Cortlandt St. Recovery Corp. v. Hellas Telecommunications II, S.C.A.

Cortlandt St. Recovery Corp. v Hellas Telecommunications II, S.C.A. 2023 NY Slip Op 34553(U) December 28, 2023 Supreme Court, New York County Docket Number: Index No. 653181/2011 Judge: Melissa A. Crane Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op -30001(U), are republished from various New York State and local government sources, including the New I York State Unified Court System's eCourts Service. I This opinion is uncorrected and not selected for official publication.

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SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY

PRESENT: , HON. MELISSA A. CRANE PART 60M Justice -------------- ----------------------------------------X INDEX NO. 653181/2011

CORTLANDT STREET RECOVERY CORPORATION, 08/14/2023 MOTION DATE

Plaintiff, MOTION SEQ. NO. ----'0_0_9_ _ - V-

HELLAS TELECOMMUNICATIONS II, S.C.A., HELLAS TELECOMMUNICATIONS I, S. R.L., HELLAS . TELECOMMUNICATIONS, S. R.L., APAX PARTNERS, LLP, TPG CAPITAL, L.P., DAVID SONDERMAN, JAMES COULTER, MARTIN HALUSA, JOHN MEGRUE, GIANCARLO ALIBERTI, MATTHIAS CALICE, TPG CAPITAL-N.Y., LLP, APAX PARTNERS, L.P. D/B/A APAX. PARTNERS OF NEW YORK, TPG PARTNERS IV, L.P., TPG ADVISORS IV., INC.,TPG GENPAR IV, L.P., TPG ADVISORS II, INC.,T3 GENPAR II, L.P., T3 PARTNERS 11, L.P., T3 PARALLEL II, L.P., APAX PARTNERS EUROPE MANAGERS LIMITED, APAX EUROPE VI GP CO. DECISION + ORDER ON LIMITED, APAX EUROPE VI GP., LP., APAX EUROPE VI- MOTION A, L.P., APAX EUROPE VI-I, L.P., TROY, L.P. INC.,APAX WW NOMINEES LTD., TPG TROY, LLC,T3 TROY, LLC,HELLAS TELECOMMUNICA TIONS CO-INVEST LTD., HELLAS TELECOMMUNICA TIONS EMPLOYEES LTD., TCW HT-CO-INVEST I L.P., TCW HT CO-INVEST II L.P., MARGARET ELIZABETH MILLS, ALAN MICHAEL HUDSON, ERNST & YOUNG, LLP, ADMINISTRATORS OF HELLAS TELECOMMUNICA TIONS II, S.C.A., BANK OF NEW YORK MELLON, COMMON DEPOSITORY FOR THE GLOBAL SUBORDINATED NOTES OF HELLAS TELECOMMUNICATIONS, II, S.C.A.,

Defendant.

-------------------------------------------------------. ---------------x· The following e-filed documents, listed by NYSCEF document number (Motion 009) 343, 344, 345, 346, 347,348,349,350, 351,352,353,354, 355,356,357,358, 359,360,361 were read on this motion to/for MISCELLANEOUS

Upon the foregoing documents, it is

By this motion, plaintiff moves for entry of a consent judgment that the only remaining

defendant Hellas Telecommunications (Luxembourg) II, S.C.A. (Hellas II) has agreed to after

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negotiations. This is the second such motion. The court denied the first attempt to gain a court

signature on a consent judgment back on November 7, 2022 [EDOC 38].

A bit of background is important for a .clear understanding of this decision. Hellas II

defaulted on bonds underlying this litigation (the "Sub Notes"). Hellas II submitted itself to an

insolvency proceeding in the UK High Court of Justice on November 26, 2009. In 2010,

plaintiff Cortlandt became the assignee of many of those Sub Notes. (See Kellogg Ex. C (Second

Witness Statement of Laurence Sudwarts) at ~ 4 (explaining, in a submission in the UK

insolvency proceedings, that Cortlandt was created as a "collection entity" in late 2010 to

facilitate claims on behalf creditors [EDOC 352] . On November 15, 2011, Cortlandt filed this

lawsuit against Hellas II and others for defaulting on the Sub Notes. On March 14, 2012, Hellas

II filed for liquidation in the United Kingdom and consequently this suit became stayed as

against defen(Jant Hellas II only. That stay was only lifted on September 27, 2022, ten years

later.

