In re Houston Regional Sports Network, L.P.
505 B.R. 468
Bankr. S.D. Tex.2014Background
- Houston Regional Sports Network, L.P. (the Network) is a Delaware limited partnership owned by the Astros, the Rockets, and a Comcast affiliate; its primary assets are media-rights agreements with the Astros and Rockets.
- Comcast affiliates (initially Comcast Services and Comcast Lender, among others) filed an involuntary Chapter 11 petition after the Network defaulted on media-rights payments to the Astros; the Network did not answer.
- Three additional creditors (two Rockets affiliates and the landlord HP Fannin) joined the petition; the Astros moved to dismiss arguing bad faith and futility of reorganization.
- The bankruptcy court found five creditors held undisputed, noncontingent claims sufficient to sustain an involuntary petition and that the joinders by the later creditors were in good faith.
- The court credited evidence that (1) the Network owns valuable media rights that can be operated profitably, (2) absent bankruptcy the Astros likely would terminate media-rights agreements leaving the Network insolvent, and (3) the petitioning creditors sought to preserve estate value.
- The court entered an order for relief, rejecting the Astros’ arguments that (a) the petition was filed in bad faith and (b) reorganization would be futile because the Astros could veto any plan or avoid fiduciary duties.
Issues
| Issue | Plaintiff's Argument (Astros) | Defendant's Argument (Petitioning Creditors) | Held |
|---|---|---|---|
| Whether statutory requirements for an involuntary petition were met | Petition invalid because of Comcast orchestration and governance restrictions | Five creditors held noncontingent, undisputed claims aggregating over statutory threshold | Petition satisfied §303(b)/(c); relief ordered |
| Standing to contest the petition | Astros (as partner/creditor) may contest due to practical control/deadlock concerns | Only debtor or general partner may contest; no deadlock prevented answering | Astros lacked standing; Network’s non-answer deemed admission under §303(h) |
| Subjective bad faith (was petition filed to harm Astros or circumvent governance) | Petition was an improper "end run" around unanimous-consent provisions and orchestrated by Comcast | Petitioning creditors filed to preserve estate value and enable rehabilitation | No subjective bad faith; filing aimed to preserve value; later joinders not tainted |
| Objective bad faith / futility of reorganization | Reorganization futile because Astros’ appointed director can veto any plan and owes no fiduciary duty to estate | Bankruptcy imposes fiduciary duties on debtor-in-possession/officers/directors; veto threats unsupported by record | Futility rejected: directors owe fiduciary duties post-relief; Astros’ veto threat not shown; reorganization possible |
Key Cases Cited
- In re Sims, 994 F.2d 210 (5th Cir. 1993) (standard for what constitutes a bona fide dispute to defeat an involuntary petition)
- B.D.W. Assocs. v. Busy Beaver Bldg. Ctrs., 865 F.2d 65 (3d Cir. 1989) (definition of bona fide dispute)
- Fetner v. Haggerty, 99 F.3d 1180 (D.C. Cir. 1996) (additional petitioning creditors not automatically tainted by original petitioners’ alleged bad faith)
- In re Southmark Corp., 163 F.3d 925 (5th Cir. 1999) (debtors-in-possession and managers bear fiduciary duties in bankruptcy)
- Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343 (1985) (bankruptcy changes corporate relationships and places fiduciary duties on estate managers)
- Cunningham v. Healthco, Inc., 824 F.2d 1448 (1st Cir. 1987) (debtor-in-possession assumes fiduciary duties analogous to a trustee)