Bankruptcy lawyers often analogize the plan confirmation process to the running of trains, whereby once the so-called "confirmation train leaves the station," it’s very hard — if not impossible — to stop the plan from being confirmed. When does the confirmation train "leave the station"? Typically, when a consensus is reached among the debtor and its major creditor constituents (or classes) over the terms of a reorganization plan. It’s commonly assumed that once that consensus is reached, not even Superman can stop that locomotive from reaching its destination. As the famed late Bankruptcy Judge James E. Yacos of New Hampshire noted when he terminated plan exclusivity in New Hampshire’s largest bankruptcy case ever (In re Public Service of New Hampshire, 99 B.R. 155, 176 (Bankr. D.N.H. 1989)):
Opening up the process to alternative plans in my judgment will serve to quantify and make concrete various ways of resolving those circular questions. I believe it will force the parties to use all of their considerable skills to negotiate resolutions on a fact basis (rather than and ideological basis dealing with unanswered and unanswerable interesting legal questions) under the gun of having the "reorganization train leave the station" before they are aboard.
Adelphia Communications Corporation’s reorganization case has been proceeding for over 4-1/2 years. It was called by Bankruptcy Judge Robert E. Gerber, the presiding judge in the case, "among the most challenging — and contentious — in bankruptcy history." The case involved 230 separate jointly administered entities, generated over 13,000 docket entries in the main bankruptcy case and spawned about 130 separate adversary proceedings (not to mention scores of additional complex and high-profile related securities and criminal proceedings).
As widely reported, on January 3, 2007, Judge Gerber rang in the new year with a 267 page "Bench Decision on Confirmation" that laid the groundwork for entry of an order confirming Adelphia’s "First Modified Fifth Amended Joint Chapter 11 Plan." The opinion, with its comprehensive explanation of key events in Adelphia’s reorganization (including the background to the filing, the restatements of Adelphia’s financials and bankruptcy schedules, the proposed sale of Adelphia’s cable operations to Time Warner/Comcast and the genesis of that deal, the various iterations of the reorganization plans previously proposed, the increasingly complex and hostile negotiations leading to the current plan, asset valuations, and the key points of contention at the confirmation hearing), is a veritable masterpiece (not to mention the lengthiest opinion of record confirming a plan of reorganization). The supporting Confirmation Order, entered two days later, is itself 47 another pages, and incorporates the Bench Decision (and the "Rigas Pay-over Bench Decision") by reference as containing the Court’s findings of fact and conclusions of law.
The primary objector to plan confirmation was the so-called "ACC Bondholder Group," comprised mainly of activist hedge funds, which on the day before Thanksgiving, filed this opening 34 page objection summarizing the group’s primary confirmation objections. The focus of the Bankruptcy Court’s Bench Decision, at its core, is on explaining why the ACC Bondholder Group’s objections should not stop confirmation.
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The ACC Bondholder Group appealed the order of confirmation (submitting this "Statement of Issues and Designation of Record on Appeal"), and the case was assigned to Judge Shira A. Scheindlin, whose previous involvement in various prior unrelated appeals gave her significant familiarity with the procedural preconfirmation dynamics of the case. From the ACC Bondholder Group’s perspective, the selection of Judge Scheindlin to hear the appeal must have been welcome news given her history of supporting the underdog, even at the risk of being reversed by the Second Circuit (as happened in her February 2004 ruling that Maurice Clarett could participate in the 2004 NFL Draft and her April 2002 ruling dismissing perjury charges against an acquaintance of two of the 9/11 hijackers, who she then ordered released from prison after finding his detention legally unjustifiable–and who later, by the way, was acquitted by a unanimous jury, thereby silencing Judge Scheindlin’s fierce critics).
On January 24, 2007, Judge Scheindlin stepped in front of Adelphia’s speeding confirmation train and, in this opinion, single-handedly derailed it by granting the ACC Bondholder Group’s motion to stay the effectiveness of the confirmation order (though the victory must have seemed a pyrrhic one to the victors given the $1.3 billion bond that Judge Scheindlin ordered be posted as a condition to maintenance of the stay).
In granting the stay, Judge Scheindlin said that deciding what to do was "one of the most difficult tasks this Court has yet confronted." What swayed Judge Scheindlin? At root, three things:
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