Solvency Drives Dismissal of Fraudulent Transfer Suit

The U.S. Court of Appeals for the Fifth Circuit, on July 30, 2014, affirmed a district court’s dismissal of a litigation trustee’s $2.5 billion fraudulent transfer suit against the Chapter 11 debtor’s corporate parent based on the debtor’s solvency. U.S. Bank National Association v. Verizon Communications Inc. (5th Cir. July 30, 2014). The district court, using a market capitalization valuation, found the debtor to be solvent when it closed a major transaction with its parent. That ruling ultimately forced the dismissal of all the trustee’s related claims, including breach of fiduciary duty and improper dividends. In this article, SRZ partner Michael L. Cook discusses the Fifth Circuit’s decision.