Lawsuit against Adelphia lenders continues but judge voices questions

By Reshmi Basu

New York, June 13 - A lawsuit accusing Adelphia Communications Corp.'s lenders of wrongful conduct in their dealing with the company's former management is still on after a bankruptcy judge decided to let it go ahead, even though he expressed some doubts and removed a few of the charges.

"The creditors' committee complaint puts forward a damming portrayal of the bank lender's behavior, but is conspicuously lacking in allegations addressing the relevant recharacterization factors - particularly allegations suggesting that bank lenders advanced their funds without an expectation of getting paid back," judge Robert E. Gerber of the U.S. District Court for the Southern District of New York said in his ruling on Monday.

While a few of the claims were knocked out, judge Gerber allowed many of them to stand, noting that the issues of fact would be addressed in a hearing.

"There will undoubtedly be issues of fact as to whether the agent banks and investment banks were conditioning their delivery of commercial banking services on investment banking opportunities, on the one hand, or the Rigases were using the link as an enticement to the agent banks, on the other," Gerber said Monday.

Both the creditors' committee and the equity committee filed lawsuits against a number of Adelphia's commercial banks and their investment bank affiliates, claiming that they engaged in misconduct with the Rigas family, who has been accused of concealing $2.3 billion in liabilities from corporate investors.

The committee said the lenders aided and abetted the Rigases' breaches of fiduciary duty, principally in the connection of three co-borrowing facilities. It also said the lenders chose to ignore the Rigases fraudulent behavior in order to benefit from investment bank fees.

The creditors' committee argued "that the defendants knowingly or recklessly assisted the Rigases in siphoning value out of the debtors through the co-borrowing facilities," according to Gerber's order.

A total of 180 lenders, which includes 24 investment banks, have been named as defendants.

Adelphia, a Greenwood Village, Colo.-based cable operator, emerged from bankruptcy on Feb. 13. Its Chapter 11 case number is 02-41729.

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