Restructuring & Bankruptcy Alert

September 2015

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.


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 court found that PSN had received reasonably equivalent value because PSN had used and directly benefitted from Intelsat's services. It also found that, due to the close interrelationship between PSN and PSNI, the payments were protected by the "identity of interests" exception. PSN appealed to the district court, which affirmed on both grounds.

There was no dispute that PSN had actually received and used Intelsat's satellite services; the record established that Intelsat was PSN's sole satellite services provider, and without its services, PSN would not have been able to broadcast the PSN Channel. The record also demonstrated a tight nexus between PSN and its corporate parent, PSNI, and that they functioned as an integrated whole.

The Trust argued that even though PSN had received the services, it had not received "reasonably equivalent value" because the services were owned by PSNI, the contracting party. Absent an ownership interest in those services, it argued, PSN could not have received reasonably equivalent value. Intelsat argued in response that PSN's definition of value was overly restrictive, and contrary to law in the 11th Circuit and other courts, which had adopted a broader definition of value. In its decision, the 11th Circuit rejected PSN's arguments, agreeing with the majority of the circuit courts that have adopted a broad definition of value. Here, given the undisputed facts that showed that PSN had actually received and benefitted from Intelsat's services, the 11th Circuit had little difficulty finding that PSN had received "reasonably equivalent value."

Why the Decision is Important

The PSN decision is important because the 11th Circuit had left the question of what constitutes "reasonably equivalent value" open in Transeastern Lenders v. Official Comm. of Unsecured Creditors (In re TOUSA, Inc.), 680 F.3d 1298 (11th Cir. 2012). In that appeal, the 11th Circuit had ruled on other grounds and had expressly failed to adopt or reject a narrow definition of value adopted by the bankruptcy court in earlier litigation in that case. This decision expressly rejects the narrow definition of value argued by PSN and adopted by the bankruptcy court's TOUSA decision.

For more information on this Alert or other restructuring & bankruptcy matters please contact:

Stephen B. Selbst at +1 212 592 1405 or [email protected]

Copyright © 2015 Herrick, Feinstein LLP. This alert is published by Herrick, Feinstein LLP for information purposes only.
Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.