WASHINGTON-
Members of Adelphia Communication Corp.’s founding Rigas family may find out this week if a pause of insurance payments funding legal expenses will continue.
Judge Robert E. Gerber, who is overseeing the former cable provider’s Chapter 11 case, put insurance payments to James P. Rigas and Michael J. Rigas on hold. That development was part of a March 6 decision in which Gerber rejected an Adelphia proposal to sell its directors’ and officers’ liability policies back to the underwriters for $32.5 million.
“I believe that I should not be authorizing further disbursements to Michael and James Rigas, and others,” without giving Adelphia a chance to be heard on the issue, Gerber said in the decision.
Rigas attorney Lawrence G. McMichael said last week that expects to receive approval for additional insurance proceeds after consulting with Adelphia and Gerber.
The Rigases are seeking $300,000 each under the policies, and Gerber is expected to consider the request during a hearing Friday at the U.S. Bankruptcy Court in Manhattan.
McMichael said Adelphia is bound not to oppose requests for insurance proceeds under a federal court order in a separate matter. As a result, he said, there won’t be any objections from Adelphia to another round of insurance disbursements.
McMichael is currently defending members of the Rigas family who have been named as defendants in an Adelphia lawsuit against its former auditor, Deloitte & Touche.
Adelphia, a former cable television provider, is seeking several billion dollars in damages from Deloitte, claiming the firm was aware of the Rigases’ self-dealing and looting of the company. Deloitte countersued, alleging that even if Adelphia’s claims are true, the company was part of a scheme to defraud Deloitte and that Adelphia is responsible for its own wrongdoing.
According to court papers, as of Nov. 15, 2006, advancements under the insurance policies have totaled nearly $9 million. Members of the Rigas family and others facing civil litigation have sought and received disbursements from the policies in $300,000 increments.
Gerber also said he didn’t want the sale of the insurance policies to interfere with parallel litigation unfolding under Judge Michael M. Baylson of the U.S. District Court in Philadelphia. In that case, the insurers are attempting to void the policies because their issuance was based on fraudulent financial information that was directly linked to misconduct by the Rigases.
The insurers have refused to cover Adelphia for payments made to indemnify any of the parties for their defense costs. They are also seeking a ruling from Baylson saying that the policies don’t provide coverage for any lawsuits brought against defendants in connection with “mismanagement and looting” of Adelphia.
Litigation in the Philadelphia court has been put on hold while Adelphia’s Chapter 11 case continues to wind down. Baylson, however, ordered the insurers to advance defense costs incurred by the Rigases and others until a decision is reached on the insurer lawsuit.
While Adelphia, now based in Greenwood Village, Colo., has emerged from bankruptcy, the fierce creditor battles that plagued its Chapter 11 case continue in the U.S. District Court in Manhattan.
A group of company bondholders have appealed Adelphia’s Chapter 11 plan in an effort to gain a greater share of proceeds from the sale of cable properties to Time Warner Inc. and Comcast Corp. for $17.6 billion in July 2006.
District Court Judge Shira Scheindlin will likely rule on the appeal in March or April.
The bondholder group, which includes Bank of America Corp.’s securities unit and several hedge funds, is slated to receive $1 billion under Adelphia’s plan. If the appeal is successful, the group could get $250 million more.
Adelphia sought protection from creditors in 2002, following an accounting scandal carried out by the Rigas family. Company founder John Rigas and his son Timothy were convicted in 2004 of pocketing more than $2 billion from Adelphia for their own use and misleading investors about the company’s finances and performance.
Timothy Rigas, the company’s one-time chief financial officer, was sentenced to 20 years in prison, while his father got 15 years. Both men remain free on bail while their appeals are being considered.
John Rigas, who is suffering from bladder cancer, can have his sentence reduced after two years if he is diagnosed as having three months or less to live.
In November 2005, Michael J. Rigas, another son of John Rigas and a former executive vice president of Adelphia, pleaded guilty to making a false entry in the company’s records. He was sentenced last March to 10 months of home confinement.