Meanwhile, on September 22, 2014, Justice Friedman granted all the other defendants'

motions to dismiss because Cortlandt lacked standing. Justice Friedman reasoned that an

assignment conveying only a right "to collect" was insufficient to confer standing:

"The court holds that the assignments to Cortlandt for both the PIK and Sub Notes were assignments of a right of collection, not of title to the claims, and are accordingly insufficient as a matter of law to confer standing upon Cortlapdt" (47 Misc 3d 545, 555 [New York County 2014]). However, the court did hold that this lack of

standing was curable and therefore dismissed without prejudice. The Appellate Division, First

Department affirmed on this issue (142 AD3d 833, 834-35 [1st Dep't 2016] ).

After the Appellate Division, First Department affirmed Justice Friedman's dismissal of

the original complaint in this case, but before Hellas II's bankruptcy stay was lifted, Cortlandt

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commenced yet another action 1: Cortlandt Street Recovery Corp., v TPG Capital Mgmt, L.P. et

al, Index No., 651176/2017 (Cortlandt II). Cortlandt II is quite similar to this case, except that

Hellas II is not a defendant.

In Cortlandt II, on October 22, 2020, Justice Edmead, as Justice Friedman had before

her, found that Cortlandt lacked standing to bring its claims. However, as Justice Friedman had

done in this case, Justice Edmead granted Cortlandt leave to amend the complaint in Cortlandt II

once it had corrected the standing issue.

On April 5, 2021, Cortlandt filed an amended complaint in Cortlandt II. Following

motions to dismiss, in October 2022, Justice Reed ruled that Cortlandt had standing to proceed

on some notes, but not others. Specifically, Justice Reed ruled that Cortlandt had standing with

respect to the 'Euroclear' notes but not with respect to the 'Clearstream' notes. This decision is

currently on appeal, but still a year later has not been perfected.

Meanwhile, in this action, also in October 2022, Cortlandt moved for this court to

approve a prior consent judgment similar to the one at issue on this motion, The court denied this

motion without prejudice for two primary reasons. First, Cortlandt had not done anything to cure

its standing problem that Justice Freedman had identified 8 years prior when she dismissed the

action against' all defendants (except Hellas II against whom the action at the time was

stayed). Second, it was an end run around Judge Reed's decision that Cortlandt lacked standing

to sue on the Clearstream notes. Cortlandt claims it now has standing on all the notes underlying

1 Cortlandt commenced cases in New York County under index nos. 653357/2011, 653363/2011, 653181/2011, as well as various federal suits. In one of the federal cases, the Second Circuit held Cortlandt did not have standing to bring suit on the,notes (see Cortlandt St. Recovery Cmp. v. Hellas Telecommunications, S.a.r.l, 790 F.3d 411 [2d Cir. 2015])

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the consent judgment as they are all "currently custodied" at Euroclear and Justice Reed has

ruled that Cortlandt has standing to pursue the Euroclear notes.

Therefore, on April 28, 2023, Cortlandt filed an amended complaint in this case [EDOC

340]. The caption of the amended complaint lists all the former defendants. However, because

the relief requested portion of the amended complaint only seeks relief against Hellas II, and the

motion papers refer to certain defendants other than Hellas II as "non-parties" or "would be

intervenors," the court assumes that Hellas II is the only defendant plaintiff intended to sue in

this amended complaint

Plaintiff and defendant Hellas II have negotiated a resolution to the disputes alleged in

the Amended Complaint (Dkt. 340). That settlement involves the entry of a consent judgment

the form of which both sides have agreed as follows: (1) on plaintiffs breach of contract claim

approximately €121,836,000 with interest to be calculated at the three-month EURIBOR plus

6%, reset two days before the beginning of each quarterly interest period (being the interest rate

of the euro-denominated Sub Notes as referred to in the Offering Memorandum) and the three

month LIBOR plus 5.75%, reset two days before the beginning of each quarterly interest period

(being the interest rate of the dollar-denominated Sub Notes as referred to in the Offering

Memorandum), from October 15, 2009. Additional interest is to be calculated on the overdue

principal at the rate of l % per annum in excess of the then applicable interest rate of the Sub

Notes (as referred to in clause 4.01 of the Sub Note Indenture) from 30 days after the default in

the payment of interest (which is defined as an Event of Default in clause 6.0l(a) of the Sub

Note Indenture) and (2) on its claim for fraud for fraud allegedly perpetrated on the Original

Purchasers, at least €121,836,000, with interest to be calculated at the statutory rate of 9% from

December 21, 2006, plus attorney's fees and costs.

