Tempered Rigas Celebration Seems Likely

Former Adelphia tycoon John Rigas and his son Tim are no doubt in chipper spirits this evening after learning of their victory in one of the many securities fraud actions pending against them. Yes, just as the Rigas’ have been arguing for nearly a year, at least one case against them will remain in federal court instead of being shipped back to the Luzerne County, Pennsylvania Court of Common Pleas.

To understand what happened here, you’ll need to get a bit dizzy first. Ready? It all started back in January 2003 when a group of investors sued Deloitte & Touche in Luzerne County for securities fraud related to Adelphia stock they received in a merger. Deloitte of course wasted little time adding Rigas and Sons as third-party defendants. In the meantime, Adelphia filed for bankruptcy in the Southern District of New York. So, using the powers of 28 U.S.C. § 1452(a), which allows a party to remove state court actions related to bankruptcy cases, the Rigas’ removed their case to the Bankruptcy Court in the Middle District of Pennsylvania. In the meantime, the case was conditionally transferred to Senior Judge Lawrence M. McKenna's courtroom in the Southern District of New York by the Judicial Panel on MultiDistrict Litigation. Plaintiffs asked the Panel to reconsider. Then the Pennsylvania Bankruptcy Court remanded the case back to Luzerne County. The Rigas’ appealed the remand order to Judge McKenna in the SDNY, and shortly thereafter, the MDL Panel (despite the remand order) fully transferred the case to Judge McKenna. Happens all the time, right?

After hearing all sides, Judge McKenna rejected Plaintiffs’ arguments that the Southern District of New York has no authority to hear the appeal of the remand order issued by the Pennsylvania Bankruptcy Court, finding that “review of any order of the district court in a transferred cause, made before transfer, is within the jurisdiction of the court of appeals of the circuit to which the cause has been transferred.” Judge McKenna also rejected Plaintiffs argument that the remand order divested the MDL Panel of jurisdiction based primarily on the fact that the Rigas’ had timely appealed that Order to the District Court in Pennsylvania, opining that “it seems unlikely, to say the least, that Congress intended that a transfer by the MDL Panel could eliminate Article III review of a bankruptcy judge's decision.”

The Court ended the decision by denying Plaintiffs’ request to remand under either the abstention doctrine or equitable remand principles. In sum, Judge McKenna found that since the Rigas Defendants showed that the case against them is related to the Adelphia bankruptcy, it was therefore properly removed pursuant to § 1452(a).

So c’mon guys, what’s wrong? You won. It’s time to break out the bubbly and celebrate.

You can read the decisions, filed June 13, 2005 and May 2, 2005 at 2005 U.S. Dist. LEXIS 7909 and 2005 U.S. Dist. LEXIS 11685.

Nugget: “[A] transfer under section 1407 transfers the action lock, stock and barrel.”