Opinion
Case No. 02-10744 (REG) (Jointly Administered)
September 12, 2002
Marcia L. Goldstein, Esq., Robert G. Sugarman, Esq., Sascha N. Rand, Esq., Scott B. Cohen, Esq., Weil Gotshal Manges LLP, New York, New York 10153, Counsel for the Petitioners.
Anne E. Beaumont, Esq., Heather Windt, Esq., Friedman Kaplan Seiler Adelman LLP, New York, New York 10022-6225, Counsel for SISU Capital Limited.
Gregory Petrick, Esq., Richard Nevins, Esq., Cadwalader Wickersham Taft, New York, New York 10038, Counsel for Ad Hoc Committee of Noteholders.
Ira H. Goldman, Esq., Kathleen M. LaManna, Esq., Shipman Goodwin LLP, Hartford, Connecticut 06103-2819, Counsel for the Indenture Trustee.
Carol Neville, Esq., Mathew T. Bergman, Esq., Sonnenschein, Nath Rosenthal, New York, New York 10020-1089, Counsel for Triage Capital Management, L.P.
DECISION ON PERMANENT INJUNCTION
In this case under section 304 of the Bankruptcy Code, in aid of insolvency proceedings in Poland, this Court previously issued a decision, reported at In re Netia Holdings, S.A., 278 B.R. 344 (Bankr. S.D.N.Y. 2002) (the "Preliminary Injunction Decision"), granting the preliminary injunction sought by the Petitioners — the management board of Netia Holdings S.A. ("Netia Holdings"), Netia Telekom S.A. ("Netia Telekom") and Netia South Sp. z.o.o. ("Netia South," and together with the others, the "Foreign Debtors"). See 278 B.R. at 345.
Previously, in another reported decision, the Court denied the motion of the Objecting Bondholders to dismiss the section 304 case, for alleged failure to meet the requirements of section 304(a). See In re Netia Holdings, S.A., 277 B.R. 571 (Bankr. S.D.N.Y. 2002) (the "Dismissal Decision").
Familiarity with each of the Dismissal Decision and Preliminary Injunction Decision is presumed. Those decisions are the best evidence of their content, and generalized references to those decisions here are not intended to trump the decisions themselves in any way.
The preliminary injunction, issued over the objection of two groups of the Foreign Debtors' bondholders (the "Objecting Bondholders"), generally preserved the status quo, protecting a fund in the United States (the "Fund") from being grabbed by the creditors of one issue of the Foreign Debtors' notes (the "2000 Notes") to the exclusion of the Debtors' other creditors. This Court determined that the Foreign Debtors had shown a likelihood of success in their contentions that the Fund, now in the custody of Indenture Trustee State Street Bank and Trust Company ("State Street"), should be available to satisfy the claims of all of the Foreign Debtors' noteholders, over a contention that the Fund was an escrow for the benefit solely of the holders of the 2000 Notes. See id. at 353-355.
Matters as to the remainder of the motion — seeking turnover and permanent injunctive relief — were taken under advisement, and the Court invited any supplemental submissions that the parties might thereafter elect to submit. See id. at 357-358. After consideration of the matters taken under advisement, and the supplemental submissions by the parties — in which, inter alia, the Objecting Bondholders agreed to the preservation of the status quo that the Court previously ordered, and the Foreign Debtors acknowledged that there was no need for an actual turnover at this time — the Court now determines the issues taken under submission, to the extent they appropriately now should be addressed. For the reasons stated below:
(1) permanent injunctive relief preserving the status quo and protecting the Debtors' assets from being taken is granted;
(2) turnover is denied without prejudice, as premature.
The following are the Court's Findings of Fact, Conclusions of Law, and bases for the exercise of its discretion in connection with the permanent injunction.
Facts
The facts found by the Court, which in all material respects were undisputed, were set forth at length in this Court's Dismissal Decision and Preliminary Injunction Decision, and nothing in the parties' supplemental submissions has caused the Court to believe that any of its earlier factual findings were erroneous or unsupported in any way at the time they were made. However, the parties have now provided, in supplemental declarations, additional facts:
Since the earlier briefing in this case, proceedings in Poland now have been "opened," as that term was used in the Dismissal Decision and Preliminary Injunction Decision, with respect to each of the three Foreign Debtors — Netia Telekom, on April 22, 2002; Netia Holdings, on May 15, 2002; and Netia South, on May 20, 2002. There is no basis, accordingly, for this Court to consider what it might have done if the Polish courts had declined to "open" them.
This Court received informal notice of the opening of proceedings for Netia Telekom on the date of the oral argument on the dismissal motion. See Dismissal Decision, 277 B.R. at 579 n. 54. The Court now has proof of the opening for Netia Telekom by declaration, along with proof of the subsequent opening of the other two Foreign Debtors' proceedings.
See Zawadowski Decl. dated June 4, 2002 ("Zawadowski Decl. #4") ¶¶ 5, 6, 7, Exhs. A, B, C; Decl. of Anne E. Beaumont, dated June 4, 2002 ("Beaumont Decl. #3") Exhs. A and B.
It also has been clarified that the Foreign Debtors' proposed Restructuring Agreement contemplates court proceedings (and/or extrajudicial proceedings) which would not take place wholly in Poland, and which contemplate proceedings in the Netherlands (where, at least as of May 30, 2002, they had not yet been commenced), and in the United States. The Court finds that the Restructuring Agreement that was presented to the Polish Court on March 14, 2002 contemplates a number of steps, some involving entities that are not within the Polish court's jurisdiction.
