You are on page 1of 25

Case: 11-11071

Date Filed: 07/13/2011 (390 of 503)

Page: 1 of 25

NO. 11-11071

In the United States Court of Appeals for the Eleventh Circuit


IN RE: TOUSA, INC. OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF TOUSA, INC., et al., PlaintiffAppellant, v. SENIOR TRANSEASTERN LENDERS, DefendantsAppellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA BRIEF OF AMICI CURIAE BANKRUPTCY SCHOLARS IN SUPPORT OF PLAINTIFF-APPELLANT IN SUPPORT OF REVERSAL

James B. Heaton, III Ashley C. Keller BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP 54 W. Hubbard Street, Suite 300 Chicago, Illinois 60654 Tel: (312) 494-4400 Fax: (312) 494-4440 Counsel for Amici Curiae Bankruptcy Scholars

Case: 11-11071

Date Filed: 07/13/2011 (391 of 503)

Page: 2 of 25

NO. 11-11071 OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF TOUSA, INC. v. SENIOR TRANSEASTERN LENDERS CERTIFICATE OF INTERESTED PERSONS, CORPORATE DISCLOSURE STATEMENT, AND STATEMENT PURSUANT TO FRAP 29(c)(5) Pursuant to Eleventh Circuit Rules 26.1-1, 26.1-2, and 26.1-3, counsel for amici hereby certifies that the following additional persons not listed in the parties statements of interested persons have an interest in the outcome of this case: 1. Baird, Douglas G. (Amicus. Harry A. Bigelow Distinguished Service Professor of Law, The University of Chicago Law School.) 2. 3. Bartlit Beck Herman Palenchar & Scott LLP (Counsel for Amici.) Block-Lieb, Susan (Amicus. Cooper Family Professor of Law, Fordham University School of Law.) 4. Cole, G. Marcus (Amicus. Wm. Benjamin Scott and Luna M. Scott Professor of Law, Stanford Law School.) 5. Eisenberg, Thomas (Amicus. Henry Allen Mark Professor of Law, Adjunct Professor of Statistical Sciences, Cornell University.) 6. Gabel, Jessica (Amicus. Assistant Professor, Georgia State University College of Law.)

C-1 of 3

Case: 11-11071

Date Filed: 07/13/2011 (392 of 503)

Page: 3 of 25

NO. 11-11071 OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF TOUSA, INC. v. SENIOR TRANSEASTERN LENDERS 7. Georgakopoulos, Nicholas L. (Amicus. Harold R. Woodard Professor of Law, Indiana University School of Law Indianapolis.) 8. Heaton, III, James B. (Counsel for Amici. Bartlit Beck Herman Palenchar & Scott LLP.) 9. Huffman, Max (Amicus. Associate Professor of Law and Deans Fellow, Indiana University School of Law Indianapolis.) 10. Kaplan, Steven N. (Amicus. Neubauer Family Professor of Entrepreneurship and Finance, The University of Chicago Booth School of Business.) 11. Keller, Ashley C. (Counsel for Amici. Bartlit Beck Herman Palenchar & Scott LLP.) 12. Levitin, Adam J. (Amicus. Associate Professor of Law, Georgetown University Law Center.) 13. Lipson, Jonathan C. (Amicus. Foley & Lardner Professor of Law, University of Wisconsin Law School.) 14. Morrison, Edward R. (Amicus. Harvey R. Miller Professor of Law and Economics at Columbia Law School.)

C-2 of 3

Case: 11-11071

Date Filed: 07/13/2011 (393 of 503)

Page: 4 of 25

No. 11-11071 OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF TOUSA, INC.

v.
SENIOR TRANSEASTERN LENDERS 15. Rosenberg, ArnoldS. (Amicus. Assistant Dean and Director, Graduate Program in International Tax and Financial Services, Thomas Jefferson School of Law.) 16. Triantis, George G. (Amicus. Eli Goldston Professor of Law, Harvard Law School.) Pursuant to FRAP 29(c)(5), amici state that no party's counsel authored the brief in whole or in part; no party or party's counsel contributed money that was intended to fund preparing or submitting the brief; and no person - other than counsel to the amici curiae - contributed money that was intended to fund preparing or submitting the brief. Dated: May 12,2011 es B eaton, III BARTLIT BECK HERMAN PALEN CHAR & SCOTT LLP 54 W. Hubbard Street, Suite 300 Chicago, Illinois 60654 Tel: (312) 494-4400 Fax: (312) 494-4440

Counsel for Amici Curiae Bankruptcy Scholars

C-3 of3

Case: 11-11071

Date Filed: 07/13/2011 (394 of 503)

Page: 5 of 25

TABLE OF CONTENTS CERTIFICATE OF INTERESTED PERSONS, CORPORATE DISCLOSURE STATEMENT, AND STATEMENT PURSUANT TO FRAP 29(c)(5)........................................................................................................C-1 TABLE OF CONTENTS ........................................................................................... i TABLE OF AUTHORITIES .................................................................................... ii INTRODUCTION AND INTEREST OF AMICI .....................................................1 ARGUMENT .............................................................................................................4 I. The District Court assumed that an opportunity to avoid bankruptcy constitutes reasonably equivalent value as a matter of law. ....................................................................................................4 A decrease in the odds of bankruptcy does not necessarily justify all transfers, no matter how large. ..............................................6

II.

