FI L ED U.S. COURT OF APPEAL S EL EVENTHCI RCUI T MAY 15, 2012 J OHN L EY CL ERK [PUBLIS H]

IN THE UN ITED STATES COURT OF APPEALS FOR THE ELE VENTH CIRCUIT

__ __ __ __ __ __ __ __ __ __ __ __ No. 1 1- 11 07 1

__ __ __ __ __ __ __ __ __ __ __ __ D.C. Dock etNos . 0: 10 -cv -6 20 35 -ASG; 0 :0 8- bk c-1 09 28 -J KO InRe: TOUSA, INC., et al ., Deb to rs .

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ SENIOR TRANSEASTERN LENDE RS, ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll Defen da nt - App el le e, CITCORP NORTH AMERICA, INC., CERTAIN FIRS T LIEN T ERM LENDERS, ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll l In te rv en or s - Ap pe ll ees , ve rs us OFFIC IAL COMMI TTEE OF UNSECURED CREDITORS, ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll ll Pl ai nt iff - App el la nt .__ __ __ __ __ __ __ __ __ __ __ __ App eal fro m

th e Uni te d S ta te s Di st ric t Co urt forth e So ut he rnDis tri ctof F lo rid a

__ __ __ __ __ __ __ __ __ __ __ __ (Ma y 15 , 20 12 ) Befo re TJ OFLAT, PRYOR andFAY, Circ ui t Jud ge s. PRYOR, Ci rcu itJu dg e: Thi s b an krup tc y

ap pe al in vo lv es a tr an sf

er o f li en s b y

subs id iarie s o f TOUSA, Inc., t o s ecu re t he pa ym en t o f a d eb t o wedon ly by th ei r pa ren t, TOUSA. On J ul y 31 , 20 07 , TOUSA pai d aset tl em en t o f $4 21 m il li on to th e Sen io r Tran se as te rnLend ers wit h l oa n p ro ceed s fr om th e New Len de rs sec ur edpri m ari ly by the ass et s o f se ve ral subs id ia rie s o f TOUSA. Six m on th s l at er, TOUSA an d t he Co nv ey in g S ub si di ari es fil edfor ba nkrupt cy . In anadve rs ary pr oc eed in g fi le d b y th e Co m m it te e o f Uns ecu redCred it or s o f TOUSA, th e b an krup tc y co urt av oi de d th e li en s as a frau du le nttra ns fer b ecau se th e Co nv ey in g S ub si di ari es di d n ot rece iv e rea so nabl y

equi va le ntva lu e; ord eredth e Tran se as te rnLend ers to di sg or ge $4 03 m il li on of t he lo anpro ceed s b ecau se th e tr an sf er o f th e li en s was forth e be ne fitof t he Tran se as te rnLend ers ; an d a ward edda m ag es to th e Co nv ey in g Subs id ia rie s. Th e Tran se as te rnLend ers an d t he New Lend ers , as i nt erv en or s, ap pe al ed . The d is tri ctco urt qua sh edth e jud gm en t as to th e Tran se as te rnLend ers 2an d s tay edth e ap pe al of t he New Lend ers . This ap pe al by the Co m m it te e o f Uns ecu redCred it or s p res en ts two is su es : (1 ) whe th er t he ba nkrupt cy co urt cl earl y erre d wh enitfou ndth atth e Co nv ey in g S ub si di ari es di d n otrece iv e rea so nabl y equi va le ntva lu e in ex ch an ge forth e li en s t o s ecu re l oa ns us edto pa y a de btowed on ly by TOUSA, 11 U.S.C . §5 48 ; an d (2 ) whe th er t he Tran se as te rnLend ers were en ti ti es “ fo r who se be ne fit ” th e Co nv ey in g S ub si di ari es tra ns ferr edth e li en s, 1 1 U.S.C. § 5 50 (a)( 1) . W e h ol d t ha t t he ba nkrupt cy co urt d idno t cl earl y

err wh enit fo un d tha t t he Co nv ey in g S ub si di ari es di d n otrece iv e rea so nabl y equi va le ntva lu e fo r th e li en s an d t ha t t he bankrupt cy co urt co rrec tl y

rul edth atth e Tran se as te rn Len de rs were en ti ti es “ fo r who se be ne fit ” th e li en s wer e tr an sf erre d. We reve rs e th e jud gm en t o f th e d is tri ctco urt, af firm th e li ab il it y

fin di ng s o f th e b an krup tc y co urt, an d re m an d fo r furth er p ro ceed in gs co ns is te ntwith t hi s o pi ni on . I. BACK GROUND W e d iv id e o ursu m

m ary of th e ev en ts th atledto th is ap pe al in to th ree p art s. W e fi rs t re co un t t he un co nt es te d fa ct s t ha t u nd erl ie th is ap pe al . W e th enrev ie w th e fi nd in gs of f

actan d c on cl us io ns of l aw of th e b an krup tc y

co urt. Fi na ll y , we rev ie w th e d eci si on of t he di st ric t co urt. A. Fact ua l Ba ckgro un d As o f 20 06 , TOUSA, Inc., was th e th irt een th lar ge stho m eb ui ld in g 3en te rp ris e in th e co un try, with op erat io ns in Flo rid a, Tex as , th e m id -Atl an ti c

st at es , andth e wes te rnUni te d S ta te s. The c om pany hadgro wn rapi dl y , chi efl y by acqui rin g i nd ep en de ntho m eb ui ld ers th atbe cam e subs id ia rie s o f TOUSA. Thes e subs id ia rie s o wne d m os t o f th e as se ts of t he en te rp ris e an d g en erat edvi rtu al ly all of it s re ve nu e. To fi na nc e it s g ro wth , TOUSA borro weda lo t. TOUSA is su edm or e th an $1 bi ll io n o f publ ic bo nd s. Th atde btwas u ns ecu red , bu t was gu aran te edby the Co nv ey in g S ub si di ari es . TOUSA also bo rro wedfun ds un de r a rev ol vi ng li ne of cred itag reem en t ad m in is te redby Citi co rp North Am eri ca, In c. The C on ve y in g Subs id ia rie s an d TOUSA were joi nt ly andsev eral ly liab le forrep aym en t o f th e rev ol vi ng lo an , whi ch was s ecu redby lien s o n t he ass et s o f th e co m pa ni es . Bo th th e b on d d eb t an d re vo lv in g l oa n a gr eem en ts pro vi de d tha t an adve rs e jud gm en t fo r m or e th an$1 0 m il li on ag ai ns t TOUSA oran y of i ts subs id ia rie s o r a ba nkrupt cy

fil in g b y TOUSA or an y

of i ts subs id ia rie s wo ul d c on st itut e an ev en t of de fau lt , whi ch wou ldpe rm itth e b on dh ol de rs an d C it ic or p t o d ecl are a ll ou ts ta nd in g a m ou nt s o f de btdu e imm ed ia te ly. As o f Ju ly 31, 2 00 7, TOUSA ha d ap pr ox im at el y

$1 .06 1 b il li on of p rin ci pa l o ut st an di ng on it s b on d d eb t an d $ 22 4 m il li on ou ts tand in g o n i ts rev ol vi ng lo an . InJu ne 20 05 , TOUSA ent ereda joi ntve ntur e wit h F al co ne /R it ch ie LLC to 4acqui re h om eb ui ld in g a ss et s o wne d b y Tran se as te rnPro pe rti es , Inc ., inFlo rid a. TOUSA in curredm or e d eb t, thi s t im e fro m th e Tran se as te rnLend ers , to fun d t he Tran se as te rnJo in t Ven tu re, b utno ne of t he Co nv ey in g S ub si di ari es be cam e an ob li go r orgu aran to r of

th e Tran se as te rnde bt . The do wnturn i n t he ho us in g m ark etso on th reat en edth e Tran se as te rnJo in t Ven tu re. By

Octo be r 4, 2 00 6, t he joi ntve ntur e h adde fau lt edon sev eral ob li ga ti on s. At the en d o f th atm on th , th e Tran se as te rnLend ers all eg edde fau lt s an d d em an de d p aym en t fr om TOUSA. In Decem

be r 20 06 , th e Tran se as te rn Len de rs su edTOUSA, andin Jan ua ry 20 07 , th e Tran se as te rnLend ers all eg edth at TOUSA was res po ns ib le for da m ag es of o ve r $2 bi ll io n. On J ul y 31 , 20 07 , TOUSA exec ut edset tl em en ts wit h i ts pa rtn er i n t he joi nt ve ntur e an d t he Tran se as te rnLend ers . The s ettl em en ts requi redTOUSA to p ay m or e th an$4 21 m il li on to th e Tran se as te rnLend ers . To fi na nc e th e se tt le m en ts , TOUSA andso m e o f it s s ub si di ari es in cu rredne w deb t. Ci ti co rp Nort h Am eri ca, In c. ag reedto syndi cat e two ne w term lo an s t o TOUSA an d t he Co nv ey in g Subs id ia rie s: a $2 00 m il li on lo anfro m th e Fi rs t Li enLend ers , to be sec ur edby fir st -p rio rit y

li en s o n t he ass et s o f th e Co nv ey in g S ub si di ari es an d TOUSA; an d a $3 00 m il li on lo anfro m

th e Sec on d Li enLend ers , to be sec ur edby seco nd -p rio rit y li en s. Bo th lo anag reem en ts wit h t he se New Lend ers requi redth atth e fu nd s b e 5us edto pa y

th e $ 42 1 m il li on set tl em en t wi th th e Tran se as te rnLend ers . TOUSA al so am en de d i ts rev ol vi ng cred itag reem en t wi th Cit ic or p. The tra ns act io n was ex ecu te d i n s ev eral pa rts . Fi rs t, Ci ti co rp tra ns ferr ed $4 76 ,41 8,7 84 .40 to Uni ve rs al LandTit le , Inc ., a who ll y -o wne d s ub si di ary of TOUSA th atwas n oton e o f th e Co nv ey in g S ub si di ari es . Uni ve rs al LandTit le th ensen t a wi re t ran sf

er o f $4 26 ,38 3,8 28 .08 to CIT, th e ad m in is tra ti ve ag en t fo r th e Tran se as te rnLend ers . CIT di sb ur se d the pro ceed s o f th attrans fer o n J ul y 31 an d Au gu st1, 2 00 7. Th e Tran se as te rnLend ers rece iv ed$4 21 ,01 5,0 89 .15 an d t he rem ai ni ng fun ds were d is pe rs edto th irdpa rti es to co ve r pr of es si on al , adv is ory , an d o th er fe es . B. Ban kr up tc y Co ur t Pr oc eed in gs Si x m on th s l at er, TOUSA an d the Co nv ey in g S ub si di ari es fil edpe ti ti on s fo r ba nkrupt cy

un de r Ch ap te r 11 . The Co m m it te e o f Uns ecu redCred it or s o f TOUSA, on be ha lf o f th e es ta te of TOUSA, la te r fi le d a n a dv ers ary pr oc eed in g a ga in stth e New Lend ers an d t he Tran se as te rnLend ers to av oi d a s a f rau du le nttra ns fer, s ee 11 U.S.C. § 5 48 (a)( 1) (B), t he tra ns fer o f th e li en s t o t he New Lend ers an d t o reco ve r th e v al ue of the li en s fr om th e Tran se as te rnLend ers , see 11 U.S.C. § 55 0( a)(1 ). The C omm it te e al le ge d t ha t t he trans fer o f th e li en s b y th e Co nv ey in g S ub si di ari es to th e New Len de rs was afrau du le nttra ns fer u nd er 6se ct io n 5 48 (a)( 1) (B) b ecau se th e Co nv ey in g S ub si di ari es were i ns ol ve ntwhenth e

tra ns fer o ccu rred , were m ad e in so lv en t b y th e tr an sf

er, h adun reas on ab ly sm al l cap it al , or wer e u nabl e to pa y th ei r de bt s wh endu e; an d t he Co nv ey in g Subs id ia rie s d idno t re cei ve reas on ab ly equ iv al en t v al ue in ex ch an ge forth ei r tra ns fer. See 11 U.S.C. § 5 48 (a)( 1) (B). Th e Co m m it te e d em an de d t ha t t he ba nkrupt cy

co urt av oi d t he li en s an d o rd er t he Tran se as te rnLend ers , as t he en ti ti es

