Capmark Fin. Grp. Inc. v. Goldman Sachs Credit Partners L.P.

• Decision Date: 09 April 2013
• Docket Number: No. 11 Civ. 7511.,11 Civ. 7511.
• Citation: 491 B.R. 335
• Parties: CAPMARK FINANCIAL GROUP INC.; Summit Crest Ventures, LLC; Capmark Capital LLC (f/k/a Capmark Capital Inc.); Capmark Finance LLC (f/k/a Capmark Finance Inc.); Commercial Equity Investments LLC (f/k/a Commercial Equity Investments Inc.); Mortgage Investments LLC; Net Lease Acquisition LLC; SJM Cap, LLC; Capmark Affordable Equity Holdings LLC (f/k/a Capmark Affordable Equity Holdings Inc.); Capmark Reo Holding LLC; and Capmark Investments LP, Plaintiffs, v. GOLDMAN SACHS CREDIT PARTNERS L.P.; Goldman Sachs Canada Credit Partners Co.; Goldman Sachs Mortgage Company; and Goldman Sachs Lending Partners LLC, Defendants.
• Court: U.S. District Court — Southern District of New York

491 B.R. 335

CAPMARK FINANCIAL GROUP INC.; Summit Crest Ventures, LLC; Capmark Capital LLC (f/k/a Capmark Capital Inc.); Capmark Finance LLC (f/k/a Capmark Finance Inc.); Commercial Equity Investments LLC (f/k/a Commercial Equity Investments Inc.); Mortgage Investments LLC; Net Lease Acquisition LLC; SJM Cap, LLC; Capmark Affordable Equity Holdings LLC (f/k/a Capmark Affordable Equity Holdings Inc.); Capmark Reo Holding LLC; and Capmark Investments LP, Plaintiffs,

v.GOLDMAN SACHS CREDIT PARTNERS L.P.; Goldman Sachs Canada Credit Partners Co.; Goldman Sachs Mortgage Company; and Goldman Sachs Lending Partners LLC, Defendants.

No. 11 Civ. 7511.

United States District Court,

S.D. New York.

April 9, 2013.

Kasowitz, Benson, Torres & Friedman LLP, by Michael C. Harwood, Esq., Adam L. Sniff, Esq., New York, NY, for Plaintiffs.

Davis Polk & Wardwell LLP, by Benjamin S. Kaminetzky, Esq., Andrew D. Schlichter, Esq., New York, NY, for Defendants.

OPINION

SWEET, District Judge.

Defendants Goldman Sachs Credit Partners L.P., Goldman Sachs Canada Credit Partners Co., Goldman Sachs Mortgage Company, and Goldman Sachs Lending Partners LLC (the “Goldman Lenders” or the “Defendants”), have moved pursuant to Rule 12(b)(6) of the Federal Rule of Civil Procedure to dismiss the Amended Complaint (the “AC”) of plaintiffs Capmark Financial Group Inc. (“CFGI”), Summit Crest Ventures, LLC, Capmark Capital LLC (f/k/a Capmark Capital Inc.), Capmark Finance LLC (f/k/a Capmark Finance Inc.), Commercial Equity Investments LLC (f/k/a Commercial Equity Investments, Inc.), Mortgage Investments, LLC, Net Lease Acquisition LLC, SJM Cap, LLC, Capmark Affordable Equity Holdings LLC (f/k/a Capmark Affordable Equity Holdings Inc.), Capmark REO Holding LLC, and Capmark Investments LP (collectively, with CFGI, the “Plaintiffs” or “Capmark”).

The issues presented here arise out of the complex transactions surrounding the $8.7 billion leveraged buyout of CFGI in 2006, a restructuring of its debt and its bankruptcy in 2009, in which the Goldman Lenders and other entities or affiliates of the Goldman Sachs Group Inc. (the “Goldman Sachs Group”), the parent of the Goldman Lenders were involved. The AC asserts claims that the $145 million payment to the Goldman Lenders was a preferential transfer that must be avoided because the Goldman Sachs, though its affiliates, were statutory and non-statutory insiders. The Plaintiffs seek to overcome the corporate differentiations and the Goldman Lenders insist upon their preservation. Able counsel has presented the complicated issues with skill and diligence.

These distinctions in form are relied upon by participants in structuring complex financial transactions such as those presented here and Plaintiff's present position is a reversal of their prior representations. Upon the conclusions set forth below, the motion of the Goldman Lenders is granted and the AC is dismissed.

I. Prior Proceedings

The Plaintiffs' predecessors (the “Debtors”) entered into two unsecured credit facilities in March 2006, pursuant to which they incurred $8.7 billion in unsecured debt from various lenders, including the Defendants. In connection with this loan, Goldman Sachs Group managed the PIA Funds, which along with other lenders, created a limited liability company that owned 74% of CFGI. In May 2009, the Debtors partially repaid this debt by entering into a $1.5 billion secured credit facility.

According to the Plaintiffs, as a lender with a member on CFGI's Board of Directors, the Goldman Lenders stood on both sides of this new loan. The Plaintiffs contend that, as a result of this transaction, the Defendants received $147 million to reduce their unsecured loan and held a new secured loan that was better positioned to receive payment in full when the Plaintiffs' predecessor entity declared bankruptcy in October 2009.