CONCLUSION ........................................................................................................12 CERTIFICATE OF COMPLIANCE WITH RULE 32(a) ......................................14 CERTIFICATE OF SERVICE ................................................................................15 SERVICE LIST........................................................................................................16

Case: 11-11071

Date Filed: 07/13/2011 (395 of 503)

Page: 6 of 25

TABLE OF AUTHORITIES CASES In re AppliedTheory Corp., 330 B.R. 362 (S.D.N.Y. 2005) ........................................................................9 In re Investors Funding Corp. of New York Sec. Litig., 523 F. Supp. 533 (S.D.N.Y. 1980) ..................................................................2 In re Rodriguez, 895 F.2d 725 (11th Cir. 1990) .......................................................................11 Leibowitz v. Parkway Bank & Trust Co. (In re Image Worldwide, Ltd.), 139 F.3d 574 (7th Cir. 1998) .................................................................... 9, 10 Mellon Bank, N.A. v. Official Comm. of Unsecured Creditors of R.M.L., Inc. (In re R.M.L., Inc.), 92 F.3d 139 (3d Cir. 1996) ..........................................................................8, 9 Mukamal v. Bakes, 378 F. Appx. 890 (11th Cir. 2010) ...............................................................12 Olympia Equip. Leasing Co. v. W. Union Tel. Co., 786 F.2d 794 (7th Cir. 1986) .........................................................................12 Rubin v. Mfrs. Hanover Trust Co., 661 F.2d 979 (2d Cir. 1981) ................................................................... 10, 11 Trenwick Am. Litig. Trust v. Ernst & Young, LLP, 906 A.2d 168 (Del. Ch. 2006) .......................................................................12 STATUTES 11 U.S.C. 548 ......................................................................................................4, 5 11 U.S.C. 548(d)(2)(A) ...........................................................................................9 OTHER AUTHORITIES Gregor Andrade and Steven N. Kaplan, How Costly Is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions That Become Distressed, 53 J. FIN. 1443 (1998) ..................................................................................6, 7 ii

Case: 11-11071

Date Filed: 07/13/2011 (396 of 503)

Page: 7 of 25

J.B. Heaton, Deepening Insolvency, 30 IOWA J. CORP. L. 465 (2005) .....................................................................13 Jerold B. Warner, Bankruptcy Costs: Some Evidence, 32 J. FIN. 337 (1977) ........................................................................................6 John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 COLUM. L. REV. 1343 (1995) ......................................................................2 Lawrence A. Weiss, Bankruptcy Resolution: Direct Costs and Violation of Priority Claims, 27 J. FIN. ECON. 285 (1990) .............................................................................6 Lynn M. LoPucki and Joseph W. Doherty, The Determinants of Professional Fees in Large Bankruptcy Reorganization Cases, 1 J. EMPIRICAL LEGAL STUD. 111 (2004) .........................................................6 Stephen J. Lubben, Corporate Reorganization & Professional Fees, 82 AMER. BANKR. L.J. 77 (2008) .....................................................................6 Thomas H. Jackson, The Logic and Limits of Bankruptcy Law 10 (1986). ...........12

iii

Case: 11-11071

Date Filed: 07/13/2011 (397 of 503)

Page: 8 of 25

INTRODUCTION AND INTEREST OF AMICI Amici are bankruptcy scholars. Douglas A. Baird is the Harry A. Bigelow Distinguished Service Professor of Law at The University of Chicago Law School. Susan Block-Lieb is the Cooper Family Professor of Law at Fordham University School of Law. G. Marcus Cole is the Wm. Benjamin Scott and Luna M. Scott Professor of Law at Stanford Law School. Thomas Eisenberg is the Henry Allen Mark Professor of Law, Adjunct Professor of Statistical Sciences at Cornell University. Jessica Gabel is Assistant Professor of Law at Georgia State University College of Law. Nicholas L. Georgakopoulos is the Harold R. Woodard Professor of Law at Indiana University School of Law Indianapolis. Max Huffman is the Associate Professor of Law and Deans Fellow at Indiana University School of Law Indianapolis. Steven N. Kaplan is the Neubauer Family Professor of Entrepreneurship and Finance at The University of Chicago Booth School of Business. Adam J. Levitin is the Associate Professor of Law at Georgetown University Law Center. Jonathan C. Lipson is the Foley & Lardner Professor of Law at University of Wisconsin Law School. Edward R. Morrison is the Harvey R. Miller Professor of Law and Economics at Columbia Law School. Arnold S. Rosenberg is the Assistant Dean and Director, Graduate Program in International Tax and Financial Services at Thomas Jefferson School of Law. George G. Triantis is the Eli Goldston Professor of Law at Harvard Law School. 1