“ fo r who se be ne fit ” th e tr an sf er was m ad e, 11 U.S.C. § 5 50 (a)( 1) , to di sg or ge th e pr oc eed s o f th e lo an s. The Tran se as te rnLend ers an d New Len de rs res po nd edth atth e tr an sf er o f th e li en s was no t fr au du le ntbe cau se th e Co nv ey in g S ub si di ari es ha d re cei ve d reas on ab ly equ iv al en t v al ue in ex ch an ge forth ei r li en s. Th e Tran se as te rnLend ers an d New Len de rs hi gh li gh te d num ero us pu rp orte d b en efi ts of t he tra ns act io n, b ut th e cru ci al so ur ce o f al le ge d v al ue forth e Co nv ey in g S ub si di ari es was t he eco no m ic be ne fitof a vo id in g d efau ltan d b an krup tc y . The Tran se as te rnLend ers an d New Len de rs co nt en de d t ha t t he Tran se as te rnLend ers were l ik el y to sec ur e a jud gm en t ag ai ns t TOUSA, whi ch wou ldha ve co ns ti tu te d a n e ve ntof d efau lton m or e th an$1 bi ll io n o f de btth atth e Co nv ey in g S ub si di ari es ha d g ua ran te ed . The de fau ltwou ldha ve li ke ly force d TOUSA an d t he Co nv ey in g S ub si di ari es in to ba nkrupt cy . The t ran sa ct io n s ta ve d o ff thi s ev en t an d g av e TOUSA andth e 7Co nv ey in g S ub si di ari es anop po rtu ni ty to co nt inue as a n e nt erp ris e an d p os si bl y

be co m e p ro fit ab le ag ai n. Th e Tran se as te rnLend ers an d New Len de rs co nt en de d th atth is op po rtu ni ty w as reas on ab ly equ iv al en t i n v al ue to th e o bl ig at io ns th e Co nv ey in g S ub si di ari es in cu rred . The Tran se as te rnLend ers an d New Len de rs al so arg ue d t ha t t he Co nv ey in g S ub si di ari es rece iv ednu m ero us ot he r be ne fit s, in cl ud in g ahi gh er d eb t ce il in g o n t he rev ol vi ng lo an , new t ax be ne fit s, the el im in at io n o f ad ve rs e b us in es s ef fect s fr om

th e Tran se as te rnli ti ga ti on , andth e op po rtu ni ty to re ta in acce ss to va rio us cen tra li zedservi ces pro vi de d b y TOUSA su ch as c as h m an ag em en t, p ur ch as in g, an d p ayro ll adm in is tra ti on . The Tran se as te rnLend ers arg ue d a lt ern at iv el y th at , if t he trans fer o f li en s was frau du le nt , th ey

co ul d n otbe li ab le as e nt it ie s fo r who se be ne fitth e tr an sf er was m ad e b ecau se th ey

were s ub se qu en t t ran sf

eree s o f th e lo anpro ceed s fr om TOUSA, no t en ti ti es th atbe ne fit te d i m m ed ia te ly from

th e tr an sf

er. See 11 U.S.C. § 5 50 (a)( 1) . Afte r a 1 3- day

tri al , du rin g wh ic h t he ba nkrupt cy co urt h eardex te ns iv e fac t an d e xp erttes ti m on y

an d a dm it te d o ve r 18 00 ex hi bi ts , th e b an krup tc y co urt i ss ue d it s fi nd in gs of f

actan d c on cl us io ns of l aw. See Offi ci al Co m m . of Un se cu red Cred it or s o f Tou sa , Inc ., v. Ci ti co rp N. A., Inc ., (In r e TOUSA, Inc .), 42 2 B .R. 78 3 (Ban kr . S.D. Fla. 2 00 9) . The b an krup tc y co urt fo un d t ha t t he Co nv ey in g 8Subs id ia rie s wer e u nabl e to pa y th ei r de bt s wh endu e, ha d u nr eas on ab ly sm al l cap it al , andwere i ns ol ve ntbe fo re an d a fte r th e tr an sa ct io n; th atth e Co nv ey in g Subs id ia rie s d idno t re cei ve va lu e rea so nabl y equi va le ntto th e $ 40 3 m il li on of ob li ga ti on s t he y

in cu rred ; an d t ha t t he Tran se as te rnLend ers were en ti ti es for who se be ne fitth e Co nv ey in g S ub si di ari es gra nt edli en s t o t he New Lend ers . The ba nkrupt cy

co urt cr ed it edexpe rt o pi ni ontes ti m on y th atth e Co nv ey in g Subs id ia rie s wer e in so lv en t b ot h b efo re an d a fte r th e tr an sa ct io n o f Ju ly 31, 2 00 7. Exp ert s i n re al est at e v al ue , publ ic acco un ti ng , andin so lv en cy ex am in edth e fin an ci al reco rd s o f TOUSA andth e Co nv ey in g S ub si di ari es an d c on cl ud edth at th e li ab il it ie s o f eac h o f th e Co nv ey in g S ub si di ari es ex ceed edth e fai r va lu e o f th ei r as se ts be fo re the tra ns act io n. Th e b an krup tc y co urt fo un d t ha t the Co nv ey in g Subs id ia rie s b ecame evenm or e d eep ly ins ol ve ntaft er i nc urrin g a dd it io na l d eb t th ro ug h t he tra ns act io n. Th e b an krup tc y co urt al so cred it edex pe rt o pi ni on te st im on y th at , aft er t he tra ns act io n, t he Co nv ey in g S ub si di ari es ha d u nr eas on ab ly sm al l capi ta l an d wer e u nabl e to pa y th ei r de bt s as th ey

cam e due . The ba nkrupt cy

co urt t he n a ss es se d wh ethe r th e Co nv ey in g S ub si di ari es rece iv edreas on ab ly equ iv al en t v al ue fro m th e tr an sa ct io n. Th e b an krup tc y co urt fir stno te d t ha t “ va lu e” i s d efi ne d i n s ect io n 5 48 as b ei ng “pr op ert y ” o r

“ sa ti sf act io n o r se cu rin g o f a p res en t o r an te ced en t d eb t o f th e d eb to r.” 1 1 U.S.C. 9§ 5 48 (a)( 1) (B)( i), (d )(2 )(A). The ba nkrupt cy co urt d et erm in edth at“ th e Co nv ey in g S ub si di ari es co ul d n otrece iv e ‘pro pe rty’ un le ss th ey ob ta in edso m e ki ndof e nf

or ceab le en ti tl em en t t o s om e ta ng ib le or i nt an gi bl e art ic le .” Inre TOUSA, 42 2 B .R. at 8 68 n.5 5. Un de r th is de fin it io n o f “ va lu e,” the ba nkrupt cy co urt fo un d t ha t, b ecau se th e Co nv ey in g S ub si di ari es di d n otrece iv e an y pro pe rty, th ey di d n otrece iv e rea so nabl y equi va le ntva lu e. The ba nkrupt cy

co urt al so is su edalt ern at iv e fi nd in gs in whi ch itass es se d th e v al ue th e Co nv ey in g S ub si di ari es rece iv edun de r th e b ro ad es t d efi ni ti on of

“ va lu e” p ro po se d b y

th e Tran se as te rnLend ers an d New Len de rs . The b an krup tc y co urt fo un d t ha t, ev enif a ll th e b en efi ts hi gh li gh te d b y th e Tran se as te rnLend ers an d New Len de rs were l eg al ly cog ni zab le , th ei r va lu e “ co ns id ered. . . as a who le , . . . f[e] ll [] well s ho rt o f ‘reaso nabl y equi va le nt ’ va lu e.” Id . at 8 69 . The ba nkrupt cy

co urt d et erm in edth e v al ue th e Co nv ey in g S ub si di ari es lo stin th e tra ns act io n a ndco m

pa redth atva lu e wit h t he va lu e o f th e b en efi ts th ey rece iv ed . The bankrupt cy

co urt d et erm in edth atth e ta x b en efi ts , pro pe rty, andservi ces th at th e Tran se as te rnLend ers an d New Len de rs pro ffer eddi d n otpro vi de reas on ab ly equi va le ntva lu e to th e Co nv ey in g S ub si di ari es . The b an krup tc y co urt al so fou nd th atth e tr an sa ct io n c ou ldno t h av e p ro vi de d s ub st an ti al va lu e p red ic at edon th e op po rtu ni ty to av oi d b an krup tc y be cau se th e fi li ng of b an krup tc y be cam e 10“ in ev it ab le .” Id . at 8 46 . The b an krup tc y co urt cr ed it edth e ex pe rt o pi ni on te st im on y of a n a cco un tantwho ha d c al cu la te d t ha t t he Co nv ey in g S ub si di ari es ha d i nc urred$4 03 m il li on of o bl ig at io ns whenth ey gra nt edli en s t o h el p s ecu re $5 00 m il li on of l oa ns fro m th e New Len de rs . The ba nkrupt cy

co urt fo un d t ha t t he all eg edbe ne fit s o f th e tr an sa ct io n wer e in subs ta nt ia l. The Tran se as te rnLend ers an d New Len de rs all eg edth aton e o f th e Co nv ey in g S ub si di ari es rece iv edco nt ro l o f pr op ert y fro m th e Tran se as te rn ve ntur e, bu t t he ba nkrupt cy co urt fo un d t ha t t he pro pe rty was worth on ly $28 m il li on an d was bu rd en edwit h $ 32 m il li on in li ab il it ie s i n a cco un ts pay ab le an d cu st om er d ep os it s. Th e b an krup tc y co urt re fu se d t o c red itth e p ro pe rty as v al ue . The bankrupt cy

co urt al so reject edth e arg um en t o f th e Tran se as te rnLend ers an d New Lend ers th atth e Co nv ey in g S ub si di ari es rece iv edva lu ab le tax be ne fit s fr om th e tr an sa ct io n. Th e Tran se as te rnLend ers an d New Len de rs arg ue d t ha t l os se s o n th e Tran se as te rnve ntur e co ul d re du ce p as t an d fu tu re t ax li ab il it y , bu t t he ba nkrupt cy