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Rather than simply .settle, Plaintiffs and the Joint Liquidators agreed to the proposed

consent judgment (EDOC 344), that they want the court to sign, presumably for Plaintiffs to then

proceed against nonparties elsewhere, such as under an alter ego theory in Cortlandt II.

Some of these nonparties have vigorously objected to this consent judgment. Nonparty

and objector Apax Partners US, LLC is an investment advisory firm organized under the laws of

Delaware, with its office in New York City. Nonparty and objector TPG Capital-New York, Inc.

is a corporation organized under the laws of Delaware with an office in New York City. Apax

and TPG and their affiliates have been involved in the Hellas II transactions. None of these

entities have moved to re-enter this action. Although this court need not entertain arguments

from nonparties who have not even tried to intervene, in an abundance of caution, the court will

address their arguments.

1. The Nonparties' "Collusion" Assertion

The Nonparties do not dispute that Hellas II defaulted on the Sub Notes in or around

November 2009, and the notes remain in default. However, they allude to collusion between

plaintiffs and the Joint Liquidators. In particular, the nonparties claim the proposed consent

judgment is collusive "on its face because it is the result of cooperation between Cortlandt and

Hellas II's liquidators for the purpose of allowing Cortlandt to seek judgment against" them

· (Opp Br. EDOC 348 at pg 17). They claim that the liquidators are engaging in collusion because

they have admitted to fraud on Hellas II's behalf and have consented to a massive judgment

against Hellas II. However, the nonparties point to no real evidence of collusion.

The concern that two nominally adverse parties would conspire to produce a judgment to

use against third parties is simply not present here. This is a real debt that would be owed one

way or the other. The Joint Liquidators in England are akin to a bankruptcy trustee in this

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country. The court in England appointed them. Each side had separate counsel. The nonparties

have pointed to nothing to indicate that the Joint Liquidators are not independent.

There is a reason there is no proof of collusion. The Joint Liquidators have a fiduciary

obligation to act on behalf of all the creditors. Counsel for the Joint Liquidators was wise not to

throw money -away on lawyers when it was apparent that Hellas II o,wed on the Sub Notes. And,

there is nothing wrong with the Joint Liquidators cooperating in the consent judgment so that

Cortlandt can use it to go after other nonparty wrongdoers. Moreover, Hellas Ilalso benefits

because the consent judgment places a ceiling on its own liability in this action.

Finally, the consent judgment is not collusive because the parties have agreed it will not

have res judicata effect: "The following Recitals reflect the agreement of the parties and the

bases for their consent to judgment; the Recitals do not constitute independent findings of fact or

conclusions oflaw made by the Court" [EDOC 344 at 1].

Thus, collusion is not a concern. The consent judgment is merely a way to resolve this

case against the only remaining defendant without more litigation.

However, what is concerning is the amount of the consent judgment under the unique

procedural circumstances present here. Unlike the motion in the related case of Fortellus Funds

Investment Trust v Hellas II, 2023 WL 5531747 (New York County 2023), there is nothing on

this motion tc, indicate the amount to which the Joint Liquidators agreed represents even a

reasonable approximation of the amount Hellas II truly owes to Cortlandt. This is because in

Cortlandt IL Justice Reed has ruled that Cortlandt does not have standing with respect to the

Clearstream notes. While this holding may or may not be subject to change depending on where

those notes are "currently custodied," that is up to Justice Reed who has not yet ruled on this

issue (see EDOC 327 under Index No. 651176/2017 ["to the extent that any of the sub notes have

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been custodied at both clearing houses, that issue may be addressed in the upcoming stages of

this litigation."]). Thus, while it is perfectly reasonable not to continue litigation in order to

preserve resm;trces for creditors, especially when the identical issues are before another judge in

another case, the court cannot, at this juncture, determine with certainty whether the amount the

consent judgment lists is correct, because what is owed depends on the outcome in Cortlandt 11

Accordingly, rather than proceed with this very old case that no party has any desire to

continue, the court will render the amount of the consent judgment, €121,836,000 subject to

subsequent court order in Cortlandt II. This way, the consent order is not an end run around the

decision in Cortlandt II holding that Cortlandt does not have standing to pursue the Clearstream

notes. Also, this way any amount against the nonparties will be fully tested in Cortlandt II,

thereby allaying any concern about collusion. The nonparties are still free to maintain whatever

defenses they have in that case.

