quotation marks omitted). 13 paradigm, which included Adelphia Cablevision s ownership of the 14 account in the asset schedules, was the cornerstone of the 15 bankruptcy plan, and without it the entire process would have 16 been at risk of unraveling. 17 ruling inconsistent with the factual underpinnings of this duly 18 confirmed and substantially consummated bankruptcy plan. 19 Id. at 219 (discussing In re Augie/Restivo, 860 F.2d at The Bank of Adelphia We, therefore, decline to issue a A different ruling would threaten the integrity of the 20 bankruptcy process by encouraging parties to alter their 21 positions as to ownership of assets as they deem their litigation 22 needs to change, leaving courts to unravel previously closed 23 proceedings. 24 play[] fast and loose with the requirements of the bankruptcy 25 process and inject an unacceptable level of uncertainty into its 26 results -- exactly the result that the doctrine of judicial Doing so would allow parties an opportunity to 18 1 estoppel is intended to avoid. Wight v. BankAmerica Corp., 219 2 F.3d 79, 89 (2d Cir. 2000); accord In re Adelphia Recovery Trust, 3 634 F.3d at 696 (integrity of judicial process threatened by 4 parties taking a short term position that risks being 5 inconsistent with its future position, not only by knowingly 6 [lying] ). 7 In relying upon the prospective harm to the integrity of 8 bankruptcy proceedings that would result from a different ruling, 9 we do not exclude the possibility of specific harm, or unfair 10 disadvantage to, Goldman beyond the possible loss of $63 million. 11 We simply decline to require Goldman and the courts having to 12 unravel all previous proceedings to determine what would have 13 happened had appellant or its predecessors in interest claimed 14 ownership of the Concentration Account in a timely fashion. 15 We also do not exclude the possibility that, in an unusual 16 case, the allocation of specific assets may be largely irrelevant 17 to the bankruptcy court s actions. 18 of asset allocation to the integrity of the bankruptcy process, 19 see Chartschlaa, 538 F.3d at 122, particularly where multiple 20 related entities are involved, a creditor who fails to lay claim 21 to an asset in the bankruptcy court only to do so in subsequent 22 litigation must, to prevail, bear the heavy burden of showing a 23 de minimis effect on the bankruptcy proceeding. 24 25 26 However, given the centrality CONCLUSION The requirements of judicial estoppel are, therefore, met. The asset schedules showing that the Concentration Account was 19 1 held by a subsidiary of ACC were approved by appellant s 2 predecessors in interest. 3 schedules and approved a plan of reorganization that treated ACC 4 separately from its subsidiaries based on those schedules. 5 Revisiting the accuracy of those schedules to permit the present 6 action to proceed would clearly threaten the integrity of 7 bankruptcy proceedings. 8 complaint is barred by the doctrine of judicial estoppel. 9 judgment of the district court is affirmed. The bankruptcy court adopted the asset We, therefore, hold that appellant s 10 11 20 The
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