co urt fo un d tha t the Co nv ey in g S ub si di ari es rece iv edno be ne fit s be cau se th e b en efi ts wou ldaccrue to TOUSA, notth e Co nv ey in g S ub si di ari es , an d a ll of t he subs ta nt ia l l os s- ge ne rat in g e ve nt s t ha t o st en si bl y aro se fro m

th e tra ns act io n wo ul d h av e acc ru edwit ho utth e tr an sa ct io n. Th e Tran se as te rnLend ers an d New Len de rs arg ue d t ha t t he Tran se as te rnli ti ga ti on ha d n eg at iv e eff ect s o n 11th e d ay -to -d ay bu si ne ss op erat io ns of t he Co nv ey in g S ub si di ari es an d tha t t he Ju ly 31 tra ns act io n c on ferr edanin di rectbe ne fiton th e Co nv ey in g S ub si di ari es by el im in at in g t ho se effe ct s, b utth e b an krup tc y co urt fo un d t ha t tho se arg um en ts were u ns up po rte d b y

th e ev id en ce. The ba nkrupt cy co urt al so fou ndth atth e pu rp orte d b en efi ts of c on ti nu edacce ss to TOUSA corp or at e se rv ic es , su ch as pu rch as in g a ndpa yro ll adm in is tra ti on , were n otrece iv edby the Co nv ey in g Subs id ia rie s i n e xc hang e fo r th ei r li en s b ecau se th e Co nv ey in g S ub si di ari es en joy edall of t he se be ne fit s b efo re t he tra ns act io n a ndco nt in ue d t o e njo y th e co rp or at e se rv ic es ev enaft er TOUSA fil edforba nkrupt cy . The b an krup tc y co urt reject edth e arg um en ts of t he Tran se as te rnLend ers an d New Len de rs th atth e Co nv ey in g S ub si di ari es ob ta in edva lu e b ecau se th e tr an sa ct io n a ll owe d t he Co nv ey in g S ub si di ari es acce ss to anen ha nc edrev ol vi ng cred itfaci li ty. The Tran se as te rnLend ers an d New Len de rs ass ert edth at , when TOUSA acqu ire d as se ts fro m

th e Tran se as te rnJo in t Ven tu re, the bo rro win g l im iton th e rev ol vi ng lo anin crea se d, b utth e b an kr up tc y co urt fo un d t ha t t he re was no ev id en ce t ha t t he Co nv ey in g S ub si di ari es ha d a ny needfora hi gh er b orro win g l im iton th e rev ol vi ng lo an . The ba nkrupt cy

co urt fo un d t ha t an earl ie r ba nkrupt cy forTOUSA wou ld no t h av e se rio us ly harm edth e Co nv ey in g S ub si di ari es . Two ex pe rts tes ti fie d t ha t 12a TOUSA ban krup tc y wou ldno t n eces sa ril y

ha ve cau se d t he Co nv ey in g Subs id ia rie s t o d ecl are b an kr up tc y be cau se th ey

he ld95 pe rcen t o f th e as se ts of th e TOUSA ent erp ris e, whi ch th ey co ul d h av e u se d t o o bt ai n n ew fi na nc in g. Th e ba nkrupt cy

co urt cr ed it edth is tes ti m on y an d fo un d tha t Co nv ey in g S ub si di ari es wou ldno t h av e b een for cedin to ba nkrupt cy by a TO USA ba nkrupt cy . The ba nkrupt cy

co urt al so fou ndth atth e Co nv ey in g S ub si di ari es co ul d h av e o pe rat ed as in de pe nd en t en ti ti es wit ho utth e se rv ic es pro vi de d b y TOUSA. The ba nkrupt cy

co urt fo un d t ha t “ ev enass um in g t ha t al l o f th e TOUSA en ti ti es wou ldha ve sp ira le d i m m ed ia te ly int o b an krup tc y wit ho utth e Ju ly 31 Tran sa ct io n, the Tran sa ct io n was st il l t he m or e h arm fu l o pt io n.” Id. at84 7. Th e ba nkrupt cy

co urt fo un d tha t b an krup tc y forth e Co nv ey in g S ub si di ari es was

“ in ev it ab le ” if

TOUSA exec ut edth e tr an sa ct io n, i d. at84 6, s o t he tra ns act io n co ul d n otha ve co nf

erre d v al ue by giv in g t he Co nv ey in g S ub si di ari es an op po rtu ni ty to av oi d b an krup tc y . The b an krup tc y co urt fo un d t ha t t he m an ag em en t an d c on tro ll in g s ha reh ol de rs at TOUSA d eci de d t o ri skhu nd red s o f m il li on s o f do ll ars of t he ir c red it or s’ m on ey de sp it e th e im

pe nd in g d is as te r th e co m pa ny faced . The se fin di ng s b y

th e b an krup tc y

co urt wer e supp orte d b y publ ic da taan d in te rn al an al y se s an d c omm un ic at io ns fro m

TOUSA ins id ers th atsh owe d tha t t he 13tra ns act io n wo ul d a lm os t ce rta in ly fail to ke ep TOUSA andth e Co nv ey in g

Subs id ia rie s o utof b an krup tc y . By th e en d o f 20 06 , itwas c le ar tha t TOUSA was li ab le to th e Tran se as te rnLend ers for de fau lt s o n t he joi ntve ntur e, bu t t he ex te nt of th atli ab il it y

an d wh ethe r TOUSA cou ldpay ba ckit s cr ed it or s an d, i f so , ho w qu ic kl y , were s ti ll in do ub t. In te rn al do cu m en ts rev eal edth atTOUSA ins id ers real iz edth atth e li ab il it y

of t he co m

pa ny to t he Tran se as te rnLend ers co ul d fo rce TOUSA in to bankrupt cy . Lehm anBro th ers pre pa reda ba nkrupt cy wate rfal l an al y si s fo r TOUSA inFeb ru ary 20 07 . Davi d Kap la n, a s en io r fi na nc ia l ad vi so r to th e CEO of

TOUSA, sug ge st edin earl y 20 07 th atth e co m

pa ny need eda Ch ie f Res tru ctur in g Off

ic er. On Ap ril 15 , 20 07 , Larry You ng , an a dv is orto TOUSA fro m Ali xP art ne rs LLP, wrot e to Ste ph enW ag m an , th e CFO o f TOUSA, “ [W] hy ru sh to res tru ctur e in a do wn m ark etwit h aba d s etof t erm s ju stto fil e in 3 m on th s. If we n eedto fil e due to th e le nd ers /s ha reh ol de r is su es , th enlet s [s ic ] do itno w andsav e o ur se lv es ab ou t $ 50 m il li onin tra ns act io n c os t!” W ag m anag reed wit h t he ass es sm en t. OnMay 1, 20 07 , Kapl ansen t To ny Mon , th e CEO of TOUSA, a fin an ci al an al y si s o f TOUSA th atackno wled ge d t he de cl in in g h ou si ng m ark et s an d s ta te d, “ [A]lth ou gh we can ag ree t o p ay Cred it or s i n fu ll an d wi th in te res t i f pa ym en ts are p os tp on ed , we can no t af fo rdto pa y

th em cas h up fr on t.” Mo n a ndW ag m anbo th arg ue d t ha t TOUSA sh ou ldpa y pa rt o f th e 14se tt le m en t wi th anin fu si on of e qu it y to av oi d t ak in g o n m or e d eb t. Bo th were co nc ern edth atin crea se d d eb t fr om th e se tt le m en t co ul d s ev erel y co ns tra in th e co m pa ny. Not es on a Mo n’s draftpre se nt at io n t o t he Bo ardwarn ed , “ [W] e m us t bu il d i n t he cap aci ty in t hi s m od el so th atwhenth e m ark etdo es tu rn , we hav e acce ss to cap it al to bu il d/ se ll pro du ct . If we can ’t do th is , we are t oa st .” InApri l of 20 07 , Mo n s en t i nf

orm at io n t o afin an ci al advi so r of th e co nt ro ll in g sh areh ol de rs st at in g t ha t t he set tl em en t wo ul d l eav e TOUSA with e xc es si ve de bt ; th atpo st -s et tl em en t TOUSA wou ldha ve li m it edacce ss to th e cap it al itwou ld ne edto gro w it s b us in es s; an d t ha t t he ab il it y of TOUSA t o e sc ap e fro m un de r it s de btco ul d b e in hi bi te d b y si gn ifi can t ri sk s i nc lu di ng furth er d et eri or at io n i n t he ho us in g m ark et , fal li ng lan d a ndho m e v al ue s, an d fu rth er weak en in g i n c red it m ark et s. Wagm anli ke wis e u rg edth e co nt ro ll in g s ha reh ol de rs to co ns id er a se tt le m en t t ha t wo ul d i nc lu de li tt le or n o n ew de btforTOUSA. Des pi te th e o bv io us ris ks po se d b y tak in g o n m or e d eb t dur in g aho us in g m ark etde cl in e, th e co nt ro ll in g s ha reh ol de rs of TOUSA, th e St en go s fa m il y , op po se d a ny set tl em en t d eal th atdi lu te d the ir e qu it y po si ti on . They di rect edMo n to term in at e d is cu ss io ns wit h p ot en ti al in ve st or s u nt il ne w fin an ci ng an d t he Tran se as te rnset tl em en t cl os ed . Due t o c on st rai nt s i m po se d b y th e St en go s fa m il y , TOUSA dec id edto fun d the set tl em en t s ol el y wit h n ew de bt . The d eal wou ld 15m ak e TOUSA th e m os t h ig hl y -le ve rag edco m pa ny in t he in du st ry . Inth e m on th s p rece di ng th e Ju ly 31 c lo si ng of t he tra ns act io n, p ub li c an d pr iv at e as se ss m en ts m ad e cl ear t ha t t he fin an ci al po si ti on of TOUSA was m ov in g, as on e se cu rit ie s an al y stwrot e, “ fro m ba d t o wo rs e.” In ve st or s re co gn iz edth e d ire st rai ts th atTOUSA faced , as e vi de nc edby the dro p i n TOUSA s to ck pri ces fro m

a hi gh of $ 23 pe r sh are i n 2 00 6 t o ju st$4 pe r sh are b y Apri l 2 00 7. TOUSA bo nd s tra de d a t d is co un ts of 3 0 t o 4 0 p erce ntof f ace v al ue in May 200 7. Aft er TOUSA pr es en te d t he pro po se d J ul y 31 tra ns act io n t o ra ti ng s ag en ci es , it s co rp or at e cre di t rat in g dro pp ed . Inth e sa m e p eri od , th e n at io na l h ou si ng m ark etwas fa stap pr oa ch in g co ll ap se . On Ma y

