Bankruptcy Judge Dismisses Champion's Breach of Contract Claims against Credit Suisse

Update: This story has been updated to reflect Willkie Farr’s involvement in the litigation.

Unsecured creditors of bankrupt Champion Enterprises Inc. have come up empty in their breach of contract claim against Credit Suisse AG. A U.S. bankruptcy court judge in Delaware dismissed Champion’s suit in its entirety on Thursday, more than four months after the bench trial ended in February. U.S. bankruptcy judge Kevin Gross found that while Credit Suisse did breach a $187 million credit agreement with Champion, the breach did not damage the manufacturer of prefabricated housing, nor did it cause Champion’s bankruptcy. Credit Suisse had assigned Champion’s debt to MAK Capital Fund, a move that the unsecured creditors claim was designed to drive Champion’s value down, so that MAK could buy it at a bargain price.

Credit Suisse was represented by Willkie Farr & Gallagher and Young Conaway Stargatt & Taylor. The unsecured creditors, meanwhile, were represented by Milberg and Pinckney, Harris & Weidinger.

In an 82-page decision, Gross held that the transfer to MAK did breach the credit agreement. However, Gross stated that Credit Suisse’s actions did not result in a loss to Champion and its creditors and that “such a finding and conclusion would require a leap to conclusions unsupported by the record.”

Champion’s unsecured creditors had claimed that the company had been coerced into accepting MAK as a lender. But in an 82-page decision, Gross found that Champion had actually accepted MAK after receiving legal advice that it could not stop MAK from becoming a lender.

Additionally, Gross found that Champion had waived its claims after signing an amendment to the credit agreement that contained a clause releasing the lenders from liability. The unsecured creditors had claimed that Champion was coerced into signing the agreement because Credit Suisse threatened Champion with bankruptcy. However, Gross rejected their argument, finding that Champion declared bankruptcy on its own volition, and benefitted from the amendment.

Finally, Gross found that the actions of Credit Suisse and MAK were not to blame for causing Champion to go under. Instead, a poor real estate market and the 2008 financial collapse were the blame. “[T]here is substantial evidence that Champion would not have avoided bankruptcy regardless of any action MAK took or did not take,” Gross wrote.

The trial covered what was left of a massive 14-count suit brought by the unsecured creditors against many top financial institutions, banks, and investment companies, including Goldman Sachs Lending Partners, Barclays Bank, and Massachusetts Mutual Life Insurance. In September 2010, Gross dismissed all but three counts pertaining solely to Credit Suisse and MAK.

Jerry Congress of Milberg, counsel for the unsecured creditors, told us that he was disappointed with the result and was considering whether or not to appeal. Credit Suisse’s attorney, Joseph Baio of Willkie Farr, declined to comment.