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TOUSA Case Takes Another Twist
The closely watched TOUSA, Inc. case took another twist on May 15, when the Eleventh Circuit Court of Appeals (the Court of Appeals) reversed the decision of the U.S. District Court for the Southern District of Florida (the District Court) and reinstated the bankruptcy court opinion in its entirety. Senior Transeastern Lenders v. Official Comm. Of Unsecured Creditors of TOUSA, Inc., No. 11-1107, 2012 WL 1673910 (11th Cir. May 15, 2012). In doing so, the Court of Appeals affirmed the bankruptcy court's ruling that transfers made by certain subsidiaries of TOUSA, Inc. (the Conveying Subsidiaries) were fraudulent and paved the way for the possible disgorgement of $403 million by the lenders that were on the receiving end of those fraudulent transfers. The decision reinforces the level of diligence and care that lenders must undertake in cases involving borrower subsidiaries, especially with respect to upstream loan transactions.
Factual Background
The facts of this case date back to June 2005, when Tousa Homes LP (Tousa Homes), a wholly owned subsidiary of TOUSA, Inc. (TOUSA), announced plans to acquire one of its competitors, Transeastern Properties, Inc. The acquisition was structured as a joint venture between Tousa Homes and Falcone/Ritchie LLC (Transeastern JV). In order to fund the acquisition, the Transeastern JV entered into three credit facilities with various lenders (the Transeastern Lenders), aggregating approximately $675 million. While TOUSA and Tousa Homes guaranteed the obligations under the credit facilities, none of the Conveying Subsidiaries had any obligations under the Transeastern credit facilities.
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