29 , 20 07 , Mo n a ndot he r TOUSA exe cu ti ve s re cei ve d arep ort th atSta nd ardan d P oo r’s ha d d own gr ad edth e b on d ra ti ng s o n s ev eral m ajor ho m eb ui ld ers fro m

st ab le to ne ga ti ve . On Ju ne 6, 2 00 7, TOUSA ex ecu ti ve s rece iv eda rep ort t ha t t he Nati on al Ass oc ia ti on of R eal to rs was p red ic ti ng th at pr ic es of n ew ho m es wou ldfal l 2 .3 p erce nt , andpri ces of e xi st in g h om es wou ld fal l 1 .3 p erce nt . Mo n fo rward edth e rep ort t o t he Bo ardan d n ot ed , “ FYI, th is rep res en ts [ ] th e fi rs t t im e in 40 y ears th atth e US m ed ia n h om e p ric es ha ve de cl in ed .” TOUSA m an ag em en t re co gn iz edth e im pl ic at io ns of thi s fi na nc ia l n ews for 16th e p ro po se d s et tl em en t. In anem ai l t o h im se lf o n M ay 25 , 20 07 , W ag m anno te d th atth e o ut lo okof t he rat in g a ge nc ie s fo r th e h om eb ui ld in g i ndus try was “ gr im an d g et ti ng gri m

m er,” wi th do wnwar d p res su re o n p ric es an d m arg in s. He ex pr es se d h is co nc ern s ab ou t t he pre cari ou s fi na nc ia l p os it io n o f TOUSA andth e pr op os edset tl em en t i n e sp eci al ly col or fu l l an gu ag e th atwou ldpro ve pro ph et ic :

“ As CF O, andinli gh t o f al l o f th is m ark etun cert ai nt y , I ha ve ab so lu te ly no d es ire to fly thi s p la ne to o c lo se to th e g ro un d, ac hi ev e so m e fro m [si c] of co ns en su al se tt le m en t t od ay

an d c ras h wi th in th e upc om in g year. Thatwou ldbe a cl us te rfu ck .” Inanem ai l t o t he Bo ardon Ju ne 14 , 20 07 , Mo n s ta te d tha t t he co m pa ny hadno t an ti ci pa te d t he de gr ee t o wh ic h p ro bl em s i n t he subp rime m ortg ag e se gm en ts were s pr ead in g t o l es s ri sky m ortg ag e se gm en ts . Mortg ag e le nd ers be ga n t o i m

pl em en t m or e res tri ct iv e u nd erwri ti ng pra ct ic es forres id en ti al m ortg ag e lo anap pl ic at io ns , dem an d h ig he r in te res t ra te s, an d re vo ke co m m it m en ts to ho m eb uyers. Th es e d ev el op m en ts , Mo n o bs erv ed , “ co ul d h av e a ca sc ad in g effe ctdo wn the li ne .” Mo n t ol d t he Bo ard , “ th is ho us in g c orrect io n i s fa r fro m ov er.” Atth e Bo ardm eet in g o n J un e 2 0, 2 00 7, atwhi ch th e Bo ardap pr ov edth e Ju ly 31 t ran sa ct io n, M on in fo rm edth e Bo ardth atth e U.S. ho us in g m ark etwas a t it s l owe stpo in t s in ce 1 99 1. On J un e 2 2, 2 00 7, M on sen t t he Ste ng os fam il y ’s fin an ci al advi so r a m em o 17en ti tl ed“ Strat eg ic Alt ern at iv es ,” whi ch be ga n b y ackno wled gi ng th at“ [t]he TE se tt le m en t l eav es TOUSA in ave ry di ffi cu ltpo si ti on .” Po st -tr an sa ct io n TOUSA wou ldbe “ [o ]ver-l ev erag ed ,” “ [w]ith ou t ac ces s t o t he cap it al m ark et s,” “ [i]n t he m id dl e o f a s eri ou s h ou si ng co rrec ti on ,” “ [f]orc edto reduc e as se ts at t he ‘ wro ng ti m e,’” “ [i]n n eedof asi gn ifi can t eq ui ty infu si on ,” an d “ [u ]nab le to su rv iv e sh ou ld ho us in g c on di ti on s d eg rad e fu rth er o r th e h ou si ng co rrec ti on len gt he n ap pr eci ab ly.” Mon ’s m em or an du m pre di ct edth ata “ St ay

th e Co ur se ” st rat eg y —ev enwhen co up le d wi th th e co m pa ny’ s d e-l ev erag in g p la n—wou ld le av e TOUSA un ab le to servi ce i ts $1 bi ll io n o f bo ndde bt , at a “ co m pe ti ti ve di sa dv an ta ge ,” with “ [c]api ta l [c ]ons tra in ts ” th atwou ldall ow “ [b ]arely eno ug h ‘oxygen ’ to su rv iv e,” “ [l]it tl e ro om forerro r; i nc reas edris k o f cra sh in g and bu rn in g,” “ [l]im it edab il it y to re-i nv es t i n t he bu si ne ss ,” an d “ [a]lways on th e br in k o f de fau lt .” The “ [e]nd[r]esu lt ” o f th e st rat eg y , Mo n a ckno wled ge d, wo ul d be “ [i]nc reas edris k o f fai lu re an d i nabi li ty to wi th st an d wo rs en in g b us in es s co nd it io ns .” The ba nkrupt cy

co urt fo un d t ha t M on reac he d the se di re co nc lu si on s b efo re th e Ju ne 20 Bo ardm eet in g a t wh ic h t he tra ns act io n was ap pr ov ed . Mon ex ch an ge d asubs ta nt ia ll y id en ti cal ve rs io n o f th e m em o wi th Tomm y McAd en , th enanex ecu ti ve vi ce p res id en t o f TOUSA andPres id en t o f th e Tran se as te rn 18Jo in t Ven tu re, as earl y as J un e 1 7, 2 00 7. Th e b an krup tc y co urt fo un d t ha t “ [a] m or e co m

pl et e an d p res ci en t p red ic ti on (th atth e eff ectof t he Tran se as te rn tra ns act io n wo ul d b e to lea ve TOUSA with un reas on ab ly sm al l capi ta l) wo ul d b e ha rdto im ag in e.” In re TOUSA, 42 2 B .R. at 7 95 . Inth e si x wee ks be twee n M on ’s ass es sm en t t ha t the tra ns act io n wo ul d l eav e TOUSA “ [u ]nab le to su rv iv e sh ou ldho us in g c on di ti on s d eg rad e fu rth er” a ndth e cl os in g o f th e Ju ly 31 t ran sa ct io n, h ou si ng co nd it io ns un qu es ti on ab ly deg rad ed fu rth er. On J un e 2 7, 2 00 7, M on advi se d t he Bo ardth atLenn ar, a n at io na l h om e bu il de r ba se d i n M ia m i, re po rte d a“ ve ry ug ly qua rte r” wi th “ m or e u gl in es s t o co m e” as “ ho us in g m ark et s . . . con ti nu edto de te rio rat e.” Mo n t es ti fie d t ha t

“ th ro ug ho utth e su m

m er we co nt in ue d t o s ee a d own wardsl op e in th e h ou si ng m ark et .” On J ul y

9, 2 00 7, M on sen t t he Bo ardco pi es of a rti cl es fro m Barr on ’s an d Th e Wall St reetJo urna l tha t M onde sc rib edas p ro vi di ng “ un -rel en ti ng ne ga ti ve ne ws o n h ou si ng .” Barr on ’s for es aw th atho m e sa le s v ol um e wou ld de cl in e an ot he r 20 to 25 pe rcen t. The W al l St reetJo urna l re po rte d t ha t d ecl in in g ho m e p ric es wou ldin crea se im pa irments forho m eb ui ld ers an d d ecre as e th ei r bo ok va lu es “ fo r th e fo res eeab le futur e.” By lat e Ju ly 200 7, M cAd ende sc rib edth e Fl or id a h om eb ui ld in g m ark etas h av in g g on e fro m th e “ ho tt es t m ark et ” to be in g

“ atth e b ot to m ,” with t he wors t yet to co m e fo r So ut hwe stFlo rid a. 19Fi na nc ia l re po rts fro m TOUSA reve al edth e eff ect s t he ho us in g d own tu rn was ha vi ng on th e co m

pa ny. TOUSA sal es inth e fi rs t qua rte r of 20 07 pl un ge d m or e th an16 pe rcen t fr om th e co m pa rab le qu art er t he pre vi ou s year, th e num be r of ho m es in de ve lo pm en t fe ll m or e th an20 pe rcen t, an d i ts pro fitm arg in de cl in ed . The cras h c on ti nu edin th e se co ndqu art er. On J ul y 12 , 20 07 , TOUSA not ifi ed in ve st or s t ha t i ts de li ve rie s an d s al es dro pp ed15 pe rcen t, h om es un de r co ns tru ct io n fe ll 29 pe rcen t year ov er y ear, t he can cel la ti on rat e o n s al e co nt ract s ro se to 33 pe rcen t, an d p ro fitm arg in s co nt in ue d t o fa ll . Int ern al fin an ci al rep orti ng sh owe d s im il ar d ecl in es fro m th e p rio r y ear. Num ero us an al y st s, ra ti ng s ag en ci es , andm ark etpa rti ci pa nt s re co gn iz ed th atTOUSA was d eep ly troubl ed . On May 16 , Debt wire rep orte d tha t TOUSA bo nd ho ld ers ha d warne d t ha t t he co m pa ny woul d b e en te rin g t he “ zo ne of in so lv en cy ” if

itto okon ne w deb t t o s et tl e wit h the Tran se as te rnLend ers , andth at so m e cre di to rs of TOUSA “ be li ev e[d ] th atth e p ro po se d s et tl em en t co ul d fo rce t he co m pa ny int o a n e ve ntua l b an kr up tc y .” InJu ly 200 7, ra ti ng s ag en ci es Mo od y ’s an d S tand ard& Po or ’s bo th do wng rad edth ei r rat in gs of TOUSA b on ds in co nt em pl at io n o f th e Ju ly 31 t ran sa ct io n, co nc lu di ng th atTOUSA was “ no t l ik el y ” to be ab le to m eetit s fi na nc ia l o bl ig at io ns . By Ju ly 31, 2 00 7, u ns ecu redTOUSA bo nd s wer e se ll in g a t d is co un ts as l ow as $0 .45 on th e d ol la r. 20The ba nkrupt cy co urt al so fou ndth atth e synd ic at io n p ro ces s fo r th e n ew lo an s i n t he tra ns act io n re fle ct edth e p eri lo us po si ti on of TOUSA. As t he ho us in g se ct oran d TOUSA co nt in ue d the ir d ecl in e, th e synd ic at io n m ark etforth e n ew lo an s b ecame “ [m ]ore ch al le ng in g,” an d the co stof the trans act io n l oa ns to TOUSA in crea se d. Atlea stas e arl y as J ul y 24 , len de rs were dro pp in g o utof t he de al . One o f th e le adba nk ers on th e d eal forCit ic or p, Sv et os la v Ni ko v, i nf

orm ed hi s co ll eag ue s t ha t t he y

were l os in g s ynd ic at e p art ic ip an ts , and“ [t]hi ng s wer e lo ok in g u gl y

ou t t he re.” Ma rn i M cMa nu s, t he Cit ic or p e ng ag em en t l ead er, de sc rib edlea vi ng “pa ni cky ” m es sa ge s ab ou t t he de al as t he m ark etgo t wo rs e. Ina Ju ly 24 e m ai l t o TOUSA m an ag em en t, Mc Man us urg edTOUSA to b e p rep aredto cl os e th e lo ande al s s oo n b ecau se “ th e [m ark et ] ha s co m pl et el y dri edup ,” an d

