Senior Transeastern Lenders v. Official Comm. of Unsecured Creditors (In re Tousa, Inc.)

• Decision Date: 15 May 2012
• Docket Number: No. 11–11071.,11–11071.
• Citation: 23 Fla. L. Weekly Fed. C 1042,680 F.3d 1298,56 Bankr.Ct.Dec. 135,67 Collier Bankr.Cas.2d 1035
• Parties: In Re TOUSA, INC., et al., Debtors. Senior Transeastern Lenders, Defendant–Appellee, Citicorp North America, Inc., Certain First Lien Term Lenders, Intervenors–Appellees, v. Official Committee of Unsecured Creditors, Plaintiff–Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

680 F.3d 1298

67 Collier Bankr.Cas.2d 1035

56 Bankr.Ct.Dec. 135

23 Fla. L. Weekly Fed. C 1042

In Re TOUSA, INC., et al., Debtors.

Senior Transeastern Lenders, Defendant–Appellee,

Citicorp North America, Inc., Certain First Lien Term Lenders, Intervenors–Appellees,

v.Official Committee of Unsecured Creditors, Plaintiff–Appellant.

No. 11–11071.

United States Court of Appeals,

Eleventh Circuit.

May 15, 2012.

Ceci Berman, Darren D. Farfante, Fowler White Boggs, PA, Tampa, FL, Andrew M. Leblanc, Milbank, Tweed, Hadley & McCloy, LLP, Washington, DC, Nancy A. Copperthwaite, Akerman Senterfitt, LLP, Miami, FL, Michael I. Goldberg, Akerman Senterfitt, LLP, Fort Lauderdale, FL, Stephen M. Mertz, Faegre Baker Daniels, LLP, Minneapolis, MN, Atara Miller, Gabrielle Lynn Ruha, Milbank, Tweed, Hadley & McCloy, LLP, New York City, for Defendant–Appellee.

Thomas J. Hall, Thomas J. McCormack, Seven Rivera, Chadbourne & Parke, LLP, Philip Korologos, Eric Brenner, Boies, Schiller & Flexner, LLP, New York City, Richard C. Prosser, Stichter, Riedel, Blain & Prosser, PA, Tampa, FL, Evan Daniel Flaschen, Daynor M. Carman, Gregory W. Nye, Bracewell & Giuliani, LLP, Hartford, CT, Scott L. Baena, Jeffrey Ira Snyder, Bilzin, Sumberg, Baena, Price & Axelrod, LLP, Jennifer G. Altman, Stephen N. Zack, Boies, Schiller & Flexner, LLP, Miami, FL, Justin Brett Busby, Bracewell & Giuliani, LLP, Houston, TX, for Intervenors–Appellees.

Lawrence Saul Robbins, Mark A. Hiller, Donald J. Russell, Michael L. Waldman, Robbins, Russell, Englert, Orseck, Untereiner & Sauber, LLP, Washington, DC, David C. Pollack, Patricia Ann Redmond, Sterns, Weaver, Miller, Weissler, Alhadeff & Sitterson, PA, Miami, FL, for Plaintiff–Appellant.

Christopher J. Wright, Harris, Wiltshire & Grannis, LLP, Washington, DC, for National Ass'n of Bankruptcy Trustees, Amicus Curiae.

James B. Heaton, Ashley Conrad Keller, Bartlit, Beck, Herman, Palenchar & Scott, LLP, Chicago, IL, for Bankruptcy Scholars, Amicus Curiae.

Thomas M. Messana, Messana, PA, Fort Lauderdale, FL, Elliot Ganz, The Loan Syndications and Trading Ass'n, Mark A. McDermott, George A. Zimmerman, Skadden, Arps, Slate, Meagher & Flom, LLP, New York City, for The Loan Syndications and Trading Ass'n, Amicus Curiae.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, PRYOR and FAY, Circuit Judges.

PRYOR, Circuit Judge:

This bankruptcy appeal involves a transfer of liens by subsidiaries of TOUSA, Inc., to secure the payment of a debt owed only by their parent, TOUSA. On July 31, 2007, TOUSA paid a settlement of $421 million to the Senior Transeastern Lenders with loan proceeds from the New Lenders secured primarily by the assets of several subsidiaries of TOUSA. Six months later, TOUSA and the Conveying Subsidiaries filed for bankruptcy. In an adversary proceeding filed by the Committee of Unsecured Creditors of TOUSA, the bankruptcy court avoided the liens as a fraudulent transfer because the Conveying Subsidiaries did not receive reasonably equivalent value; ordered the Transeastern Lenders to disgorge $403 million of the loan proceeds because the transfer of the liens was for the benefit of the Transeastern Lenders; and awarded damages to the Conveying Subsidiaries. The Transeastern Lenders and the New Lenders, as intervenors, appealed. The district court quashed the judgment as to the Transeastern Lenders and stayed the appeal of the New Lenders. This appeal by the Committee of Unsecured Creditors presents two issues: (1) whether the bankruptcy court clearly erred when it found that the Conveying Subsidiaries did not receive reasonably equivalent value in exchange for the liens to secure loans used to pay a debt owed only by TOUSA, 11 U.S.C. § 548; and (2) whether the Transeastern Lenders were entities “for whose benefit” the Conveying Subsidiaries transferred the liens, 11 U.S.C. § 550(a)(1). We hold that the bankruptcy court did not clearly err when it found that the Conveying Subsidiaries did not receive reasonably equivalent value for the liens and that the bankruptcy court correctly ruled that the Transeastern Lenders were entities “for whose benefit” the liens were transferred. We reverse the judgment of the district court, affirm the liability findings of the bankruptcy court, and remand for further proceedings consistent with this opinion.

