Ex-Vitelco owner Jeffrey Prosser scored a small victory in his quest to forestall the conclusion of his multi-year bankruptcy Thursday when U.S. Bankruptcy Judge Judith Fitzgerald said she would not be authorizing final closing of the sale of Vitelco and the Innovative Cable companies this week.
Prosser declared bankruptcy in 2006. He is in involuntary Chapter 7 bankruptcy and ICC, the parent company of Vitelco, which he used to own, is in Chapter 11 bankruptcy. ICC owes the Rural Telephone Finance Cooperative (RTFC) more than a half-billion dollars, and at least $150 million more to a family of hedge funds called the Greenlight entities.
A court-appointed Chapter 11 trustee tried to auction off the phone, cable and some smaller Prosser properties to pay off the creditors, but thanks to the companies’ unappealing finances, combined with the crisis in credit markets, no one submitted a qualifying bid.
In May, the V.I. Public Services Commission voted to let Prosser’s biggest creditors, the National Rural Utilities Cooperative Finance Corporation (CFC), take ownership of Vitelco and Innovative.
Continuing a longstanding pattern of delaying tactics in this case, Prosser did not participate in the hearings, but objected afterwards and filed to have the PSC reconsider its decision. The PSC took no action on Prosser’s objection and by V.I. statute, his claim was deemed denied as of July 6.
At that point, with all regulatory hurdles met, all that was left was for the court to give final approval of the sale.
This week on St. Croix, Fitzgerald is holding hearings to make that final decision. But Wednesday morning, the first day of those hearings, Prosser, his wife, Dawn Prosser, and St. Croix attorney Jeffrey Moorhead jointly filed an appeal of the PSC’s decision in V.I. Superior Court on St. Croix.
Prospects for the appeal appear slim. On Wednesday, Assistant Attorney General George Phillips, legal counsel for the PSC, gave the legal opinion that success was unlikely.
"The court would review the proceeding based on the standard of whether or not the decision was arbitrary, capricious or contrary to law," Phillips said. But "it is very difficult for a late petitioner who did not participate in the hearing before the decision to have standing in court," he said.
And the content of Prosser’s appeal appears somewhat incoherent. For instance, Prosser/Moorhead argue the CFC "legally bound" Vitelco by negotiating a transfer agreement. They argue that CFC had no authority to "legally bind" Vitelco because it was not the owner, therefore the agreement is invalid. But, as the PSC voted to approve the transfer agreement, it could not have been "legally binding" before that approval.
Of perhaps greater concern, Prosser’s appeal says the sale process is tainted because Vitelco Chief Executive Officer E. Clarke Garnett was paid $1,000 per month as a consultant for RTFC at the same time as he was earning $400,000 per year from Vitelco.
Chapter 11 Trustee Stan Springel testified Thursday he had been unaware of the consulting contract. But Garnett had a duty to provide financial information on Vitelco to RTFC because it was the major creditor and had a legal interest in the information, Springel said.
Regardless of the merits of the appeal, filing it in local court on the first day of federal court hearings appears to have forced the court to delay.
"I think I can approve the sale," Fitzgerald said. "Whether I can authorize the final closing until the Superior Court weighs in on the appeal may be in question."
She asked attorneys for the parties to the case to file briefs outlining their legal arguments and citations regarding U.S. Bankruptcy Court authority on the question. After a certain amount of haggling over dates among the half-dozen separate teams of attorneys in the case, they settled on a July 19 hearing, at which point Fitzgerald may or may not approve final closing, depending upon her reading of the law and upon the status of Prosser’s appeal in Superior Court.
