In re Inc.

444 B.R. 613

In re TOUSA, INC., et al., Debtors.3V Capital Master Fund Ltd., et al., Appellants,

v.Official Committee of Unsecured Creditors of Tousa, Inc., et al., Appellees.

Nos. 10–60017–CIV/GOLD

10–61478

10–62032

10–62035

10–62037.

United States District Court, S.D. Florida.

Feb. 11, 2011.

Nancy A. Copperthwaite, Akerman Senterfitt, Miami, FL, Aaron D. Van Oort, Minneapolis, MN, Alan J. Stone, Milbank, Tweed, Hadley & McCloy, New York, NY, Andrew T. Beirne, Milbank, Tweed, Hadley & McCloy, New York, NY, pro hac, vice, Andrew M. Leblanc, Milbank Tweed Hadley & McCloy LLP, Washington, DC, Atara Miller, Milbank, Tweed, Hadley & McCloy, New York, NY, Melina K. Williams, Faegre & Benson, LLP, Minneapolis, MN, Michael Ira Goldberg, Akerman Senterfitt & Eidson, Fort Lauderdale, FL, Stephen M. Mertz, Faegre & Benson, LLP, Minneapolis, MN, for Senior Transeastern Lenders (Group 1).Ceci Culpepper Berman, Fowler White Boggs P.A., Tampa, FL, for Centurion CDO 10, Ltd., Centurion CDO 8, Ltd., Centurion CDO 9, Ltd., Centurion CDO 11, Ltd., Centurion CDO VI, Ltd., Centurion CDO VII, Ltd., Centurion CDO XI, Ltd., Sequils-Centurion V, Ltd., Eaton Vance Credit Opportunities Fund, Eaton Vance Floating-Rate Income Trust, Eaton Vance Grayson & Co., Eaton Vance Limited Duration Income Fund, Eaton Vance Senior Debt Portfolio, Eaton Vance Senior Floating-Rate Trust, Eaton Vance Senior Income Trust, Eaton Vance VT Floating-Rate Income Fund, Riversource Floating Rate Fund.Nancy A. Copperthwaite, Akerman Senterfitt, Miami, FL, Gabrielle Ruha, Milbank Tweed Hadley & McCloy LLP, New York, NY, Michael Ira Goldberg, Akerman Senterfitt & Eidson, Fort Lauderdale, FL, Patrick Marecki, Milbank Tweed Hadley & McCloy LLP, New York, NY, for 3V Capital Master Fund Ltd., Atascosa Investments, LLC, Aurum CLO 2002-1 Ltd., Bank of America, N.A., Bear Stearns Investment Products Inc., Burnet Partners, LLC, Deutsche Bank Trust Company Americas, Flagship CLO III, Flagship CLO IV, Flagship CLO V, Gleneagles CLO Ltd., Goldman Sachs Credit Partners, L.P., Grand Central Asset Trust, SOH Series, Grand Central Asset Trust, CED Series, Grand Central Asset Trust, HLD Series, Hartford Mutual Funds, Inc. on Behalf of the Hartford Floating Rate Fund by Hartford Investments Management Company, Their Sub-Advisor, Highland CDO Opportunity Fund, Ltd., Highland Credit Opportunities CDO Ltd., Highland Floating Rate Advantage Fund, Highland Floating Rate LLC, Highland Legacy Limited, Highland Offshore Partners, L.P., JP Morgan Chase Bank, N.A., Jasper CLO, Ltd., LL Blue Marlin Funding LLC, Liberty CLO, Ltd., Merrill Lynch Credit Products LLC, Monarch Master Funding Ltd. formerly known as Quadrangle Master Funding Ltd., Ocean Bank, Rockwall CDO, Ltd., Silver Oak Capital LLC, Stedman CBNA Loan Funding LLC, Foothills Group, Inc., Van Kampen Dynamic Credit Opportunities Fund, Van Kampen Senior Income Trust, Van Kampen Senior Loan Fund, Wells Fargo Bank N.A.Nancy A. Copperthwaite, Akerman Senterfitt, Miami, FL, Michael Ira Goldberg, Akerman Senterfitt & Eidson, Fort Lauderdale, FL, for Loan Funding VII, LLC.Aaron D. Van Oort, Minneapolis, MN, Ceci Culpepper Berman, Fowler White Boggs P.A., Tampa, FL, Melina K. Williams, Faegre & Benson, LLP, Minneapolis, MN, Stephen M. Mertz, Faegre & Benson, LLP, Minneapolis, MN, for Senior Transeastern Lenders (Group 2) Appellants Represented by Ceci Culpepper Berman.Donald J. Russell, Robbins, Russell, Englert, Orseck, Untereiner & Sauber, LLP, Washington, DC, Eric J. Feigin, Robbins Russell Englert Orseck & Untereiner, Washington, DC, Lawrence S. Robbins, Robbins Russell Englert Orseck & Untereiner, Washington, DC, Michael L. Waldman, Robbins Russell Englert Orseck & Untereiner, Washington, DC, Patricia Ann Redmond, Stearns Weaver Miller Weissler Alhadeff & Sitterson, Miami, FL, for Official Committee of Unsecured Creditors c/o Patricia Redmond.Beth A. Williams, Kirkland & Ellis, Washington, DC, Daniel T. Donovan, Kirkland & Ellis, Washington, DC, Paul A. Avron, Berger Singerman, Miami, FL, for Tousa, Inc. et al., c/o Paul Avron.

