Adelphia Recovery Trust v. HSBC Bank USA, National Ass'n
2011 U.S. App. LEXIS 2380
| 2d Cir. | 2011Background
- Adelphia Debtor-in-Possession (D-I-P) sued three Banks (HSBC, Fleet, Key) in their bankruptcy cases for fraudulent conveyance arising from NFHLP loan takeouts and related payments.
- NFHLP assets, including the Buffalo Sabres, were sold in 2003 to Hockey Western free and clear, with Adelphia D-I-P participating as creditor and consenting to the sale structure.
- Adelphia, via Sabres, Inc., paid $34 million to acquire Construction and Revolver Loans; Fleet was cashed out for Concession Loan with an $11 million set-off credit, affecting the sale economics.
- The ART (Adelphia Recovery Trust) asserted that the March 2000 transfers were fraudulent and sought remedies under New York law and federal bankruptcy law; Banks argued settlement and sale terms foreclosed claims.
- Bankruptcy court held Fleet barred but HSBC and Key could proceed; district court reversed in part, applying four doctrines (ratification, res judicata, judicial estoppel, quasi-estoppel) to bar ART claims.
- The Second Circuit affirmed the district court’s ruling, agreeing that res judicata as to Fleet and judicial estoppel as to HSBC/Key were valid, but disallowing blanket ratification as to all claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does ratification bar ART’s claims against HSBC and Key? | ART contends Adelphia D-I-P ratified the transfers to HSBC/Key through silence and acceptance of benefits. | Adelphia D-I-P did not intend to ratify; silence alone cannot bar claims and ratification should not apply to HSBC/Key. | Ratification does not bar ART against HSBC and Key. |
| Does res judicata bar ART’s claims regarding Construction and Revolver Loans? | ART argues no final judgment precludes relief because the asset-sale orders did not resolve fraudulent conveyance remedies. | Res judicata applies to preclude ART’s claims for the same parties and same underlying transaction. | Res judicata does not bar ART against HSBC/Key; it does bar ART against Fleet. |
| Is judicial estoppel available to bar ART’s claims against HSBC and Key? | ART contends estoppel does not apply because the Banks were not misled or altered positions. | Banks were prejudiced by Adelphia’s silence and the court’s reliance on its assertions; estoppel should apply. | Judicial estoppel bars ART’s claims against HSBC and Key. |
| Should quasi-estoppel insulate ART from those claims? | ART contends quasi-estoppel can block inconsistent positions. | Quasi-estoppel is not needed if other doctrines suffice to bar the claims. | Quasi-estoppel not reached; other doctrines suffice. |
Key Cases Cited
- Grace Bank Leumi Trust Co., 443 F.3d 180 (2d Cir. 2006) (fraudulent conveyance remedies and scope of rescission)
- In re Best Prods. Co., 168 B.R. 35 (Bankr. S.D.N.Y. 1994) (ratification concept in fraudulent conveyances)
- New Hampshire v. Maine, 532 U.S. 742 (U.S. 2001) (judicial estoppel elements and integrity of judicial process)
- Geren v. Quantum Chem. Corp., 832 F. Supp. 728 (S.D.N.Y. 1993) (fraudulent conveyance remedies and third-party rights)
- Grace Bank Leumi Trust Co., 443 F.3d 180 (2d Cir. 2006) (see above (duplicate entry kept for completeness in citation set))