Key Wins for Wilmington Trust Secure Determination of Tax Asset Ownership

SRZ represented Wilmington Trust Co. in a series of key wins over the FDIC to secure ownership of an expected tax refund of over $400 million for the bankruptcy estate of Downey Financial Corp. Wilmington Trust is a substantial creditor of the estate, as indenture trustee for hundreds of millions of dollars of Downey Financial notes.

In the fall of 2013, SRZ won a judgment in the Delaware bankruptcy court declaring the tax refunds to be property of the Downey Financial estate, rather than property of the FDIC as receiver of Downey Financial's former subsidiary bank. The FDIC appealed that decision. Wilmington Trust wanted the appeal resolved quickly, so that moneys could be distributed to creditors of Downey Financial sooner rather than later. 

In an unusual procedural step, SRZ moved to have the FDIC's appeal case accelerated, seeking certification from the bankruptcy court to have the appeal bypass the District Court and go directly to the U.S. Court of Appeals for the Third Circuit because of the issue's significance. The FDIC vigorously objected, arguing that there was no need to expedite the appeal, and that appeals of other tax refund cases in which the FDIC was involved should be decided first.

The bankruptcy court ruled in our favor, certifying the FDIC's appeal for direct review by the Third Circuit. On March 7, 2014, the Third Circuit granted our petition to accept the certification and hear the case and denied a request by the FDIC that briefing be suspended pending resolution of the other FDIC cases dealing with the tax refund issue. On Jan. 26, 2015, the Third Circuit upheld the bankruptcy court's decision that the disputed tax refunds are the property of the bankruptcy estate.

The SRZ team representing Wilmington Trust was led by former Schulte lawyer Alan R. Glickman. The team also included litigation partner William H. Gussman, Jr., business reorganization partner Adam C. Harri, tax partner Dan A. Kusnetz and former Schulte lawyer James T. Bentley.