Monday, February 17, 2014

A Non-Bankruptcy Lawyer Tries to Explain Judge Isgur's Decision to A Non-Lawyer

My brother and I had a Google Chat about Judge Isgur's decision. I am an attorney, my brother is not, so I was trying to explain some of the Judge's ruling to him. I am not, however, a bankruptcy attorney, so this might all be wrong. But, I though it might also be helpful. Its also long, and none of you will likely read it. Oh well.  

Keith  - 10:08 AM
I don't think I could be a judge
I think i would get too angry at people

Aaron 10:08 AM
I agree. Also because you don't know anything about the law

Keith  - 10:09 AM
probably the anger thing though

Aaron  - 10:09 AM
You read judge isgurs opinion?

Keith - 10:09 AM
reading it
not understanding a lot of it
because I'm too angry

Aaron - 10:10 AM
At who?

Keith  - 10:10 AM
just in general
clouding my understanding
of the incredibly complex legal jargon

Aaron  - 10:10 AM
It gets even more complex in bankruptcy than normal

Keith  - 10:11 AM
do you think he made the right decision?
so the RSN is a separate entity to comcast?

Aaron  - 10:14 AM
And I think he did

Keith  - 10:15 AM
so I don't understand. they were current on their payments to comcast, but not the astros or rockets
is that correct?

Aaron  - 10:15 AM
I think thats basically right
the Astros were well within their rights to terminate the agreement, get back their media rights and blow up the network
if they had done that pre-bankruptcy, no one could have stopped them

Keith  - 10:17 AM
but they couldn't, because they had to wait till sept 29th to back out
but comcast filed on sept 27th

Aaron 10:17 AM
they would have on the 29th
the bankruptcy was file to stop them

Keith  - 10:18 AM
is comcast california just in here to be another party so they have the required amount for involuntary backruptcy?

Aaron 10:18 AM
seems like it

Keith  - 10:18 AM
cause I don't see any reason they should be involved 

Aaron  - 10:19 AM
yeah, it was tenous
although, if the network blows up, they would lose money

Keith  - 10:19 AM

Aaron  - 10:19 AM
if I remember right, they were not found to be proper creditors, right?

Keith  - 10:20 AM
but you only need 3 creditors correct?
so even without comcast california it is still allowed

Aaron  - 10:21 AM
yeah. Although, I didn't know that before I read the opinion

Keith 10:22 AM
yeah, so comcast california is not involved if I am reading it correctly. even though they initially filed

Aaron  - 10:23 AM
yeah, the later filers were enough to justify it, so they weren't needed

Keith 10:24 AM
what is schedule c, and how could someone "run afoul" of it

Aaron  - 10:26 AM
Schedule C required unanimous consent to agreements
you run afoul of that by not obtaining unanimous consent

Keith 10:26 AM
oh I see, ok
and that's why the astros couldn't contest the involuntary bankruptcy, because it didn't require unanimous consent

Aaron  - 10:27 AM
yeah. Voluntary Bankruptcy's did
but not involuntary

Keith  - 10:28 AM
so involuntary is when your creditors come to you requiring bankruptcy?
and voluntary is when you say we can't pay our creditors

Aaron 10:28 AM
the bad faith argument was essentially that Comcast colluded with CSN to get creditors to file
which the Court said as long as the claim was legit, they could do that

Keith 10:29 AM
yeah, I just got to the part
but also, that it is futile
which goes against what they said at the beginning that this could be a profitable company

Aaron 10:30 AM
the futile thing was a weird argument
and was rightly criticized
you can't create the futility and then scream futility

Keith  - 10:32 AM
also, there are three "good faith" creditors in the rockets 2 entities and HP Fannin, so no matter what, the bad faith argument is pointless
is that what he is saying?