“ [t]he m ark etis go in g fr om ho rren do us to wors e.” Nearl y ha lf o f th e p ro sp ect iv e le nd ers forth e Fi rs t Li enTerm Loan dro pp edou t o f th e d eal inth e fo urda y s pr eced in g J ul y

31 . Cit ic or

p h adto pro vi de si gn ifi can t p ric in g i nc en ti ve s fo r th e le nd ers , whi ch rai se d b orro win g c os ts forTOUSA. T he fin al gro up of Ne w Len de rs in cl ud edso m e fi rm s t ha t wer e le nd ers on th e Tran se as te rnde btth atth e ne w lo an s p ai d o ff. Thro ug h t he tra ns act io n, t he se len de rs ess en ti al ly con ve rte d th ei r un se cu redlo an s t o t he Tran se as te rnJo in t Ven tu re i nt o s ecu redlo an s t o TOUSA andth e Co nv ey in g S ub si di ari es . 21The ba nkrupt cy co urt av oi de d t he tra ns fer a s fr au du le ntun de r se ct io n 5 48 an d h el d t ha t t he Tran se as te rnLend ers were “ en ti ti es forwho se be ne fit ” th e li en s were t ran sf

erre d. Se e 1 1 U.S.C. § 55 0( a)(1 ). The b an krup tc y co urt h el d t ha t, un de r co nt ro ll in g p rece de ntan d t he pl ai n l an gu ag e o f se ct io n 5 50 (a)( 1) , th e

“ Tran se as te rnLend ers di rect ly recei ve d t he be ne fitof t he Tran sa ct io n a ndth e Tran sa ct io n was un de rta ke n wi th th e u na m bi gu ou s i nt en t t ha t t he y

wou lddo so .” Inre TOUSA, 42 2 B .R. at 8 70 . The b an krup tc y co urt av oi de d t he li en s o n t he as se ts of t he Co nv ey in g S ub si di ari es an d o rd eredth e Tran se as te rnLend ers to di sg or ge $4 03 m il li on an d p reju dg m en t i nt eres t fo r th e p eri odbe twee n J ul y 31 , 20 07 , andOcto be r 13 , 20 09 . From th e d is go rg edfun ds , th e co urt awa rd edth e Co m m it te e d am ag es to co ve r th e tr an sa ct io n c os ts rel at edto th e co ns umm at io n o f th e Ju ly 31 t ran sa ct io n; th e co st s t he de bt or s an d t he Co m m it te e in cu rredin th e pr os ecu ti on of t he adve rs ary pr oc eed in g, i nc lu di ng fees an d e xp en se s p ai d t o at to rn ey s, ad vi so rs , andexpe rts ; an d t he di m in ut io n i n t he va lu e o f th e li en s be twee n J ul y

31 , 20 07 , andOcto be r 13 , 20 09 . The b an krup tc y co urt h el d t ha t t he Co m m it te e was en ti tl edto th e d im in ut io n i n the va lu e o f th e li en s b ecau se “ if t he co urt l im it s t he Trus te es to reco ve ry of t he pro pe rty its el f, an d i f th e p ro pe rty has de cl in edin va lu e, th e es ta te wil l h av e lo stth e o pp ortu ni ty to d is po se of t he pr op erty pri orto it s d ep reci at io n.” Id. at88 3 (quo ti ng Fel tm anv. Warm us (Inre 22Am . W ay

Serv . Cor

p.), 2 29 B.R. 4 96 , 53 2 (B an kr . S.D. Fla. 1 99 9) . The ba nkrupt cy

co urt o rd eredth atth e rem ai ni ng fun ds be di st rib ut edto th e Fi rs t an d Seco ndLien Lend ers . Bec au se th e se tt le m en t t he Tran se as te rnLend ers ha d reac he d wi th TOUSA hadbe enun do ne , th e b an krup tc y co urt re st or edth e un se curedcla im s o f th e Tran se as te rnLend ers ag ai ns t TOUSA an d i ts pa rtn er i n th e joi ntve ntur e. C. Dis tr ic t Co ur t Pr oc eed in gs The Tran se as te rnLend ers an d t he Fir stan d S eco ndLien Lend ers ap pe al ed , an d t he ir c as es were as si gn edto th ree s ep arat e d is tri ctco urt ju dg es . After aser ie s of tra ns fers , fiv e ap pe al s b y th e Tran se as te rnLend ers were as si gn edto on e jud ge an d fo ur ap pe al s b y

th e New Len de rs were as si gn edto an ot he r jud ge . This ap pe al ari se s fr om

th e fi ve ap pe al s b y

th e Tran se as te rnLend ers . The di stric t co urt i ss ue d a n o rd er qua sh in g t he ba nkrupt cy co urt d eci si on as itrel at edto th e li ab il it y

of t he Tran se as te rnLend ers . 3V Cap it al Mas te r Fu ndLtd . v. Offi ci al Co m

m . of Un se curedCred it or s o f TOUSA, Inc., 4 44 B.R. 6 13 , 68 0 (S.D. Fla . 20 11 ). The d is tri ctco urt h el d t ha t, as a m at te r of law, t he ba nkrupt cy co urt h adto o n arro wly de fin ed“ va lu e.” The di st ric t co urt ci te d aThi rdCir cu it de ci si on th athe ldth at“ [t]he m ere ‘op po rtu ni ty’ to rece iv e an eco no m ic be ne fitin th e fu tu re co ns ti tu te s ‘val ue ’ un de r th e Co de .” Mel lo n B an k, N.A. v. Offi ci al 23Co m

m it te e o f Uns ecu redCred it or s o f R.M.L., In c. (In re R.M.L., In c.), 9 2 F .3d 13 9, 1 48 (3dCir . 19 96 ). The d is tri ctco urt al so rel ie d o n ade ci si on of t he Eig ht h Ci rcu itth atex pl ai ne d t ha t t he co rrec t way to d et erm in e “ va lu e” was no t t o d efi ne it“ on ly in t erm s o f ta ng ib le pro pe rty or m ark et ab le fin an ci al va lu e,” b utin st eadto

“ ex am in e[] all asp ect s o f th e tr an sa ct io n a ndcare fu ll y m eas ur e[] th e v al ue of a ll be ne fit s an d b ur de ns to th e d eb to r, di rector i nd ire ct , in cl ud in g ‘in di recteco no m ic be ne fit s.’” Uni te d S ta te s v . Cry st al Evan ge li cal Free Ch ur ch (Inre Yo un g) , 82 F.3 d 1 40 7, 1 41 5 (8 th Cir . 19 96 ) (i nt ern al qu ot at io n m ark s o m it te d) va cat edon ot he r gr ou nd s, 5 21 U.S. 11 14 , 11 7 S . Ct. 2 50 2 (1 99 7) . The d is tri ctco urt al so cit ed a d eci si on by ourCo urt t ha t s ta te d t ha t Se ct io n 5 48 (a) “ do es no t au th or iz e v oi di ng a tr an sf er wh ic h ‘co nf

ers aneco no m ic be ne fitup on th e d eb to r,’ ei th er d ire ct ly or in di rect ly.” G E Cred itCo rp . v. Mu rp hy (In re Ro dr ig ue z), 8 95 F.2d72 5, 7 27 (1 1t h C ir. 1 99 0) (ci ti ng Rubi n v . Mfr. Han ov er Tru stCo ., 66 1 F .2d97 9, 9 91 (2d Ci r. 19 81 )); see als o 5 Co ll ie r On B an krup tc y ¶ 54 8.0 5, at54 8– 67 (Ala n N. Res ni ck& Hen ry

J. So m m er ed s., 1 6t h e d. 2 00 6) (“ The na tu re o f th e v al ue th atis rece iv edne edno t b e a t an gi bl e, di recteco no m ic be ne fit . An i nd ire cteco no m ic be ne fitcan su ffi ce, s o l on g a s i t i s ‘fai rly con cret e.’”). The d is tri ctco urt co nc lu de d t ha t i nd ire ctbe ne fit s, i nc lu di ng th e o pp ortu ni ty to av oi d b an krup tc y , co ul d c on st itut e “ va lu e” und er s ect io n 5 48 (a). 24The di stric t co urt t he n d et erm in edth atth e b an krup tc y co urt cl earl y

erre d whe n i t fo un d t ha t the Co nv ey in g S ub si di ari es ha d n otrece iv edreas on ab ly equi va le ntva lu e fro m

th e tr an sa ct io n. Th e d is tri ctco urt fo un d t ha t t he trans act io n ga ve th e Co nv ey in g S ub si di ari es th e o pp ortu ni ty to av oi d b an krup tc y , con ti nu e as go in g c on cern s, an d m ak e fu rth er p aym en ts to th ei r cre di to rs . The d is tri ctco urt fo un d tha t t he se be ne fit s d idno t n eedto be qu an ti fie d t o e st ab li sh reas on ab ly equi va le ntva lu e. “ In he ren tl y , th es e b en efi ts ha ve imm en se eco no m ic va lu e th at en su re the de bt or ’s networt h h as be enpre se rv ed , and , bas edon th e en ti ret y of t hi s reco rd , were n otdi sp ro po rti on at e b etween whatwas g iv enup an d wh atwas rece iv ed .” Inre TOUSA, 44 4 B .R. at 6 66 . The di stric t co urt al so he ldth atth e Tran se as te rnLend ers co ul d n ot , as a m at te r of law, b e li ab le as “ en ti ti es forwho se be ne fit ” th e tr an sf ers were m ad e be cau se th ey

di d n otbe ne fitfro m

th e tr an sf

er o f th e li en s t o t he New Lend ers wit hi n t he m ean in g o f se ct io n 5 50 (a)( 1) . The d is tri ctco urt h el d t ha t t he Tran se as te rnLend ers were s ub se qu en t t ran sf eree s o f th e p ro ceed s b ack edby the li en s, n otimm ed ia te be ne fic ia rie s o f th e tr an sf er o f th e li en s, an d tha t s ub se qu en t tra ns fere es are n otco ve redby sect io n 5 50 (a)( 1) . See i d. at67 4. Fi na ll y , th e d is tri ctco urt h el d t ha t re m an d was un ne ces sa ry be cau se “ th e reco rdall ows on ly one res ol ut io n o f th e fac tu al is su es at s ta ke ,” id . at 6 80 , and 25be cau se th e Tran se as te rnLend ers m ad e “ co m pe ll in g a rg um en ts ” reg ard in g t he ab il it y of t he ba nkrupt cy

co urt “ to ap pr oa ch th e Defen da nt ’s evi de nc e an d arg um en ts fai rly.” Id. at67 9 n .65 . The d is tri ctco urt qua sh edth e o rd er o f th e ba nkrupt cy

