Greek Telecom’s Creditor Loses 2nd Circuit Appeal

MANHATTAN (CN) - The creditor of a now-defunct Greek telecommunications company can't pursue civil claims on behalf of noteholders because it was never explicitly authorized to do so, the Second Circuit ruled Wednesday.

Cortlandt Street Recovery Corp.'s case over the alleged "bleed-out" of Hellas Telecommunications is a circuitous one.

The creditor says TPG Capital LP and Apax Partners assembled a group of investors to buy Hellas when it was profitable and nearly debt-free, then issued promissory notes in the name of a Hellas subsidiary, pledging TPG and Apax's equity in the company and its subsidiaries as collateral.

Because the firms allegedly used the proceeds from this 2006 sale to buy their own collateral, however, the Hellas entities were rendered insolvent.

Cortland says it was assigned a portion of these defaulted subordinated notes in 2011, authorizing to sue for collection of 83.1 million euros.

The Hellas defendants moved to dismiss, however, based on Cortlandt's lack of title to the sub notes.

A federal judge agreed and a three-judge panel with the Second Circuit affirmed Wednesday.

"Cortlandt does not allege that it has suffered direct injury as a result of the defendants' actions," Judge Robert Sack wrote for the court.

To assign a claim effectively, the assignor needs to make its intentions to transfer the case clear. In this case, however, Cortlandt did not make it clear it was assigned ownership of the claim by noteholders, only that it was given "full rights under the assignments to collect principal and interest due," Sack found.

Cortlandt likewise failed to characterize those rights as those conferred by assignment of title, likening it to the distinction between hiring a lawyer and assigning a claim to a lawyer.

Since Cortlandt lacks standing to pursue at least some of its claims against the private equity firms, the court refused to let Cortlandt substituted the noteholders for itself as the plaintiff.

"In Cortlandt's case, absent a complete assignment of the only claims on which the lawsuit was based, there was no valid lawsuit pending before the district court in which to permit an amended complaint," Sack wrote.

Cortlandt had alternatively wanted a new assignment from noteholders, giving it full rights to pursue the lawsuit, but Sack noted that the noteholders, like Cortlandt, are all foreign citizens - violating the court's diversity requirement - and therefore have no jurisdiction in federal court.

Even if they were to assign full litigation rights to Cortlandt, they would not then be able to amend the complaint to show it, causing a Catch-22 for plaintiffs.

Such amendments are allowed only when a mistake to the plaintiff was made that wouldn't change the substance of the action, Sack wrote.

Sack added in a concurring opinion that he personally takes issue with the precedent cited the majority ruling, Zurich Insurance Co. v. Logitrans Inc.

In that case, Zurich Switzerland, an insurance company subsidiary, was denied standing in a lawsuit it had sought to file on behalf of its subrogees.

Sack says criticism of this case hits the mark.

"It was undisputed in Zurich Insurance Co. that an entity, waiting in the wings and willing to become a party to the action, had a claim that could be "appropriately resolved through the judicial process," he wrote.

Sack said the Zurich case offered an example of a simple plaintiff name change, whereas Cortlandt's appeal hinges on filing lawsuits on claims for which it currently lacks title.

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