OPINION AND ORDER ON APPEALS BY TRANSEASTERN LENDERS

ALAN S. GOLD, District Judge.I. INTRODUCTION

The Appellants in this bankruptcy appeal are a collection of financial entities (the “Transeastern Lenders”) ¹ that loaned appropriately $450 million in 2005 to a homebuilding joint venture involving TOUSA, Inc. (“TOUSA”).² The Bankruptcy Court below ordered the Transeastern Lenders to disgorge, as “fraudulent transfers” under Section 548 of the Bankruptcy Code ( 11 U.S.C. Sections 101, et seq.), monies that they received on July 31, 2007, in repayment of their antecedent debt, and to pay prejudgment interest for a total disgorgement of more than $480 million dollars. The Transeastern Lenders appeal ³ from this ruling as established by the Amended Findings of Fact and Conclusions of Law [ECF No. 722 in Bankruptcy Case No. 08–10928] (“the Opinion” or “Op.”) and the Amended Final Judgment (the “Judgment”) entered on October 30, 2009 by U.S. Bankruptcy Judge John K. Olson. This Court has jurisdiction pursuant to 28 U.S.C. § 158 and Federal Rule of Bankruptcy Procedure 8001(a).

II. BACKGROUND

A. The Tousa Entities

The Debtors in the bankruptcy proceedings below were TOUSA and various affiliates and subsidiaries of TOUSA (collectively, “the Debtors”), which design, build, and market detached single-family residences, town homes, and condominiums under various brand names. [Stip., p. 2].⁴ Several aspects of this appeal focus on a subgroup of the Debtors called the “Conveying Subsidiaries.” ⁵ The TOUSA Group's assets include land and homes in various stages of completion and related assets. Between 1995 and 2005, the Debtors' business activities grew rapidly as they acquired other home-building companies. [Committee's Br., p. 13]. As of 2006, they operated the thirteenth largest home-building enterprise in the country with operations in Florida, Texas, the mid-Atlantic states, and the western United States. [First Lien Proposed Findings, pp. 1, 4]. The two main home-building subsidiaries, which held the majority of the home-building assets, were TOUSA Homes, Inc. (“THI”) and its wholly owned subsidiary, Newmark Homes LP (“Newmark”). [Stip., p. 22 n. 11].

i. Funding for the TOUSA Entities

To finance operations for itself and its subsidiaries, TOUSA relied on two principle sources of funding: bonds and a revolving credit facility.

1. Bonds

The TOUSA entities took on unsecured bond indebtedness through six major issuances between June 2002 and April 2006. On June 25, 2002, $200 million of notes were issued, which were due in 2010; on the same date, an additional $150 million of notes were issued, which were due in 2012; on February 3, 2003, $100 million in notes were issued, which were due in 2010; on March 17, 2004, $125 million of notes were issued, which were due in 2011; on December 21, 2004, $200 million of notes were issued, which were due in 2015; and on April 12, 2006, $250 million of notes were issued, which were due in 2011. [Stip., pp. 3–8; Trial Exhs. 3064–69].⁶

a. Information Contained in Bond Prospectus Documents

For each bond indenture, a Prospectus was issued, which contained information about TOUSA's structure and the nature of its operations.⁷ Bondholders who reviewed the information in the Prospectuses learned that TOUSA operated as a diverse but highly integrated enterprise in which the company's subsidiaries played a critical role in the vitality of the organization as a whole.

The Prospectuses provided collective information about the enterprise as a whole to explain its operations. They referenced “consolidated” or “combined” financial statements; they referred to the “consolidated net worth” of the enterprise; and they noted that TOUSA marketed homes under “various brand names.” [ E.g., Trial Exh. 3296, pp. 1, 7, 10]. The Prospectuses also provided information about how bond notes would be paid, including details on interest rates. TOUSA was primarily responsible for payment of the notes, but the consolidated financial statements made it clear that the funds used to pay the notes would derive from the net operations of TOUSA and its subsidiaries. [Trial Exh. 3064, p. 41]. On each level, the TOUSA enterprise's decision to raise money through bonds and then guarantee those bonds was a collective, group effort. [Appeal Hr'g Tr. 11:24–12:2 (counsel for the Committee noting that “the bond debt was used for the purchase of real estate and companies that were being rolled up, and those decisions, it is true, were made at headquarters”); id. at 13:17–22 (counsel for the Committee agreeing that “there was no money that went initially on the bonds that later became notes directly to the subsidiaries [because the bond debt was a joint effort among the TOUSA and its subsidiaries]”) ].

When identifying certain “Risks related to the Notes,” TOUSA stated in the Prospectuses that “[w]e may not have sufficient funds to satisfy our repurchase obligations that arise upon a change in control or a decline in our consolidated net worth.” [Trial Exh. 3296, p. 12 (emphasis added) ]. The Prospectuses also noted that cash flows for the TOUSA enterprise were heavily dependent on the role of the subsidiaries:

Substantially all of our operations are conducted through our subsidiaries. Therefore, our ability to service our debt, including the notes, is dependent upon the cash flows of those subsidiaries and, to the extent they are not subsidiary guarantors, their ability to distribute those cash flows as dividends, loans or other payments to the entities which are obligors under the notes and the guarantees.

[ Id. at 13 (emphasis added) ].

Because the subsidiaries played such a vital role to the bondholders, the Prospectuses also specifically referenced and disclosed other debts of the borrowers, including the subsidiaries. For example, the Prospectuses provided information to bondholders about the guarantees...