Funds Talk: 2015
Consumer Financial Protection Bureau Investigations: What’s Different, What’s the Same
First Mariner Bancorp — Kramer Levin represented First Mariner Bancorp (n/k/a Capital Trust Holdings, Inc.), a Maryland bank holding company, in connection with its bankruptcy proceeding commenced on February 10, 2014 in the United States Bankruptcy Court for the District of Maryland. In less than 10 months from the bankruptcy filing, Kramer Levin attorneys successfully managed a process through which the Debtor marketed, sold and recapitalized its wholly owned subsidiary bank (the largest bank headquartered in Baltimore), and proposed and confirmed a fully consensual Chapter 11 plan of liquidation that will provide meaningful distributions to the Debtor’s creditors. The Chapter 11 Plan was initially objected to by the United States Trustee, but following ongoing discussions amongst the parties and consideration of the arguments set out in Kramer Levin’s brief in support of the plan’s confirmation, the objection was withdrawn and a consensual Chapter 11 plan was confirmed.
Residential Capital — Kramer Levin represented the Official Committee of Unsecured Creditors (“UCC”) in the Residential Capital (“ResCap”) bankruptcy case, the largest bankruptcy of 2012. ResCap was a wholly-owned subsidiary of Ally Financial, Inc. (“AFI”), and originated and/or serviced over 2.4 million domestic residential mortgage loans with a value of approximately $374 billion. Kramer Levin litigators conducted an investigation into myriad complex prepetition related-party transactions between ResCap and AFI. A separate Kramer Levin litigation team simultaneously challenged an unprecedented $8.7 billion settlement of RMBS “put-back” claims in the Chapter 11 case that contemplated broad estate and third-party releases to AFI in return for AFI’s capped plan contribution of $750 million. Virtually on the eve of the trial of that challenge, and following mediation, ResCap, the UCC, AFI and certain other key creditor constituencies reached agreement on the terms of a settlement that resolved a wide range of disputes and sets the stage for a largely consensual plan confirmation process. The cornerstone of the settlement was AFI’s agreement to nearly triple its original proposed plan contribution from $750 million to $2.1 billion – substantially increasing expected recoveries by creditors. ResCap confirmed its chapter 11 plan, jointly proposed with the Creditors’ Committee, on December 11, 2013 and emerged from bankruptcy on December 17, 2013.
Jefferson County — On behalf of an Ad Hoc group holding more than $872 million in Jefferson County sewer warrants, we moved to lift the bankruptcy stay on the ground that the County had failed to pursue a feasible refinancing of its $3.1 billion in sewer warrants based on lower market interest rates and concessions our clients were prepared to make – breaking from a previously rigid “creditor nation” which had refused to negotiate a Chapter 9 plan. Our motion catalyzed negotiations and our group became the first to negotiate a plan support agreement which became the template for the major settlement announced on June 4, 2013. Our clients’ warrants are insured by Financial Guaranty Insurance Company (“FGIC”), itself in rehabilitation proceedings. FGIC tried to use its rehabilitation plan to maintain FGIC’s control over all debt securities it had insured even though it was paying only 15-25% of those securities. We objected to FGIC’s plan and FGIC retreated, stipulating that our clients would control their insured warrants without interference from FGIC.
Charter Communications — Kramer Levin represented first lien bank lenders holding approximately $2 billion in claims in opposing confirmation of the debtors’ plan of reorganization. The debtors’ plan was premised on reinstatement of their first lien debt. During the course of a 19-day confirmation hearing, and associated discovery and briefing, Kramer Levin argued that the debt could not be reinstated — and the plan could not be confirmed — because confirmation would result in a change of control of the company in violation of the terms of the first lien credit agreement.
Bernard L. Madoff Investment Securities, LLC — Kramer Levin represents numerous defrauded Madoff investors with respect to their rights in connection with clawback litigation in the Madoff SIPC proceedings.
United Airlines — Kramer Levin represented United Airlines bondholders in an appeal relating to the valuation of airport terminal space at Los Angeles International Airport (LAX). Based on Kramer Levin’s arguments, the United States Court of Appeals for the Seventh Circuit reversed decisions of the bankruptcy and district courts that had valued United’s terminal space at LAX securing certain airport revenue bonds at $33 million. Due to its success in the appellate litigation, Kramer Levin was able to negotiate a settlement with United and the City of Los Angeles in which bondholders will receive approximately $75 million, or 125% of their claims, a major victory for bondholders.
