Opinion ID: 806790
Heading Depth: 2
Heading Rank: 1

Heading: Loan Transaction and Bayonne’s Bankruptcy

Text: In October 2006, Nuveen, on behalf of one of its bond funds, purchased a $10 million Bond Anticipation Note (“BAN”) from Bayonne. In connection with the transaction, Bayonne provided Nuveen with an audit report prepared by Withum regarding Bayonne’s company-prepared 2005 financial statements. As Bayonne’s counsel in the transaction, Lindabury provided Nuveen with an opinion letter addressing Bayonne’s ability to repay the BAN. It included the typical opinion that Bayonne had the power and authority to enter into the BAN transaction and that, other than one disclosed investigation not relevant here, there were no investigations or suits that “could reasonably be expected to . . . materially [and] adversely affect the capability of [Bayonne] to comply with its obligations under [the BAN], or 6 materially [and] adversely affect the transactions contemplated to be consummated on the part of [Bayonne] as described in the [BAN].” Six months later, in April 2007, Bayonne filed its Chapter 11 petition in the Bankruptcy Court for the District of New Jersey. In October 2007, the Bank of New York, master trustee, filed a proof of claim on behalf of Nuveen and other secured creditors totaling $46,673,886.79. Nuveen’s portion of the claim was for $10,533,989.84 (including approximately $10,000,000 principal on the BAN, $436,136.98 in interest, and $97,852.86 for Nuveen’s fees and expenses). As a prelude to this action, in May 2008 Nuveen requested that Bayonne provide it with documents to determine whether it had a cause of action against Bayonne’s officers, directors, and “pre-petition professionals” for misrepresentations or other conduct that induced Nuveen to purchase the BAN. Bayonne did not respond, and Nuveen served a subpoena on it and then filed a motion to compel. Notably, in the materials accompanying its motion to compel, Nuveen represented that any amounts it recovered from such actions would reduce its claim against Bayonne’s bankruptcy estate. It also specifically identified potential suits against Withum and Lindabury. No doubt partially in response to Nuveen’s (and possibly other creditors’) requests for documents, Bayonne made a global settlement agreement among it, the Official Committee of Unsecured Creditors, and certain secured creditors that included Nuveen (the “Settlement Agreement”). Approved by the Bankruptcy Court in September 2008, the Settlement Agreement provided that it would be implemented by a plan of liquidation. In the event the confirmed plan did not conform to the Settlement Agreement, or Bayonne’s bankruptcy case was converted or dismissed, the Agreement 7 would control and survive. 1 It further provided that the secured creditors would not pursue claims against any of Bayonne’s former officers, directors or trustees, but preserved the secured creditors’ right to bring claims against any third parties (i.e., Withum and Lindabury) retained by, or who had rendered services to, Bayonne. The Settlement Agreement granted the secured creditors a general unsecured claim in the amount of $46,673,886.79 (the dollar amount asserted in the master trustee’s proof of claim), which would be reduced “dollar for dollar” for sums received by the secured creditors through certain distributions defined in the Agreement. Thus it effectively fixed Nuveen’s claim against Bayonne’s estate as a secured claim in an amount to be determined based on funds in Bayonne’s estate and an unsecured claim to be paid pro rata with other unsecured claims.