Eleventh Circuit Reverses TOUSA District Court Decision and Holds Lenders Liable for Fraudulent Transfer

The U.S. Court of Appeals for the Eleventh Circuit has reversed a district court's February 2011 decision that lenders were not liable on a fraudulent transfer claim. In In re TOUSA, Inc., the circuit court rejected the district court's finding that corporate subsidiaries had received "reasonably equivalent value" when they encumbered their assets to secure a loan made to them and their corporate parent. Agreeing with the bankruptcy court's earlier 2009 decision, the court of appeals held that the "bankruptcy court did not clearly err.... [T]he Subsidiaries did not receive reasonably equivalent value for the liens" they had granted to the so-called "Term Lenders." Also, reasoned the court, "the bankruptcy court correctly ruled that the [defendant] Transeastern Lenders [whose loan was repaid] were entities 'for whose benefit' the liens were transferred," thus making them liable to pay the value of the liens, roughly $403 million.