2. Standing

As discussed above, standing was a bar to this lawsuit by virtue of decisions from Justice

Friedman in this case is 2014 and Justice Edmead to 2020 in Cortlandt II. However, now there

is a holding in Cortlandt II that Cortlandt does have standing with respect to the same Euroclear

notes that Cortlandt has sued on in this case. This takes care of the standing problem in this case,

at least in part.

3. Champerty

The non-parties claim the assignment to Cortlandt is champertous and therefore void,

because the primary purpose of the assignment was to allow Cortlandt to sue.on the notes.

The champerty doctrine is codified in Judiciary Law § 489(1 ), that states in relevant part:

No person or co-partnership, engaged directly or indirectly in the business of collection and adjustment of claims, and no corporation or association, directly or indirectly, itself

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.or by 9r through its officers, agents or employees, shall solicit, buy or take an assignment of, or be in any manner interested in buying or taking an assignment of a bond, promissory note, bill of exchange, book debt, or other thing in action, or any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon ...

Thus, champerty is a limited doctrine. It "does not apply when the purpose of an

assignment is the collection of a legitimate claim" (Cert{ficate Holders ofMerrill Lynch

Mortgage Inyestors inc. v Love Funding Corp., 13 N.Y.2d 190,201 [2009]). It merely prohibits

the purchase of securities or claims with the primary purpose of bringing a lawsuit (Bluebird

Partners v First Fid. Bank, 94 NY2d 726, 735-736 [2000]).

Here, there is evidence in the record that Cortlandt obtained an assignment after Hellas II

defaulted on the notes as a "recovery corporation for the express purpose of enforcing the

bonds." Cortlandt's acquisition of these "debt instrument[s]" for the purpose of "enforcing

[them]" after the default by Bellas I1 is not champerty. See Love Funding, 591 F.3d at 121-22;

BF Holdings I, Inc. v. S. Oak Holding, Inc., 251 A.D.2d 1 [1st Dep't 1998][champerty not

applicable where the mortgage loan had already fallen into default and been accelerated before

its assignment to plaintiff]).

Plaintiff argues the original noteholders made the assignments not to litigate, but instead

to assert creditors' claims in the UK insolvency proceedings. Plaintiff points to the Sudwarts

Witness Statement which states that because of the "uncertain implications of a dissolution of

Hellas II on the rights of Bellas II creditors" to register their claims before the "expiry of the

statute of limitations," the Bellas II creditors concluded that they should file their proof of claims

"as soon as possible" in the UK insolvency proceedings. (Kellogg Ex.Cat~ 10.) Cortlandt was

therefore created and utilized to facilitate that process, including by the bondholders assigning

their rights to the newly formed company.

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Certainly, filing claims in bankruptcy on behalf of creditors is not "litigation." Here,

more than likely we simply have investors attempting to recover notes purchased after a default,

with an apparent plan to seek that recovery from other possibly responsible parties later.

Although the underlying noteholders remain anonymous, Hellas II is not crying

champerty. Moreover, the nonparties have not even tried to intervene in this case. Considering

the very same' notes are before another court in Cortlandt II, this court sees no reason to prolong

this case any further. Should the nonparties here who are actual defendants in Cortladnt II truly

believe the assignments were made with a champertous purpose, they can raise their concern in

that lawsuit.

The court finds the remaining contentions of the parties to be unavailing.

Accordingly, it is

ORDERED THAT the court grants the motion for an order entering the consent judgment

with the limitations described in: this decision.

$ 1212/112023 DATE

~ CHECK ONE: CASE DISPOSED NON-FINAL DISPOSITION

GRANTED □ DENIED GRANTED IN PART □ OTHER APPLICATION: SETTLE ORDER SUBMIT ORDER

CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT □ REFERENCE

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