Magna Entertainment — Kramer Levin represented the Official Committee of Unsecured Creditors of Magna Entertainment Corporation. Kramer Levin, on behalf of the Committee, commenced an adversary proceeding seeking to recharacterize or equitably subordinate in excess of $375 million in insider loans from Magna’s majority shareholder, MI Developments and also sought standing to sue certain officers and directors on claims of breach of fiduciary. The Court granted the Committee standing to sue the officers and directors and the Court denied a motion from MI Developments to dismiss the adversary complaint. Over the course of the following four months, Kramer Levin conducted extensive discovery, taking and defending dozens of depositions, interviewing witnesses and reviewing a million pages of documents and preparing for trial on an expedited basis. On the eve of trial, the defendants agreed to settle the Committee’s claims for a combination of cash and a share of the proceeds of certain asset sales. The gross value to unsecured creditors of the total settlement was estimated to be at least $130 million — an approximate 40% recovery for unsecured creditors. When confirming the Magna plan, the Bankruptcy Court called this result “phenomenal.”
Bayou Group Hedge Funds — Kramer Levin recently represented 70 former hedge fund investors in litigation brought by Bayou to recover their redemption payments. The firm achieved a global settlement resolving Bayou’s claims at a net cost of less than one third of the amounts sought.
Citigroup — Kramer Levin’s litigation, bankruptcy and real estate lawyers collaborated to enable Citigroup to foreclose on a $126 million loan facility against an aggressive and litigious borrower. Capping a string of Kramer Levin victories in State Supreme Court, the Appellate Division and finally Bankruptcy Court in June 2009, the Bankruptcy Court denied the last in a series of emergency bids by Citigroup’s borrower, First Republic Group Realty, to prevent Citigroup from foreclosing on its $126 million loan facility that is secured by 11 shopping malls in the Southeastern United States.
Steve & Barry’s — Kramer Levin represented the founders and co-CEOs of Steve & Barry’s in connection with an investigation of numerous prepetition transactions by the Official Committee of Unsecured Creditors. The investigation resulted in a very favorable settlement that provided for a complete release of all estate claims. Kramer Levin has also represented the founders and co-CEOs in connection with related claims brought by individual creditors in New York.
M. Fabrikant & Sons, Inc. — Kramer Levin represented the post-confirmation litigation trust in a suit to recover more than $100 million diverted from the company. At the outset of the litigation, the firm obtained a pre-judgment attachment and injunction freezing all assets of Fabrikant’s principals and their affiliated companies.
WorldCom — Kramer Levin represented subordinated MCI bondholders in litigation opposing confirma-tion of a plan of reorganization that sought to substantively consolidate the MCI and WorldCom estates — and pay nothing to the bondholders — based on the debtors’ assertion that it was impossible to disentangle nearly one-third of a trillion dollars in intercompany transactions. The firm obtained a $334 million settlement for the bondholder class, increasing their recovery from zero to 44 percent.
Owens Corning — In the bankruptcy of Owens Corning, a mass tort bankruptcy of national prominence, Kramer Levin represented Credit Suisse First Boston, as Agent for a consortium of 47 bank lenders with $1.6 billion of debt, in opposing efforts by bondholders and asbestos creditors of Owens Corning to use substantive consolidation or fraudulent conveyance theories to set aside guarantees obtained by the banks against several debtor and nondebtor subsidiaries. The firm spearheaded massive discovery, including depositions of more than 30 witnesses, and a trial of the substantive consolidation issues, and played a key role in an appeal that resulted in an historic decision by the Third Circuit Court of Appeals ruling out substantive consolidation in the Owens Corning case.
WCI Steel — Kramer Levin represented the holders of $300 million in senior secured notes issued by WCI Steel, the nation’s seventh largest integrated steelmaker. After terminating exclusivity and defeating two plans filed by the debtor and its shareholder, Ira Leon Rennert, Kramer Levin confirmed a Noteholder plan with the unprecedented support of the United Steelworkers of America. The Noteholder plan gave the firm’s clients $100 million in new notes, cash to pay legal fees and expenses, and 99% of the equity of the reorganized company. The Noteholder plan also left Mr. Rennert with responsibility for WCI’s pre-bankruptcy underfunded pension plan.
Adelphia Business Solutions (ABIZ) — Kramer Levin represented the Creditors’ Committee in litigation against ABIZ’s corporate parent, Adelphia Communications Corp., obtaining a bankruptcy court ruling estimating ACC’s $70 million in claims against ABIZ at less than $3 million. That ruling led to a $200 million settlement of ABIZ’s claims against ACC, a result that doubled the overall recovery for ABIZ’s creditors.
NorthWestern Corp. — Kramer Levin represented subordinated bondholders in litigation opposing confirmation of the debtors’ initial plan of reorganization, obtaining a settlement valued at $120 million, more than four times the value provided by the initial plan.
