Eleventh Circuit Adopts Broad Standard Of 'Reasonably Equivalent Value' In Fraudulent Conveyance Case

Herrick is proud to have represented Intelsat in its recent victory in the 11th Circuit, capping a 7-year litigation during which Herrick's arguments on behalf of Intelsat were upheld at every step. The trustee of the PSN USA Liquidating Trust originally sought to recover more than $7 million in disputed payments. During the discovery phase of the case, Herrick established that approximately $4 million of the payments were indisputably valid, leading the trustee to drop that portion of his claim. As to the remaining $3 million, the 11th Circuit's decision confirmed the decisions of the bankruptcy court and the district court that the payments to Intelsat could not be clawed back.

Background

Before it filed for bankruptcy, PSN operated the PSN Channel out of Miami Beach. The PSN Channel was a cable television channel that broadcasted live and taped sporting events to cable television systems throughout Latin America. PSNI, its parent corporation, was a non-operating holding company incorporated in the Cayman Islands. PSNI would acquire the rights to broadcast the sporting events and also contracted with providers of satellite services, such as Intelsat. PSNI had no employees, was not authorized to do business in the United States and had no role in producing the PSN Channel. PSN fulfilled all of the production services at its studios in Florida, pursuant to a contract with PSNI. PSN employees bundled the sporting events, together with advertisements, commentary and commercials, and then transmitted the programming via Intelsat's satellites for redistribution to the cable television systems that were its customers.

During the course of its bankruptcy case, PSN brought a fraudulent claim against Intelsat, seeking to recover payments made to Intelsat for satellite services. Its theory was that Intelsat's contract was with PSNI, but that PSN had made the payments. The general rule in fraudulent conveyance litigation is that payment of a third party's debt is a transfer made without adequate consideration and thus is voidable. In defending the litigation, Intelsat invoked two exceptions to the rule: 1) where the transferor (here PSN) actually received the benefit of the goods or services for which it paid, and 2) where there is a close interrelationship or identity of interests between the transferor and the third party such that the transferor indirectly benefitted from the payments.

In granting summary judgment to Intelsat, the bankruptcy...