co urt an d d ecl aredall th e p ro ceed in gs reg ard in g t he Tran se as te rn Len de rs clo se d. Bec au se th e d is tri ctco urt ru le d o n i ss ue s t ha t wer e cen tra l t o t he sep arat e ap pe al s o f th e New Len de rs , th e d is tri ctco urt al lo wedth e New Len de rs to in te rv en e in th is ap pe al , andth e d is tri ctco urt s ta y edth e ap pe al s o f th e New Len de rs pe nd in g d is po si ti on of t hi s ap pe al . II . STANDARDS OF REVIEW As t he sec on d c ou rt t o re vi ew th e jud gm en t o f th e b an kr up tc y co urt, we rev ie w th e o rd er o f th e b an krup tc y co urt i nd ep en de nt ly of th e d is tri ctco urt. W es tg at e Vaca ti on Vil la s, Lt d. v . Taba s (I n re Int ’l Pha rm acy & Disc . II, In c.), 4 43 F.3 d 7 67 , 77 0 (1 1t h C ir. 2 00 5) . W e rev ie w det erm in at io ns of l aw m ad e b y eit he r co urt d e n ov o. Id . W e rev ie w th e fi nd in gs of f actof t he ba nkrupt cy

co urt fo r cl ear erro r. Id. Th e fac tu al fin di ng s o f th e b an krup tc y co urt ar e n otcle arl y

erro ne ou s un le ss , in th e li gh t o f al l t he ev id en ce, “ we are l eftwit h t he de fin it e an d fi rm co nv ic ti on th ata m is ta ke ha s b een m ad e.” Id . “ Neit he r th e d is tri ctco urt n orth is Co urt i s au th or iz edto m ak e in de pe nd en t fa ctua l fi nd in gs ; t ha t i s t he fun ct io n o f 26th e b an krup tc y co urt.” Equi tabl e Life Ass ur an ce So c’y v. Subl et t (I n re Subl et t), 89 5 F .2d13 81 , 13 84 (11 th Cir . 19 90 ). W e rev ie w equ it ab le de te rm in at io ns of t he ba nkrupt cy

co urt fo r ab us e o f di sc ret io n. Ba ks t v . W et zel (Inre Kin gs le y ), 51 8 F.3 d 8 74 , 87 7 (1 1t h C ir. 2 00 8) . II I. DI SCUSSI ON W e d iv id e o urdi sc us si on in to th ree p art s. We firs t ex pl ai n t ha t t he ba nkrupt cy

co urt d idno t cl earl y

err wh enitfou ndth atth e Co nv ey in g S ub si di ari es di d n otrece iv e rea so nabl y equi va le ntva lu e in ex ch an ge forth ei r li en s. We th en ex pl ai n t ha t t he ba nkrupt cy co urt d idno t err whe n i t fo un d t ha t t he Tran se as te rn Len de rs were en ti ti es forwho se be ne fitth e li en s wer e tr an sf erre d. Fi na ll y , we ex pl ai n wh y

we wil l n otco ns id er, i n t he fir stin st an ce, ch al le ng es to th e rem ed ie s im po se d b y th e b an krup tc y

co urt o r is su es of ju di ci al ass ig nm en t o r co ns ol id at io n of pro ceed in gs . A. The Ba nk

ru pt cy Co ur t Di d N

ot Cle ar lyErr

W he n It Fou nd Th at th e Co nv eyi ng Su bs id ia ri es Did

No t Rec ei ve Rea so na bl

y Equ iv al en t Va lu e in Exch an ge fo r the Li en s Th ey Tr an sf

er re d t o the New L en de rs . The Co m m it te e arg ue s t ha t t he ba nkrupt cy co urt d idno t cl earl y

err wh enit fo un d tha t t he co nv ey an ce o f th e li en s b y th e Co nv ey in g S ub si di ari es to th e New Len de rs was afrau du le nttra ns fer. Sec ti on 54 8( a)(1 )(B) of t he Ban krup tc y Co de pr ov id es forth e av oi da nc e o f “ an y tra ns fer . . . of a n i nt eres t o f th e d eb to r in 27pr op erty , or a ny ob li ga ti on. . . in cu rredby the de bt or , th atwas m ad e o r in cu rred. .

. withi n t wo years b efo re t he da te of t he fil in g” of t he ba nkrupt cy pe ti ti on , if t he de bt or“ rece iv edles s t han re as on ab ly equ iv al en t v al ue in ex ch an ge for ” th e tra ns fer o r ob li ga ti on , andth e d eb to r (1 ) “ was in so lv en t o n the da te su ch trans fer was m ad e o r su ch ob li ga ti on was i nc urred , or b ecame ins ol ve ntas ares ul t o f su ch tra ns fer o r ob li ga ti on ;” (2) “ was en ga ge d i n b us in es s o r a tran sa ct io n, o r was ab ou t to en ga ge in bu si ne ss or atra ns act io n, fo r whi ch an y pro pe rty rem ai ni ng wit h t he de bt orwas a n u nr eas on ab ly sm al l capi ta l; ” o r (3 ) “ in te nd edto in cu r, orbe li ev ed th atth e d eb to r wou ldin cu r, de bt s t ha t wo ul d b e b ey on d t he de bt or ’s abi li ty to p ay as su ch de bt s m atur ed .” 11 U.S.C. § 5 48 (a)( 1) (B). Th e p art ie s d o n otdi sp ut e, in th is ap pe al , th atth e Co nv ey in g S ub si di ari es were ei th er i ns ol ve nt , had un reas on ab ly sm al l capi ta l, o r were u nabl e to pa y th ei r de bt s wh enth e li en s wer e co nv ey ed . Thei r di sp ut e co nc ern s wh ethe r th e Co nv ey in g S ub si di ari es rece iv ed le ss th anreas on ab ly equ iv al en t v al ue . “ The pu rp os e o f vo id in g t ran sf ers un supp orte d b y

‘ reas on ab ly equ iv al en t v al ue ’ is to pro te ctcred it or s ag ai ns t t he de pl et io n o f a b an krup t’s es ta te .” Inre Ro dr ig ue z, 89 5 F .2dat 7 27 . The ba nkrupt cy

co urt en do rs eda de fin it io n o f “ va lu e” t ha t t he di st ric t co urt reject edas t oo narro w andpo te nt ia ll y “ in hi bi to ry

of c on te m

po rary fin an ci ng pr act ic es ,” Inre TOUSA, 44 4 B .R. at 6 59 , bu t we n eedno t ad op t t he de fin it io n o f 28ei th er co urt. We decl in e to de ci de whet he r th e p os si bl e av oi da nc e o f ba nkrupt cy

can co nf er “ va lu e” b ecau se th e b an krup tc y co urt fo un d t ha t, ev enif a ll th e pu rp orte d b en efi ts of t he tra ns act io n wer e le ga ll y co gn iz ab le , th ey

di d n otco nf

er reas on ab ly equ iv al en t v al ue . See In re TOUSA, 42 2 B .R. at 8 69 . Becau se th es e fin di ng s ar e n otcle arl y

erro ne ou s, t he y

set tl e th is m at te r. The ba nkrupt cy

co urt was en ti tl edto fin d t ha t t he be ne fit s o f th e tr an sa ct io n were n otreas on ab ly equ iv al en t i n v al ue to whatth e Co nv ey in g S ub si di ari es su rren de red . “ It h as lo ng be enest ab li sh edth at‘ [w]hethe r fai r co ns id erat io n h as be engi ve n fo r a tran sf

er i s ‘lar ge ly a qu es ti on of f act , as t o wh ic h c on si de rab le la ti tu de m

us t b e al lo wedto th e tr ie r of th e fac ts .’ ” Nor db erg v. Arab Ban ki ng Co rp . (Inre Ch as e & Sanb orn C or p.), 9 04 F.2d58 8, 5 93 (11 th Cir . 19 90 ) (quo ti ng Mayo v. Pi on eer B an k & Trus t Co ., 27 0 F .2d82 3, 8 29 –3 0 (5 th Cir .19 59 ) (Wisd om , J.)). Th e rec or d s up po rts th e fi nd in g b y th e b an krup tc y

co urt t ha t, fo r th e Co nv ey in g S ub si di ari es , th e al m os t ce rta in co st s o f th e tr an sa ct io n o f Ju ly 31 far o ut weig he d a ny perc ei ve d b en efi ts . The Tran se as te rnLend ers an d New Len de rs arg ue th atth e tr an sa ct io n o f Ju ly 31 a ll owe d t he Co nv ey in g S ub si di ari es to esc ap e th e “ ex is te nt ia l t hr eat ” o f th e li ke ly ban krup tc y

th atwou lden su e an d t ha t t hi s ch an ce t o a vo idba nkrupt cy was a be ne fitreas on ab ly equ iv al en t i n v al ue to th e o bl ig at io ns th e Co nv ey in g 29Subs id ia rie s i nc urred , bu t we ar e u np ers ua de d t ha t t he reco rdco m pe ls th atfin di ng .

“ A cor po rat io n i s n ota bi ol og ic al en ti ty for wh ic h i t can b e p res um edth atan y act whi chex te nd s i ts ex is te nc e is be ne fic ia l t o i t.” Bl oo r v. Dan sk er (Inre In ve st or s Fu nd in g C or

p. o f New York S ec. Lit ig ., 52 3 F . Sup p. 5 33 , 54 1 (S .D.N.Y. 19 80 ). Inot he r wor ds , no t ev ery tra ns fer tha t d ecre as es th e o dd s o f ba nkrupt cy fora co rp or at io n c anbe jus ti fie d. Th e b an krup tc y co urt co ns id eredth e p ot en ti al be ne fit s o f th e tr an sa ct io n a ndfou ndth atth ey were n owh ere c lo se to it s ex pe ct ed co st s. In th e li gh t o f al l t he ev id en ce, we are no t “ le ft wi th th e d efi ni te an d fi rm co nv ic ti on th at ” th e b an kr up tc y co urt cl earl y

erre d. In re In t’l Ph arm acy & Disc . II, In c., 44 3 F .3dat 7 70 . The Tran se as te rnLend ers an d New Len de rs arg ue th atth e rec or d es tabl is he s t ha t an adve rs e jud gm en t i n t he Tran se as te rnli ti ga ti on wou ldha ve cau se d TOUSA to fil e fo r ba nkrupt cy , th e rev ol vi ng fin an ci ng forth e Co nv ey in g Subs id ia rie s t o d is ap pe ar, an d the Co nv ey in g S ub si di ari es to be co m e li ab le for imm ed ia te pa ym en t o f m or e th an$1 .3 b il li on to th e rev ol vi ng lo anlen de rs an d TOUSA bo nd ho ld ers . They co nt en d t ha t t he ba nkrupt cy co urt cl earl y

erre d wh en itfou ndth atth e Co nv ey in g S ub si di ari es co ul d h av e su rv iv eda TOUSA ba nkrupt cy . They arg ue th atth e b an krup tc y co urt fo un d t ha t the Co nv ey in g Subs id ia rie s wer e in so lv en t b efo re t he tra ns act io n, an d t he y arg ue th atitis 30un li ke ly tha t t he in so lv en t Co nv ey in g S ub si di ari es co ul d h av e o bt ai ne d n ew