After several months of unsuccessful attempts to negotiate a comprehensive out-of-court restructuring, on October 25, 2009, Capmark commenced voluntary Chapter 11 proceedings in the United States Bankruptcy Court for the District of Delaware before the Honorable Christopher S. Sontchi.

According to Defendants, on August 10, 2010, the Official Committee of Unsecured Creditors (the “Committee”) filed a motion seeking standing to pursue, among other things, the same preference claims against the Goldman Lenders that are now at issue in this litigation. After briefing and discovery on the Committee's standing motion and a closely-related settlement involving broader claims against all secured lenders on October 14, 2010, Judge Sontchi commenced a five-day evidentiary hearing to consider both the settlement and the Committee's standing motion. Capmark took the position that the Committee's preference claims “cannot satisfy the test for colorability” and “are insufficient to survive the pleadings stage, much less present any likelihood of success on the merits.” (Kaminetzky Decl., Ex. D. at ¶¶ 43, 80).

On November 1, 2010, Judge Sontchi issued a ninety-three document entitled “Findings of Fact and Conclusions” of Law (the “Findings and Conclusions”) in which he, among other things, approved the settlement and denied as moot the Committee's motion for standing to pursue the preference claims.

The Committee filed a motion for reconsideration as to its standing to pursue the preference claims. Judge Sontchi held a hearing on the Committee's reconsideration motion on April 11, 2011. According to the Defendants, at that hearing, Judge Sontchi explained that while he did not consciously intend to characterize the Committee's preference claims as moot, he stood ready to expand upon his Findings and Conclusions to address those claims. The Defendants contend that when it became increasingly apparent that Judge Sontchi might issue a definitive adverse ruling on the merits as to the preference claims, the Committee sought to withdraw its standing motion without prejudice with leave to refile. When Judge Sontchi refused, stating that any dismissal or withdrawal of the motion would be with prejudice, the Committee withdrew with prejudice its motion for standing to pursue the preference claims. The Plaintiffs' disagree with the Defendants' characterization of the April 2011 hearing, instead noting that the Bankruptcy Court acknowledged that its opinion was not intended to address the Committee's standing to bring the insider preference claims, which were independent of the approved settlement.

According to the Defendants, Judge Sontchi, in his order approving the Committee's withdrawal of its standing motion with prejudice, expressly reserved the Goldman Sachs creditors' right to argue that the Plaintiffs, as the reorganized entity emerging out of the Chapter 11 proceedings, are the alter ego of the Committee, and, as such, are likewise precluded from asserting the preference claims. The Defendants also contend that the Bankruptcy Court reserved jurisdiction over this issue. The Plaintiffs dispute this characterization of the Bankruptcy Court's order. According to the Plaintiffs, on August 24, 2011, Judge Sontchi confirmed the debtors' plan or reorganization, under which the Plaintiffs retained the right to prosecute the insider preference claims that are the subject of this action.

On September 30, 2011, Capmark emerged from bankruptcy, the Committee was dissolved, and the Committee's constituents acquired over 99% of the equity in the Plaintiffs, who constitute the reorganized debtor that emerged from the bankruptcy proceedings.

On October 24, 2011, the Plaintiffs commenced the present action in the Southern District of New York seeking to recover, as insider preferences, $147 million in transfers made by the Plaintiffs' predecessors to the Defendants within a year before the Debtors filed their petitions for reorganization in bankruptcy. According to the Defendants, the Plaintiffs in this action are the Committee in a different guise, represented by the same counsel, seeking the same relief that the Committee earlier sought before Judge Sontchi.

On May 18, 2012, Plaintiffs filed the AC, alleging that the Goldman Lenders were Capmark insiders, and that transfers allegedly made to the Goldman Lenders in connection with the Secured Credit Facility beyond the normal ninety-day preference period can be avoided pursuant to 11 U.S.C. § 547(b)(4)(B). (AC ¶¶ 82–102). Plaintiffs also allege that the Goldman Lenders were statutory insiders pursuant to 11 U.S.C. § 101, and non-statutory insiders under applicable case law. ( Id.).

The instant motion to dismiss the AC was heard and marked fully submitted on November 14, 2012.

II. Background

The facts are taken from the AC and the declarations submitted by the parties and are not in dispute except as noted below.

The Goldman Lenders are four lender subsidiaries of The Goldman Sachs Group. The Plaintiffs are CFGI and ten of its reorganized debtor affiliates.¹

On March 23, 2006, several affiliates of The Goldman Sachs Group entered into a package of intertwined agreements constituting leveraged buyout (the “LBO Transaction”) of what became CFGI. (AC ¶¶ 2, 29–36). The PIA Funds along with other investors became members of GMACCH, which acquired approximately 75% controlling ownership stake in CFGI. ( Id. ¶¶ 2, 29). The PIA Funds are four legally and operationally distinct limited partnerships primarily consisting of investor capital and managed by The Goldman Sachs Group's Principal Investment Area.² ( Id. ¶ 29). The PIA Funds held a 19.8% ownership interest in GMACCH and allegedly became a majority owner of CFGI together with its fellow LLC members. ( Id. ¶¶ 2, 29). One designee to Capmark's Board of Directors was appointed by the PIA Funds. ( Id. ¶ 86).

The Goldman Lenders acquired positions in two loans to Capmark to finance the LBO Transaction: (i) a $5.5 billion Unsecured Credit Facility dated March 23, 2006 (the “2006 Credit Facility”) with Defendant Goldman Sachs Credit Partners...