I. BACKGROUND

We divide our summary of the events that led to this appeal into three parts. We first recount the uncontested facts that underlie this appeal. We then review the findings of fact and conclusions of law of the bankruptcy court. Finally, we review the decision of the district court.

A. Factual Background

As of 2006, TOUSA, Inc., was the thirteenth largest homebuilding enterprise in the country, with operations in Florida, Texas, the mid-Atlantic states, and the western United States. The company had grown rapidly, chiefly by acquiring independent homebuilders that became subsidiaries of TOUSA. These subsidiaries owned most of the assets of the enterprise and generated virtually all of its revenue.

To finance its growth, TOUSA borrowed a lot. TOUSA issued more than $1 billion of public bonds. That debt was unsecured, but was guaranteed by the Conveying Subsidiaries. TOUSA also borrowed funds under a revolving line of credit agreement administered by Citicorp North America, Inc. The Conveying Subsidiaries and TOUSA were jointly and severally liable for repayment of the revolving loan, which was secured by liens on the assets of the companies. Both the bond debt and revolving loan agreements provided that an adverse judgment for more than $10 million against TOUSA or any of its subsidiaries or a bankruptcy filing by TOUSA or any of its subsidiaries would constitute an event of default, which would permit the bondholders and Citicorp to declare all outstanding amounts of debt due immediately. As of July 31, 2007, TOUSA had approximately $1.061 billion of principal outstanding on its bond debt and $224 million outstanding on its revolving loan.

In June 2005, TOUSA entered a joint venture with Falcone/Ritchie LLC to acquire homebuilding assets owned by Transeastern Properties, Inc., in Florida. TOUSA incurred more debt, this time from the Transeastern Lenders, to fund the Transeastern Joint Venture, but none of the Conveying Subsidiaries became an obligor or guarantor of the Transeastern debt.

The downturn in the housing market soon threatened the Transeastern Joint Venture. By October 4, 2006, the joint venture had defaulted on several obligations. At the end of that month, the Transeastern Lenders alleged defaults and demanded payment from TOUSA. In December 2006, the Transeastern Lenders sued TOUSA, and in January 2007, the Transeastern Lenders alleged that TOUSA was responsible for damages of over $2 billion.

On July 31, 2007, TOUSA executed settlements with its partner in the joint venture and the Transeastern Lenders. The settlements required TOUSA to pay more than $421 million to the Transeastern Lenders. To finance the settlements, TOUSA and some of its subsidiaries incurred new debt. Citicorp North America, Inc. agreed to syndicate two new term loans to TOUSA and the Conveying Subsidiaries: a $200 million loan from the First Lien Lenders, to be secured by first-priority liens on the assets of the Conveying Subsidiaries and TOUSA; and a $300 million loan from the Second Lien Lenders, to be secured by second-priority liens. Both loan agreements with these New Lenders required that the funds be used to pay the $421 million settlement with the Transeastern Lenders. TOUSA also amended its revolving credit agreement with Citicorp.

The transaction was executed in several parts. First, Citicorp transferred $476,418,784.40 to Universal Land Title, Inc., a wholly-owned subsidiary of TOUSA that was not one of the Conveying Subsidiaries. Universal Land Title then sent a wire transfer of $426,383,828.08 to CIT, the administrative agent for the Transeastern Lenders. CIT disbursed the proceeds of that transfer on July 31 and August 1, 2007. The Transeastern Lenders received $421,015,089.15 and the remaining funds were dispersed to third parties to cover professional, advisory, and other fees.

B. Bankruptcy Court Proceedings

Six months later, TOUSA and the Conveying Subsidiaries filed petitions for bankruptcy under Chapter 11. The Committee of Unsecured Creditors of TOUSA, on behalf of the estate of TOUSA, later filed an adversary proceeding against the New Lenders and the Transeastern Lenders to avoid as a fraudulent transfer, see11 U.S.C. § 548(a)(1)(B), the transfer of the liens to the New Lenders and to recover the value of the liens from the Transeastern Lenders, see11 U.S.C. § 550(a)(1). The Committee alleged that the transfer of the liens by the Conveying Subsidiaries to the New Lenders was a fraudulent transfer under section 548(a)(1)(B) because the Conveying Subsidiaries were insolvent when the transfer occurred, were made insolvent by the transfer, had unreasonably small capital, or were unable to pay their debts when due; and the Conveying Subsidiaries did not receive reasonably equivalent value in exchange for their transfer. See11 U.S.C. § 548(a)(1)(B). The Committee demanded that the bankruptcy court avoid the liens and order the Transeastern Lenders, as the entities “for whose benefit” the transfer was made, 11 U.S.C. § 550(a)(1), to disgorge the proceeds of the loans.

The Transeastern Lenders and New Lenders responded that the transfer of the liens was not fraudulent because the Conveying Subsidiaries had received reasonably equivalent value in exchange for their liens. The Transeastern Lenders and New Lenders highlighted numerous purported benefits of the transaction, but the crucial source of alleged value for the Conveying Subsidiaries was the economic benefit of avoiding default and bankruptcy. The Transeastern Lenders and New Lenders contended that the Transeastern Lenders were likely to secure a...