fin an ci ng . They als o a rg ue th atth e ab se nc e o f st an da lo ne fin an ci al st at em en ts was a “ cl ear o bs ta cl e” t o n ew fi na nc in g. Th ey hi gh li gh t t ha t o ne of t he ex pe rts forth e Co m m it te e d es cri be d t he in te rco m pa ny pay ab le s an d re cei vabl es for TOUSA and th e Co nv ey in g S ub si di ari es as a“ hu ge pi le of t an gl edsp ag he tt i.” The Tran se as te rnLend ers an d New Len de rs ass ertth atitwou ldha ve tak enm on th s, i f no t years, t o s ort t hr ou gh th e m ou ndof r eco rd s, wh ic h p ro ve s t ha t t he Co nv ey in g Subs id ia rie s h adno ch an ce t o re cei ve st an da lo ne fin an ci ng . The ba nkrupt cy

co urt fo un d t hi s ev id en ce t o b e irrel ev an t b ecau se , “ ev en as su m in g t ha t al l o f th e TOUSA ent it ie s wo ul d h av e sp ira le d i m m ed ia te ly int o ba nkrupt cy

wit ho utth e Ju ly 31 Tra ns act io n, t he Tran sa ct io n was st il l t he m or e ha rm fu l o pt io n.” In re TOUSA, 422 B.R. at84 7. “ [A]t m os t i t d el ay edth e in ev it ab le .” Id . at 8 46 . The ba nkrupt cy co urt fo un d t ha t t he be ne fit s t o t he Co nv ey in g S ub si di ari es were n otclo se to be in g re as on ab ly equ iv al en t i n v al ue to th e $ 40 3 m il li onof o bl ig at io ns th atth ey in cu rred . The Tran se as te rnLend ers an d New Lend ers att ackth is fin di ng as “ hi nd si gh t re as on in g . . . at i ts m os t ex tre m e,” bu t t he ba nkrupt cy

co urt b as edit s ex te ns iv e fi nd in gs ona th or ou gh rev ie w of publ ic kn owl ed ge av ai labl e b efo re J ul y 31 , 20 07 ; ex pe rt a na lysis of d at a av ai labl e be fo re J ul y

31 , 20 07 ; an d s ta te m en ts by T OUSA in si de rs m ad e b efo re J ul y 31 , 3120 07 . The Tran se as te rnLend ers an d New Len de rs arg ue th atth e fi nd in g o f an

“ in ev it ab le ” b an krup tc y

is ag ai ns t t he weig htof t he ev id en ce, b utth e o nl y ev id en ce t he y

cit e, in co nt ras t wi th th e th or ou gh fin di ng s o f th e b an kr up tc y co urt, are t he op in io ns of aTOUSA adv is or th atth e co m

pa ny woul d re m ai n v iabl e aft er th e tr an sa ct io n a ndst at em en ts fro m Ton y Mo n abo uta co m

pr eh en si ve strat eg y

to sh rin k TOUSA aft er the tra ns act io n, s ho re up i ts fin an ces , andreb ui ldth e co m pa ny. The Tran se as te rnLend ers an d New Len de rs co nt en d tha t t he pr ojec ti on s o f TOUSA lo okun reas on ab le no w on ly becau se week s af te r th e tra ns act io n, “ a tr ag ic gl ob al fin an ci al cri si s o f unpr eced en te d p ro po rti on s” be ga n. The y ass ertth atth e u ne xp ect eddo wnturn was de sc rib edby A la n Gre en sp anas “ a on ce i n acen tu ry

cred itts un am i” an d b y

W arre n B uf

fet t as an“ eco no m ic Pear l Harb or .” The Trans eas te rnLend ers an d New Len de rs arg ue th atth ey can no t b e he ldli ab le forfai li ng to for es ee t he un fo res eeab le , th atth ei r act io ns were reas on ab le , andth atth e b an krup tc y co urt cl earl y

sh ou ldha ve fou ndth atth e tra ns act io n was a reas on ab le ris k fo r th e Co nv ey in g S ub si di ari es to tak e. The reco rdsupp orts a de te rm in at io n t ha t t he ba nkrupt cy of TOUSA was far m or e li ke a sl ow- m ov in g c at eg ory 5 h urric an e th ananun fo rs een ts un am i. The ba nkrupt cy

co urt co ns id eredth e ev id en ce fr om ou ts id e ad vi so rs to TOUSA and 32fo un d m

uc h o f itsu sp ector b as edon fau lt y pre m is es . The b an krup tc y co urt co ns id eredan d d is co un te d M on ’s del ev erag in g s tra te gy for TOUSA inth e li gh t o f th e d ire pre di ct io ns he an d o th er i ns id ers m ad e reg ard in g the effe ct s t he tra ns act io n wo ul d h av e o n TOUSA. Andth e b an krup tc y co urt fo un d t ha t, ev en th ou gh Alan Green sp anan d Warren Bu ffetco ul d n otfor es ee t he ge ne ral eco no m ic do wnturn t ha t b eg anin earn es t i n Au gu st20 07 , nu m ero us ex te rn al ob se rv ers an d in si de rs at TOUSA rec og ni zedth atth e rel ev an t h ou si ng m ark et s fo r TOUSA had be gu n the ir f

ree f al l b efo re t he Ju ly 31 t ran sa ct io n. In co nt ras t wi th th e su rp ris e at ta ck at P earl Harb or , th e warn in gs ab ou t t he co ll ap se of TOUSA m ad e th atev en t as for es eeab le as t he bo m bi ng of Na ga sa ki aft er Pre si de ntTrum an ’s ul ti m atum . The op po rtu ni ty to av oi d b an krup tc y do es no t fr ee a c om

pa ny to p ay

an y pr ic e o r be ar an y

bu rd en . After a ll , “ th ere i s n o re as onto tre atba nkrupt cy as a bo ge y m an , as afat e wor se th ande ath.” Olym pi a Equ ip . Leasi ng Co . v. W. Uni on Tel. Co ., 78 6 F .2d79 4, 8 02 (7t h C ir. 1 98 6) (Eas te rb ro ok , J., co nc urrin g) . The ba nkrupt cy

co urt co rrec tl y

ask ed , “ba se d o n t he cir cu m st an ces th atex is te d a t t he ti m e th e in ve st m en t was co nt em pl at ed , whet he r th ere was an y ch an ce tha t t he in ve st m en t wo ul d g en erat e a p os it iv e return.” See In re R.M.L., In c., 92 F.3dat 15 2. An d the reco rdsupp orts th e n eg at iv e an swe r fo un d b y th e b an kr

up tc y co urt. B. The Ba nk

ru pt cy Co ur t Di d N

ot Err W he n It Rul ed Th at th e Co mmit te e Co uld 33Reco ver fr om the Tra ns ea st ern L en de rs un de r Sect io n 5 50 (a )(1 ). If a t ran sf er i s av oi de d u nd er s ect io n 5 48 or o ne of s ev eral ot he r pr ov is io ns of th e Ban krup tc y

Co de , sec ti on 55 0( a)(1 ) al lo ws t he reco ve ry of t he pro pe rty tra ns ferr edor i ts va lu e fro m th e in it ia l t ran sf

eree or f ro m an“ en ti ty for wh os e be ne fitsu ch tra ns fer was m ad e.” 1 1 U.S.C. § 55 0( a)(1 ). Alt ho ug h t he li en s o f th e Co nv ey in g S ub si di ari es were t ran sf erre d t o s ecu re l oa ns to pay th e Tran se as te rn Len de rs , th e Tran se as te rnLend ers arg ue th atth ey are n otco ve redby sect io n 5 50 be cau se th ey

were s ub se qu en t t ran sf

eree s, n oten ti ti es th atbe ne fit te d fr om th e in it ia l t ran sf

er. The ir a rg um en t i s co nt rad ic te d b y th e lo anag reem en ts , whi ch requi redth atth e p ro ceed s o f th e lo an s s ecu redby the li en s b e tr an sf erre d t o t he Tran se as te rnLend ers . Und er t he pl ai n l an gu ag e o f se ct io n 5 50 (a)( 1) an d t he pr eced en t o f ou r Co urt, the Tran se as te rnLend ers are en ti ti es forwho se be ne fitth e Co nv ey in g S ub si di ari es tra ns ferr edth ei r li en s. To b e su re, we h av e st at edth at“ th e p arad ig m cas e o f a b en efi t u nd er § 5 50 (a) i s t he be ne fitto a gu aran to r by the pa ym en t o f th e u nd erl y in g d eb t o f th e de bt or .” Rei ly v. Kapi la(Inre In t’l Mg m t. As s’n) , 39 9 F .3d12 88 , 12 92 (11 th Cir . 20 05 ). The g ua ran to r rec ei ve s an imm ed ia te be ne fitwhen th e d eb to r pa y s b acka cred it or , whi ch reduc es th e li ab il it y of the gu aran to r. Alt ho ug h t hi s re la ti on sh ip m ay be th e p arad ig m at ic cas e, itis no t t he on ly circu m st an ce t ha t ca n g iv e ri se to 34“ fo r who se be ne fit ” li ab il ity .

W e h av e al so he ldth ata cred it orsi m il arl y si tu at edto th e Tran se as te rn Len de rs can be li ab le as a n e nt it y forwho se be ne fita tr an sf er was m ad e. In Am eri canBan k o f Mar in Co un ty v. Leasi ng Serv ic e Co rp . (Inre AirCo nd it io ni ng , In c. of Stu art ), 84 5 F .2d29 3 (1 1t h C ir. 1 98 8) , we rul edth atsec ti on55 0( a)(1 ) al lo wedth e trus te e to reco ve r th e v al ue of a$2 0,0 00 cert ifi cat e o f de po si t fr om th e cred it orof aco m

pa ny tha t h adtra ns ferr eda se curit y in te res t i n t he cert ifi cat e o f de po si t t o aba nk , whi ch ha d t ran sf erre d a$2 0,0 00 let te r of

cred itto th e cre di to r. Id . at 2 99 . The co m

pa ny in Ai r Co nd it io ni ng owedit s cr ed it or$2 0,0 00 . Id. at 29 5. When th e co m

pa ny beg anfal li ng be hi ndon pa ym en ts , th e p art ie s wo rk edou t a d eal to ke ep th e co m

pany in b us in es s. Id . As pa rt o f th e d eal , th e co m pa ny is su eda $2 0,0 00 pro m is so ry no te to a ba nksec ur edby a $2 0,0 00 cert ifi cat e o f de po si t. Id . The b an k, i n turn, ex ecu te d a$2 0,0 00 let te r of cred itto th e cre di to r. Id . After t he co m

pa ny ent eredba nkrupt cy , we rul edth atth e tr an sf er o f th e se cu rit y in te res t i n the cert ifi cat e o f de po si t t o t he bankco ns ti tu te d an a vo id ab le pr efer en ce u nd er s ect io n 5 47 (b ) be cau se itwas atra ns fer o f pr op ert y of the de bt or to a cred it orwit hi n 9 0 d ay s o f fi li ng forba nkrupt cy th atpro vi de d m or e v al ue to th e cre di to r th anitwou ldha ve rece iv edun de r ch ap te r 7 o f th e Ban krup tc y Co de . Id . at 2 96 –9 7; see als o 1 1 U.S.C. § 54 7( b) . W e th enrul edth atth e b an kr up tc y 35tru st ee co ul d re co ve r th e v al ue of t he cert ifi cat e o f de po si t fr om th e cre di to r be cau se th e co m

