On February 11, 2011, in a decision that represents a significant victory for institutional lenders and other proponents of capital market financing, Judge Alan S. Gold of the United States District Court for the Southern District of Florida (the District Court) issued a 113 page opinion overturning a $480 million fraudulent transfer judgment entered by the United States Bankruptcy Court for the Southern District of Florida (the Bankruptcy Court) against the so-called “Transeastern Lenders” in the TOUSA, Inc. (TOUSA) chapter 11 bankruptcy cases.

The Bankruptcy Court’s widely criticized ruling had avoided as fraudulent transfers certain liens and related indebtedness incurred by TOUSA’s debtor subsidiaries (the “Conveying Subsidiaries,” and together with TOUSA, the Debtors) in connection with $500 million of “rescue financing” incurred by TOUSA and the Conveying Subsidiaries six months prior to the Debtors’ bankruptcy filings (the Refinancing). The proceeds of the Refinancing were used to repay the Transeastern Lenders for obligations of TOUSA that were not guaranteed by or secured by property of the Conveying Subsidiaries. In connection with its ruling, the Bankruptcy Court had also ordered the Transeastern Lenders to disgorge the proceeds of the Refinancing (with interest) on the basis that they were bad faith recipients of the proceeds of a fraudulent transfer (i.e., the Refinancing).

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