Our client Wilmington Trust, acting as agent for a lender group in the November 2005 Land Investors, LLC (aka North Las Vegas) bankruptcy case, recently prevailed in the Ninth Circuit on an appeal from a comprehensive summary judgment we obtained from the Las Vegas Bankruptcy Court. The judgment concerned the proper value of a creditor’s disputed interest in the proceeds from the recent sale of a property and whether or not the creditor had a right to recover its funds.
The Bankruptcy Court agreed with Orrick and ruled that the property could be sold free and clear of the competing creditor’s rights in the property and that Wilmington Trust was entitled to the full amount of the proceeds of the sale of the debtors’ property. On appeal, the District Court agreed. On February 29, the Ninth Circuit affirmed, rejecting the theories of the appellant that bankruptcy law enhanced the rights of the creditor, and accepting the legal theories advanced by Orrick that the creditor was entitled to nothing under the applicable contract and that bankruptcy law does not change that result.
Crucial to the decision was the Ninth Circuit’s interpretation of Section 363(f) of the Bankruptcy Code, which authorizes such free and clear sales of any property interest of entities other than the estate only if it is either a disputed interest or if the entity could be compelled to accept a money satisfaction of the interest. While the creditor argued that the Conditional Repayment and Funding Agreement (CRFA) – a contract signed between the parties that established repayment terms – entitled it to certain funds, the Ninth Circuit held that, under Section 363(f), the CRFA lost all legal effect upon the sale of the property. Under this reading, the court agreed with Orrick’s argument that the CRFA only created a contingent interest in the property and, because it had expired, retained no value.
Ron D’Aversa, Jonathan Guy and Jeff Hermann handled the litigation before the Bankruptcy Court and the appeals to the District Court and the Ninth Circuit. The full team included: Ron, Jonathan, Jeff, Laura Metzger, Kelsi Corkran, Mary Wallace, Kathleen Orr, Debra Felder, Dennis Bent, Brian Goldman, Scott Pearsall and John Farmer.