In Re Tousa: District Court Reverses Bankruptcy Court's Order Requiring Lenders To Disgorge $480 Million As Fraudulent Transfer


On February 11, 2011, the Hon. Alan Gold of the United States District Court for the Southern District of Florida issued a 113 page opinion and order quashing the bankruptcy court's order requiring the lenders involved in TOUSA, Inc.'s Transeastern joint venture to disgorge, as fraudulent transfers under Section 548 of the Bankruptcy Code, settlement monies that they had received on July 31, 2007 in repayment of their existing debt and to pay prejudgment interest on such monies, for a total disgorgement in excess of $480 million.

Judge Gold's decision signifies a victory for lenders who have criticized the bankruptcy court's order as unduly broadening the scope of fraudulent transfer risk and liability to lenders and for failing to recognize the commercial realities of financing provided to a corporate group. However, whether Judge Gold's decision will withstand the scrutiny of appeal to the Eleventh Circuit remains to be seen.

TOUSA and the July 31 Transaction

In June 2005, TOUSA, Inc. ("TOUSA")'s wholly-owned subsidiary Tousa Homes LP ("Homes LP") entered into a joint venture (the "Transeastern JV") with an unaffiliated entity for the purpose of acquiring certain homebuilding assets. The Transeastern JV was funded primarily by $675 million of financing from various lenders (the "Transeastern Lenders"). TOUSA and Homes LP were obligated as guarantors under multiple completion and carve-out guarantees in favor of the Transeastern Lenders.

In or about September 2006, the TOUSA obligors went into default under the Transeastern credit agreements. In late 2006, litigation ensued between TOUSA and Homes LP and the Transeastern Lenders. The Transeastern Lenders alleged more than $600 million was advanced under the Transeastern credit agreements and that liability under the completion guarantees exceed the full amounts owing under the credit agreements several times over.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:


Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.