Aaron  - 10:32 AM
yeah, he just addressed the other argument "for completeness"

Keith 10:32 AM
what does he mean when he says if comcast made a run around of the contract, they are liable for damages, but not acting in bad faith

Aaron  - 10:36 AM
you are allowed to breach a contract
and pay damages
bad faith requires more culpability

Keith  - 10:36 AM
oh, so what would have constituted bad faith

Aaron  - 10:36 AM
even intentionally breaching a contract doesn't equal bad faith
never intending to fulfill the contract in the first place, going beyond mere breach to actively damage the other side
its very difficult to prove
I don't know much about it in the bankruptcy context

Keith  - 10:38 AM
could the astros have argued that the network  did that by requiring extremely high rights fees?

Aaron  - 10:39 AM
thats a separate issue
thats the other lawsuit they filed

Keith  - 10:39 AM

Aaron  - 10:39 AM
this was entirely related to whether the used bad faith in filing involuntary bankruptcy
essentially the argument is that the agreement required unanimous consent to file voluntary bankruptcy
Comcast knew it couldn't get it
so it colluded with its related entities to achieve involuntary bankruptcy, in violation of the agreement
Court said even if that was true, its not bad faith

Keith  - 10:42 AM
right, so is he saying the Comcast DID breach the contract, or is he not making a decision on that, just saying if even if they did its not bad faith

Aaron  - 10:42 AM
not making a decision on that
its not a breach of contract action

Keith  - 10:42 AM
could the astros file a suit against comcast for that?

Aaron - 10:43 AM
they have
I think that was part of the other litigation

Keith 10:43 AM
oh, I see. I didn't realize they had put that in with the other one
so why were the proposals brought before the Partners not profitable? do you know?

Aaron  - 10:47 AM
they were below the Comast deal with the network
and Comcast had a most favored nation clause

Keith  - 10:47 AM
oh, right
so comcast would get less money

Aaron 10:48 AM
which meant that not only did the agreement itself not bring profiit, it decreased the profit from Comcast

Keith 10:49 AM
why would comcast agree to that then. the favored nation clause

Aaron 10:49 AM
it helps Comcast
it doesn't help CSNH

Keith  - 10:49 AM
oh, ok
so comcast is paying less for the channel

Aaron  - 10:50 AM
not now, because Astros have vetoed all the deals that would bring their carriage rate down

Keith10:51 AM
ok, so I'm trying to understand this
so Comcast pays CSNH, which then pays the Astros
and CSNH tries to get other cable providers to also pay them
but they only brought proposals the would lower Comcasts payment. and the Astros rejected them because it doesn't make them profitable

Aaron 10:53 AM

Keith  - 10:53 AM
how does Comcast get money from this?
ad revenue?

Aaron  - 10:54 AM
Its not as important to Comcast the CSNH is profitable

Keith  - 10:54 AM
why not

Aaron  - 10:54 AM
they are better in the long run if they are paying less for carriage rate
its such a small piece in a massive conglomerate

Keith  - 10:55 AM
but CSNH and the astros are not. Correct?

Aaron  - 10:55 AM

Keith 10:56 AM
and so basically what the judge is saying with the chapter 11, is he changing the responsibility of the General Partners to put the company's financial wealth before their entities

Aaron  - 10:56 AM

Keith  - 10:56 AM
so the Astros can't just veto anything to get out of it

Aaron  - 10:56 AM

Keith  - 10:57 AM
which before was not the case
the astros had no financial responsibility to the network

Aaron  - 10:57 AM
well, they did
but the network was in violation of the agreement
so the Astros had a right to pull out

Keith  - 10:58 AM
so it's all a vicious cycle it seems

Aaron  - 10:58 AM
its a mess

Keith 10:59 AM
so basically, they have to restructure and come up with a profitable plan, something which hasn't happened up to this point

Aaron  - 10:59 AM

Keith 10:59 AM
how long do they have to try

Aaron 10:59 AM
Not sure

Keith  - 11:01 AM
so basically chapter 11 absolves you of debt to your creditors correct?
or only for a time

Aaron  - 11:02 AM
does not absolve you
but it stays the debts
and allows you to restructure them
its very complicated
many unsecured debts are washed away
secured debts are reduced