Robbins Russell Scores Mega Win for Tousa Creditors in Chapter 11 Fraud Suit Against Banks
By Andrew Longstreth
October 14, 2009
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The lawyers at the Washington, D.C., boutique of Robbins, Russell, Englert, Orseck, Untereiner & Sauber have long been known for their strength in appellate work, but in recent years they've proven more than capable at trial as well. The most recent example came Tuesday, when the Fort Lauderdale federal bankruptcy court judge overseeing Chapter 11 proceedings for one of the country's largest homebuilders ruled in favor of the unsecured creditors committee Robbins Russell represents. The 182-page opinion against a bevy of financial institutions could cost the bank defendants as much as $688 million, according to Blooomberg.The case centered on a 2007 decision by the homebuilder, a company called Tousa, to borrow $500 million to settle litigation arising from a botched joint venture acquisition. As part of the loan agreements, Tousa granted its lenders--including Bank of America, Wells Fargo, and Citigroup--liens on assets of its subsidiaries.
After the builder went into bankruptcy, its unsecured creditors claimed Tousa fraudulently conveyed those assets to the banks. (Robbins Russell handled the case because creditors committee counsel from Akin Gump Strauss Hauer & Feld were conflicted out of suing the banks.) At the bench trial, which took place over 13 days in July and August, Larry Robbins of Russell Robbins argued that the loans were fraudulent transfers because the Tousa subsidiaries didn't benefit from them. The unsecured creditors, who had lent Tousa more than $1 billion for which it and its subsidiaries were joint and severally liable, were seeking, among other things, the return of more than $400 million.
Judge John Olson gave the unsecured creditors everything they asked for, according to Robbins. "We are gratified that the judge saw the facts and the law the way we did," he told the Litigation Daily.
The lender defendants were represented by three lawyers: Thomas Hall of Chadbourne & Parke; Andrew Leblanc of Milbank, Tweed, Hadley & McCloy; and Gregory Nye of Bracewell & Giuliani. Hall and Leblanc didn't immediately return our calls.
Evan Flaschen of Bracewell, Nye's collegue who represents some of the lenders in bankruptcy court, told us Wednesday, "We think the ruling is fundamentally flawed in a number of respects not only for lenders but for the financial markets as a whole. If the decision is allowed to stand, it will be hard for companies to obtain rescue financing, and hard for company groups to obtain group financing."