pa ny gran te d t he sec ur it y in te res t t o t he ba nkforth e b en efi t o f th e cred it or . Id. at29 9. We exp la in edth atth e te xtof s ect io n 5 50 (a)( 1) all ows th e tru st ee t o re co ve r fro m

a cred it orwhen itwas a n e nt it y forwho se be ne fitth e tra ns fer o f th e certi fic at e o f de po si t was m ad e. Id . Ourde ci si on in Air Co nd it io ni ng co nt ro ls th is ap pe al . In Ai r Co nd it io ni ng , th e d eb to r tr an sf

erre d ali ento a le nd er wh o t ran sf erre d fu nd s t o acred it or . The tra ns fer o f th e li enwas a vo id edan d, u nd er s ect io n 5 50 (a)( 1) , th e cre di to r was an en ti ty for wh os e b en efi t t he tra ns fer was m ad e. Inth e sa m e way , th e Co nv ey in g Subs id ia rie s t ran sf

erre d l ie ns to th e New Len de rs , who tra ns ferr edfun ds to cred it or s, the Tran se as te rnLend ers . The b an krup tc y co urt av oi de d t he tra ns fer o f th e li en s an d, u nd er s ect io n 5 50 (a)( 1) , th e Tran se as te rnLend ers were en ti ti es for who se be ne fitth e tr an sf

er was m ad e. The Tran se as te rnLend ers att em ptto di st in gu is h t he ir app eal fro m Air Co nd it io ni ng in two way s, b utth ei r arg um en ts ig no re t he m at eri al si m il ari ti es be twee n the pre fere nc e in th atde ci si on an d t he frau du le nttra ns fer a t i ss ue inth is ap pe al . Firs t, the Tran se as te rnLend ers co nt en d tha t Ai r Co nd it io ni ng in vo lv eda pr efer en ce u nd er s ect io n 5 47 in st eadof afrau du le nttra ns fer u nd er 5 48 , bu t “ [t]he th eo ry un de r whi ch a tr an sf

er h as be enav oi de d i s i rrel ev an t t o t he li ab il it y of t he 36tra ns fere e ag ai ns t wh om th e trus te e se ek s t o re co ve r [u nd er s ect io n 5 50 ]. ” Dan ni ng v. Mi ll er, 9 22 F.2d54 4, 5 46 n.2 (9t h C ir. 1 99 1) . Seco nd , th e Tran se as te rnLend ers arg ue th atsec ti on 55 0( a)(1 ) ap pl ie d i n Ai r Co nd it io ni ng be cau se a le tt er o f cre di t was in vo lv ed , bu t t he Tran se as te rnLend ers can no t pr ov id e a p rin ci pl edba si s fo r li m it in g s ect io n 5 50 (a)( 1) to factua l s cen ari os th at in vo lv e le tt ers of c red it . The Tran se as te rnLend ers als o c on te ndth atth ey can no t b e li ab le un de r se ct io n 5 50 (a)( 1) be cau se th ey be ne fit te d fr om

a subs eque nttra ns fer o f fu nd s fr om TOUSA, no t fr om

th e in it ia l t ran sf

er o f th e li en s, b utth e rec or d c on tra di ct s t he ir as se rti on . The n ew lo anag reem en ts requi redth atth e lo anpro ceed s b e u se d t o p ay th e Tran se as te rnset tl em en t, an d t he Tran se as te rnset tl em en t ex pr es sl y de pe nd ed on th e n ew lo an s. When th e li en s wer e tr an sf erre d t o t he New Lend ers , th e pr oc eed s o f th e lo an s wen t t o the Tran se as te rnLend ers . The Tran se as te rnLend ers as se rt t ha t t he fun ds pa ss edfro m th e New Len de rs to a who ll y -o wne d s ub si di ary of TOUSA befo re the fun ds were p ai d t o t he Tran se as te rnLend ers , bu t the subs id ia ry

th atwire d t he m on ey

to th e Tran se as te rnLend ers di d n otha ve co nt ro l ov er t he fun ds . The l oa n d oc um en ts requi redth e subs id ia ry to wire th e fu nd s t o th e Tran se as te rnLend ers imm ed ia te ly. Alt ho ug h t he fun ds tec hn ic al ly pas se d th ro ug h t he TOUSA subs id ia ry , th is form al it y di d n otm ak e th e Tran se as te rn 37Len de rs subs eque nttra ns fere es of t he fun ds be cau se TOUSA nev er h adco nt ro l

ov er t he fun ds . See No rdbe rg v. So ci et e Gen eral e (In re Ch as e & Sa nb orn C or p.), 84 8 F .2d11 96 , 11 99 (11 th Cir . 19 88 ) (s ta ti ng th atco urts m us t ap pl y a “ ve ry fle xi bl e, pr ag m at ic ” te stth at“ lo ok [s ] be y on d the pa rti cu la r tr an sf ers in qu es ti on to th e en ti re ci rcu m st an ce o f th e tr an sa ct io ns ” whe n d eci di ng whet he r de bt or s h ad co nt ro ll edpro pe rty lat er s ou gh t b y th ei r trus te es ); B on de d F in . Serv s., In c. v. Euro pe anAm eri can Ban k, 8 38 F.2d89 0, 8 93 (7t h C ir. 1 98 8) (ho ld in g t ha t a b an k was no t an in it ia l t ran sf

eree be cau se ithe ldfun ds “ on ly for the pu rp os e o f fu lfi ll in g a n i ns tru ct io n t o m ak e th e fu nd s av ai labl e to so m eo ne els e”). The Tran se as te rnLend ers warnth atou r rea di ng of s ect io n 5 50 (a) wo ul d dr as ti cal ly exp an d t he po te nt ia l p oo l o f en ti ti es th atco ul d b e li ab le foran y tra ns act io n, b utth es e co nc ern s ar e u ns ub st an ti at ed . The Tran se as te rnLend ers of fer e xa m pl es of apa ren t co m

pa ny tak in g o uta lo ansec ur edby its subs id ia rie s wit h t he sp eci fic in te ntof p ay in g aco nt ract orto bu il d abu il di ng forth e p aren t co m pa ny or p ay in g t he dry clea ni ng bi ll of t he pa ren t co m pa ny. The Tran se as te rn Len de rs cau ti on th atth e co nt ract oror d ry cle an er co ul d b e fo rcedto return t he ir pa ym en ts if t he lo ansec ur in g t he m on ey in vo lv eda frau du le nttra ns fer, wh ic h wou ldim po se “ ex tra or di nary ” dut ie s o f du e d il ig en ce o n t he part o f cre di to rs acce pt in g re paym en t. Bu t ev ery cred it orm us t ex erci se so m e d il ig en ce wh en 38rece iv in g p aym en t fr om a st ru gg li ng de bt or . It i s fa r fro m a dr as ti c o bl ig at io n t o ex pe ctso m e d il ig en ce fr om a cred it orwhen itis be in g re pa idhu nd red s o f m il li on s of do ll ars by som eo ne ot he r th anit s d eb to r. C. W e Rema nd fo r the Dis tr ic t Co ur t To Co ns ider Fir st th e Remedie s Imp os ed

by th e Ban kr up tc

y Co ur t a nd

Mat te rs of

Ass ignme nt

an d C on so li da ti on . The pa rti es ’ rem ai ni ng arg um en ts pe rta in to is su es th atare n otrip e fo r ou r rev ie w. The Tran se as te rnLend ers askth atwe va cat e th e rem ed ie s o rd eredby the ba nkrupt cy

co urt, an d b ot h p art ie s as k t ha t we wad e in to m at te rs of ju di ci al as si gn m en t an d c on so li da ti on on rem an d. Th es e is su es m us t b e res ol ve d fi rs t b y th e d is tri ctco urt. The Tran se as te rnLend ers ch al le ng e th e rem ed ie s i m po se d b y th e ba nkrupt cy

co urt, b utwe wil l n otad dr es s an is su e th atth e d is tri ctco urt h as no t yet co ns id ered . See e.g ., Dzik ows ki v. N. Trus t Ba nkof F la ., N.A. (Inre Pru de nt ia l o f Fl a. Leas in g, In c.), 4 78 F.3d12 91 , 13 03 (11 th Cir . 20 07 ) (“ Whe n t he di st ric t co urt do es no t ad dr es s an is su e [i t d is m is se d a s m oo t], th e p ro pe r co ur se of a ct io n o fte n is to va cat e th e o rd er o f th e d is tri ctco urt an d re m an d.” ). The d is tri ctco urt, o n rem an d, s ho ul d re vi ew, in th e fi rs t i ns ta nc e, th e rem ed ie s o rd eredby the ba nkrupt cy

co urt. We exp res s n o o pi ni on onth atsubjec t. The pa rti es ’ reque st s ab ou t ju di ci al ass ig nm en t an d c on so li da ti onof 39pr oc eed in gs are al so m is di rect ed . The Co m m it te e u rg es us to rem an d t hi s ca se to a d iff eren t d is tri ctjud ge ; an d t he Tran se as te rnLend ers an d New Len de rs arg ue th at , if t he cas e n eed s t o b e h eardag ai n b y th e b an krup tc y

co urt, we s ho ul d in st ru ctth e d is tri ctco urt t o re m an d t he cas e to a di ffer en t b an krup tc y jud ge . Bot h si de s co m pl ai n t ha t t he jud ge who is su eda de ci si on un fav or ab le to th ei r in te res ts is bi as ed , bu t n ei th er s id e h as est ab li sh edth at“ th e o rig in al jud ge wou ldha ve di ffi cu lt y pu tt in g h is pre vi ou s v ie ws an d fi nd in gs asi de .” CSX Tran sp ., Inc . v. St at e Bd . of Equa li zat io n, 5 21 F.3d13 00 , 13 01 (11 th Cir . 20 08 ). The C omm it te e al so arg ue s t ha t t he rem ai ni ng rem ed ia l i ss ue s ar e in te rtwi ne d wi th rem ed ia l i ss ue s fro m a rel at edap pe al be fo re a d iff eren t d is tri ctjud ge an d t ha t co ns ol id at io n o f pr oc eed in gs wou ldpro m ot e jud ic ia l ec on omy . W e le av e th es e m atte rs of f utur e jud ic ia l ad m in is tra ti on an d m an ag em en t fo r th e d is tri ctco urt t o a dd res s fi rs t. IV. CONCLUSI ON W e REVERSE th e o rd er o f th e d is tri ctco urt, AFFIRM th e li ab il it y fin di ng s o f th e b an krup tc y co urt, an d REMAND to th e d is tri ctco urt fo r fu rth er pr oc eed in gs co ns is te ntwit h t hi s o pi ni on . REVERSED AND REMANDED.

40