Adelphia Recovery Trust v. FPL Group, Inc. (In re Adelphia Communications Corp.)

Adelphia Communications Corporation (Adelphia) (plaintiff) was one of the largest cable companies in the United States until it filed for bankruptcy. The Adelphia Recovery Trust (trust) (plaintiff) was the successor to Adelphia’s rights. The trust sued FPL Group, Inc. (FPL) and West Boca Security, Inc. (Boca) (defendants), seeking to recover Adelphia’s payment of $150 million to FPL and Boca to repurchase Adelphia stock. Per the trust, the stock repurchase was a constructive fraudulent conveyance under the Pennsylvania Uniform Fraudulent Transfer Act because, among other things, Adelphia’s post-repurchase remaining assets were unreasonably small in relation to the purchase. As of the repurchase, Adelphia’s expected capital needs over the next three years were approximately $600 million, and Adelphia retained an equity cushion of approximately $2.5 billion. The bankruptcy court and the district court both ruled that Adelphia’s remaining assets after the stock repurchase were not unreasonably small and thus that the repurchase was not a constructive fraudulent conveyance. The trust appealed the district court’s ruling, arguing that the district court improperly conflated the separate issues of Adelphia’s postconveyance solvency and whether Adelphia’s post-repurchase assets were unreasonably small. The trust further argued that Adelphia’s financial condition as of the repurchase was dire, as shown by Adelphia having exceeded its maximum allowable leverage under its debt instruments, Adelphia’s negative cash flow, and the facts that Adelphia was the victim of ongoing internal fraud and had defaulted on its bond indentures. Per the trust, this evidence showed that Adelphia’s post-repurchase assets were unreasonably small.