See Decl. of H. W. Vogels, dated May 30, 2002, ¶ 2.
See Decl. of Artur Zawadowski, dated April 17, 2002 ("Zawadowski Decl. #2") at 12; Decl. of Anne Beaumont, dated April 24, 2002 ("Beaumont Decl. #2) Exh. E.
See Petitioners' Reply, ECF #66, at 3.
The earlier facts set forth in the Preliminary Judgment Decision, which will not be repeated at length here, are once more adopted and are incorporated herein by reference, subject to the clarifications and updates in this decision.
Conclusions of Law And Bases for Exercise of Discretion
Each of the two sides has refined its position in respects that narrow the matters in contention at this time. The Objecting Bondholders have stated that:
The composition proceedings that have been opened in Poland with respect to the Foreign Debtors have not yet resulted in any action with respect to the Investment Account. Since there is no action for this Court to aid until a court in Poland takes such action, the Court should continue the preliminary injunction in effect — and therefore maintain the status quo as to the Investment Account — until that time . . . .
(SISU Memorandum of Law, #1, ECF #49, at 2; italics in original); accord id. at 12 ("the Court should maintain the status quo with respect to the Investment Account by keeping the preliminary injunction in place until such time, if any, as a Polish court requires this Court's assistance in the disposition of the Investment Account").
Triage, the other of the Objecting Bondholders, joined in that memorandum, see Triage Joinder, ECF #47, at 1, and expressed similar views. Id. at 2 ("the Court should continue to protect the integrity of the investment account under the terms of the existing injunction, rather than order turnover").
For their part, the Foreign Debtors "do not request the Court to direct turnover of the Funds at this time." Rather, they say, "the Funds should remain in the possession of State Street subject to a permanent injunction."
Petitioners Br. #1, ECF #54, at 2-3.
Id. at 3.
The Court regards the above-quoted statements as (1) a consent by the Objecting Bondholders to a preservation of the status quo, subject to the further order of this Court, and (2) an acknowledgment by the Foreign Debtors that there is no need for the Court to direct turnover of the Funds at this time.
After having taken open matters under advisement, the Court continues to believe that the legal analysis underlying its conclusions in the Preliminary Injunction Decision remains sound. With the Objecting Bondholders having failed to present any further arguments or authorities to the Court that might change its earlier analysis, the Court believes that its analysis of each of the Objecting Bondholders' three major contentions — (1) alleged escrow, see 278 B.R. at 353-354; (2) alleged lien, see id. at 355-356; and (3) alleged constructive trust, see id. at 356-357 — compels the conclusion now that the Foreign Debtors have shown not just the likelihood of success that the Court previously found, see id. at 353, 355 and 356; they have further shown that they are indeed correct, and that the Fund is available to satisfy the claims of all of the Foreign Debtors' creditors, and not just the holders of the 2000 Notes. As a conclusion of law, or mixed question of fact and law, the Court now so rules.
From that, it follows that the claims of alleged escrow, alleged lien, or alleged constructive trust here would not defeat a turnover request, and that, at some time and under many, if not all, circumstances, turnover to one or another of the Foreign Debtors would be warranted. However, the Foreign Debtors acknowledge that they do not need turnover at this time, and given that acknowledgment, this Court sees no need now to address issues that would only become ripe for determination later. As State Street points out:
Now that the Court has granted the Preliminary Injunction, the concern of [Netia] Holdings that the Funds could be paid out by the Indenture Trustee is eliminated. There is therefore no compelling need for the Court to take further action at this time . . . .
(State Street Submission, ECF #48, at 2).
While this Court has seen nothing to date that would cause it to conclude that it should deny turnover assistance by reason of section 304(c) concerns, the Court likewise sees nothing to conclude that it should reach to decide that issue now. Certainly a party's desire to affect the negotiating chemistry of a case — a desire not uncommon in bankruptcy cases generally — is an insufficient reason, by itself, to decide issues that are unnecessary for the Court to decide. The parties can reserve any rights they might have in this regard, and address them after matters in Poland are clarified, or after issues arise that create an impediment to a successful reorganization. This Court's determination is, of course, without prejudice to the rights of the Foreign Debtors and the Objecting Bondholders (and, to the extent applicable, State Street) at any such time, with respect to any issues not addressed in the Dismissal Decision, the Preliminary Injunction Decision, or this decision.
Conclusion
The Foreign Debtors propose that the funds "remain in possession of State Street subject to a permanent injunction identical in substance to that ordered by this Court on May 28, 2002 . . . ." That request is granted. Turnover is denied without prejudice; the Foreign Debtors may request it at such time as they believe that it would be necessary or desirable to assist in their reorganization, at which time the Objecting Bondholders can raise any objections not already ruled on by this Court, such as any they think should be considered under section 304(c). The parties may also then address, if they wish, to whom turnover should be ordered, if anyone disagrees with the views of the Foreign Debtors and Indenture Trustee in that regard. So as to clarify possible future contentions as to what is or is not the law of the case, the Court notes that it has made further Findings of Fact and Conclusions of Law to the extent, but only the extent, stated above.
Petitioners' Br. #1, ECF #54, at 3.
The Petitioners will settle a permanent injunction order in accordance with the foregoing on five business days' notice.