3rd Circ. Won't Revisit IDT Suit Over $42.5M Winstar Deal

 The Third Circuit on Tuesday declined to revisit its decision that rebuffed IDT Corp. and Winstar Holdings LLC’s bid to revive their lawsuit alleging The Blackstone Group LP and other financial firms misrepresented the value of bankrupt Winstar Communications Inc. before its $42.5 million sale.

Winstar Holdings and IDT had alleged that Blackstone, Impala Partners LLC and Citigroup Inc. cost IDT more than $300 million by misrepresenting Winstar Communications' sales, customers and other information prior to IDT's purchase of the telecommunications company's business assets in 2001.

The panel's decision to shut down the bid for rehearing comes on the heels of the court's decision in January to affirm the Delaware district court’s dismissal of the suit because it was filed in 2007, over five years after IDT’s purchase of Winstar Communications and well past Delaware’s three-year statute of limitations for tort claims.

In their appeal for panel rehearing, Winstar Holdings and IDT argued that the appellate court's earlier ruling conflicts with precedents that have been established by the U.S. Supreme Court, the Delaware Supreme Court and the Third Circuit itself. Based on previous rulings, the holding companies said, their claims should not have been barred by Delaware's statute of limitations because the claims were filed in New York, where the time period is capped at six years.

The panel’s "holding that '[w]here a case is transferred ... the statute of limitations of the transferee court, not the transferor court, applies,' misstates the rule adopted by this court and other federal courts of appeals that the transferee court’s choice of law rules apply, not necessarily the transferee court’s statute of limitations,” the brief stated.

Winstar Communications filed for Chapter 11 relief in April 2001, at which time it retained Blackstone as its investment adviser and Impala as its restructuring agent, according to the complaint. Citigroup, which was then known as Citicorp, was Winstar's largest creditor.

In December 2001, IDT entered into the purchase agreement to buy Winstar's business assets for $42.5 million and formed Winstar Holdings.

In May 2007, IDT filed suit in New York state court, accusing the financial companies of costing IDT more than $300 million by misrepresenting Winstar Communications' sales, customers and other information prior to the asset purchase. The suit, which alleged fraud, negligence and civil conspiracy, was moved to a New York federal court a month later.

A judge shipped the case to the Delaware bankruptcy court in December 2007 at the defendants' request. And in August 2010, U.S. Bankruptcy Judge Kevin J. Carey dismissed the suit, finding that the plaintiffs' claims were time-barred by Delaware's three-year statute of limitations for torts.

In the same order Judge Carey rejected the plaintiffs' request to remand the suit to New York state court, ruling that the bankruptcy court had jurisdiction over the case because of its connection to the Winstar Communications' bankruptcy.

The plaintiffs then appealed the dismissal to Delaware federal court before meeting another setback in November 2013, when U.S. District Judge Leonard P. Stark nixed the suit. Judge Stark wrote in his dismissal order that although the suit was filed in New York, the claims arose in Delaware, so that state’s statute of limitations applies. Although the case was removed to Delaware and not filed there, applying the statute of limitations of the filing state could allow plaintiffs to forum-shop for a favorable limitations period.

Representatives for the parties could not be reached for comment Wednesday.

Circuit Judges D. Brooks Smith, Patty Shwartz and Jane R. Roth sat on the panel.

Winstar Holdings and IDT are represented by William P. Bowden of Ashby & Geddes PA and Brent W. Landau of Hausfeld LLP. Winstar Holdings is also represented by Benjamin W. Keenan and Ricardo Palacio of Ashby & Geddes PA. Winstar Communications is represented by M. Blake Cleary, Edwin J. Harron and Pauline K. Morgan of Young Conaway Stargatt & Taylor LLP.

Blackstone is represented by David S. Flugman and Yosef J. Riemer of Kirkland & Ellis LLP and Dennis A. Meloro of Greenberg Traurig LLP. Impala Partners is represented by Richard S. Cobb and James S. Green Jr. of Landis Rath & Cobb LLP and Andrew C. Gold of Herrick Feinstein LLP. Citigroup is represented by Dennis A. Meloro and Stephen L. Saxl of Greenberg Traurig LLP.

The case is In re: Winstar Communications Inc. et al., case number 13-4713, in the U.S. Court of Appeals for the Third Circuit.

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