Adelphia liquidating trust

Posted by / 16-Aug-2017 14:26

Adelphia liquidating trust

Doing so would allow parties an opportunity to play fast and loose with the requirements of the bankruptcy process and inject an unacceptable level of uncertainty into its results — exactly the result that the doctrine of judicial estoppel is intended to avoid.

Accordingly, the Second Circuit’s application of judicial estoppel in Adelphia is grounded in the value of finality in the bankruptcy context, which is the same rationale that underpins the doctrine of equitable mootness.

Under the Bankruptcy Code, a Chapter 7 bankruptcy trustee is fortified with all of the rights that the debtor had as of the petition date, which includes all causes of action the debtor could have brought prepetition.

[1] Creative bankruptcy trustees are increasingly asserting claims for contribution under New York statutory law against third parties such as, banks, accountants and attorneys, on behalf of debtors who engaged in fraudulent behavior, such as a ponzi scheme.

In “enumerating these factors,” the Supreme Court made clear that it did not intend to “establish inflexible prerequisites or an exhaustive formula for determining the applicability of judicial estoppel.” Accordingly, its application is highly sensitive to the facts of the particular case at issue. Goldman, Sachs & Co., et al., the Adelphia Recovery Trust (the plan-created litigation trust established for the benefit of the creditors of Adelphia Communications Corp.

(“ACC”), the parent entity of the various Adelphia companies) appealed from the District Court’s dismissal on summary judgment of its fraudulent conveyance action against Goldman Sachs & Co.

[2] Under this theory, even though a third-party may not be directly liable to the wronged investors, and may not owe them a duty of care, the bankruptcy trustee is attempting to seek contribution from the third party for amounts the trustee pays to creditors in satisfaction of the wronged investors’ allowed claims.

[6] The in pari delicto doctrine subjects claims to dismissal based on a premise that (i) courts should not mediate disputes between wrongdoers, and (ii) denying judicial relief to a wrongdoer is an effective means to deter illegal conduct.

It will be interesting to see whether its popularity as a doctrine in the bankruptcy context will increase as a result of this decision.

Further, the decision reminds parties to a restructuring to consider what impact their actions or non-actions in a bankruptcy case may have on future positions the parties may seek to take.

[4] Despite a bankruptcy trustee’s creative pleading, a claim for contribution will likely not survive dismissal in the Second Circuit, mainly because of the well-established Wagoner rule.

rule, which is a variant of New York’s in pari delicto defense.

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The doctrine’s emphasis on the importance of finality to the successful operation of our federal bankruptcy system can be viewed as a pragmatic solution by the appellate courts to the otherwise uncertain, litigious, and time-sensitive nature of a bankruptcy case.

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