Coram, Inc. — Kramer Levin represented the Independent Restructuring Advisor of Coram Healthcare in connection with the court-ordered investigation and report on alleged breaches of fiduciary duty and other improprieties relating to the formulation and prosecution of the debtors’ plan of reorganization.
Bruno’s Inc. — Kramer Levin represented Examiner Harrison J. Goldin, an examiner appointed by the bankruptcy court to investigate and report on potential causes of action in the bankruptcy case of Bruno’s Inc., an operator of a chain of Foodworld, Foodmax and Foodfair supermarkets in the Southeastern United States. Following a three-month investigation, Kramer Levin filed a 275‑page report, analyzing potential fraudulent transfers, “illegal distribution” and other claims arising out of a $1.2 billion leveraged recapitalization of the company.
Dow Corning — For the Tort Claimants’ Committee Kramer Levin successfully defended on appeal a $3.17 billion settlement that provided enhanced payments for breast implant and other tort claimants against Dow Corning. The firm blocked Dow Corning’s non-negotiated plan at the disclosure statement stage, as well as litigated over exclusivity, claim transfer and abstention, and achieved withdrawal of the reference. We successfully addressed the efficacy of third-party releases and the elimination of punitive damages.
SGL Carbon — In connection with its representation of the Official Committee of Unsecured Creditors, Kramer Levin obtained an order from the Third Circuit Court of Appeals dismissing the SGL bankruptcy on the ground that it had been filed in “bad faith” — the first such ruling in a chapter 11 case involving a substantial operating company.
Island Mortgage Network — Kramer Levin successfully litigated to establish a process to identify claims to multiple portfolios of mortgages that in many cases had been funded through fraud and then to sell those mortgages for the benefit of the estates and the competing claimants to the mortgages. The Trustee was able to obtain values approaching par for otherwise badly tainted assets. Thereafter, the firm successfully prosecuted more than 20 claims against participants in the Debtors’ fraud and other institutions that had fraudulently or improperly received assets of the prepetition debtors, obtaining substantial additional recoveries for the estates.
Smurfit-Stone Container Corporation — On behalf of the Official Committee of Unsecured Creditors, Kramer Levin presented and cross-examined valuation experts in successful opposition to a motion to appoint an Official Equity Committee. Several months later, Kramer Levin conducted extensive expedited discovery and a full valuation trial in opposition to the objections of two ad hoc equity groups. While the matter was under submission, settlement was reached with the ad hoc equity groups on favorable terms, with 95.5% of the equity of the reorganized company distributed to unsecured creditors.
Cooper-Standard Holdings, Inc. — On behalf of the Creditors’ Committee, Kramer Levin presented and cross-examined valuation experts in successful opposition to a motion to appoint an Official Equity Committee. Several months later, Kramer Levin conducted extensive expedited discovery and a full valuation trial in opposition to the objections of two ad hoc equity groups. While the matter was under submission, settlement was reached with the ad hoc equity groups on favorable terms, with 95.5% of the equity of the reorganized company distributed to unsecured creditors.
Autobacs Seven — Kramer Levin represented Autobacs Seven, a leading wholesaler and retailer of automotive parts in Japan, in a chapter 11 case commenced by its former subsidiary, Autobacs Strauss. Kramer Levin objected to a plan of reorganization proposed by Autobacs Strauss that would pay creditors less than in full while distributing 100% of the company’s new equity to an insider. As a result of that objection and subsequent negotiations, the debtor confirmed a consensual plan providing for, among other things, the distribution of 100% of the company’s new equity to creditors. In addition, Kramer Levin is defending Autobacs Seven against a complaint filed by the debtor seeking, among other things, the recharacterization/equitable subordination of approximately $43 million of intercompany loans as well as the recovery of $350 million in compensatory and punitive damages arising out of the debtor’s acquisition of substantially all of the assets of R&S Strauss. A motion to dismiss the complaint filed by Kramer Levin on behalf of Autobacs Seven is currently pending.
Washington Mutual — Kramer Levin represented a significant creditor in the Washington Mutual (“WaMu”) bankruptcy case that, along with several other creditors, defended claims that it improperly traded in WaMu securities while in possession of material nonpublic information. The bankruptcy court entered an order authorizing the Equity Committee to prosecute a complaint for equitable disallowance of these creditors’ claims. In February 2012, after three and a half years and after twice rejecting reorganization plans, Judge Mary Walrath confirmed a plan of reorganization that provided for a successful resolution of all claims against Kramer Levin’s client. Kramer Levin and the firm’s client helped resolve numerous complex issues in the case, leading to a consensual plan that is expected to result in a distribution of more than $7 billion of WaMu’s assets to its stakeholders.