Case: 11-11071

Date Filed: 07/13/2011 (398 of 503)

Page: 9 of 25

Amici submit this brief to address the District Courts holding that an opportunity to avoid default, to facilitate the enterprises rehabilitation, and to avoid bankruptcy necessarily constitutes reasonably equivalent value to a debtor alleged to have made a fraudulent transfer. (District Court Opinion (Dist. Op.) at 73.) The District Courts holding is incorrect because it rests on the implicit premise that the costs of bankruptcy are so high that a debtor can justify paying any price to reduce the chance that it occurs. That premise is demonstrably false. A corporation is not a biological entity for which it can be presumed that any act which extends its existence is beneficial to it. In re Investors Funding Corp. of New York Sec. Litig., 523 F. Supp. 533, 541 (S.D.N.Y. 1980). To think otherwise is an anthropomorphic fallacy: Bankruptcy tends to be equated with corporate death. In fact, however, Chapter 11 may be a far more flexible instrument by which to rehabilitate a financially strained firm. John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 COLUM. L. REV. 1343, 1458 (1995). The question whether the chance to avoid bankruptcy is reasonably equivalent value for a transfer of an interest of a debtor in property must start from the premise that bankruptcy is not, so to speak, the end of the world. While bankruptcy can be costly, empirical evidence demonstrates that the costs of bankruptcy are not so high that a court can dispense altogether with a

Case: 11-11071

Date(399 of07/13/2011 Filed: 503)

Page: 10 of 25

comparison of the amount of a challenged transfer and the value of the decreased odds of bankruptcy that the transfer may have created. Here, the District Court concluded that the value of the transfers at issueliens on the property of the debtorswere reasonably equivalent to the value to the debtors of being left in a better position to remain as going concerns than they would have been otherwise, because the opportunity to avoid default has immense economic value, and enormous economic benefit. (Dist. Op. at 80, 85.) The District Court pointed to no evidence that justified its conclusions with respect to the value of the opportunity to avoid bankruptcy. By contrast, the Bankruptcy Court recognized that the Defendants failed to carry their burden of producing evidence of indirect benefits that were tangible and concrete, and of quantifying the value of those benefits with reasonable precision. Not a single expert or fact witness for Defendants has even attempted to quantify the value of the indirect benefits they claim were received by the [debtors]. (Bankruptcy Court Opinion (Bankr. Op.) at 145-46.) The District Courts assumption that a debtor receives reasonably equivalent value for any transfer that decreases its odds of bankruptcy reflects a fundamental misunderstanding of the actual costs of the bankruptcy process. That misunderstanding, if left uncorrected by this Court, may encourage financially 3

Case: 11-11071

Date(400 of07/13/2011 Filed: 503)

Page: 11 of 25

distressed firms to engage in fraudulent transfers in the hope that they can justify the transfer by invoking an un-quantified opportunity to avoid bankruptcy that the transfer purportedly created. Therefore, amici respectfully urge the Court to require what the law long has mandated; namely, to consider the actual value of what a debtor received in exchange for an allegedly fraudulent transfer. ARGUMENT I. The District Court assumed that an opportunity to avoid bankruptcy constitutes reasonably equivalent value as a matter of law. This appeal involves the application of the Bankruptcy Codes fraudulent conveyance provision, 11 U.S.C. 548. In relevant part, the provision reads: (a) (1) The trustee may avoid any transfer of an interest of the debtor in property incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily-**** (B) (i) received less than a reasonably equivalent value in exchange for such transfer or obligation . 11 U.S.C. 548. Here, the primary transfer at issue was the grant of property liens by a set of debtors (the Conveying Subsidiaries, Dist. Op. at 3) that facilitated a litigation settlement by affiliated companies. (Dist. Op. at 25-26.) The liens were an interest of the debtor in property. The District Court determined that a debtor 4

Case: 11-11071

Date(401 of07/13/2011 Filed: 503)

Page: 12 of 25

receives value within the meaning of 11 U.S.C. 548 if in exchange for the transfer, the debtor received in return the continued opportunity to financially survive, where, without the transfer, its financial demise would [have] been all but certain. (Dist. Op. at 74.) By the opportunity to financially survive the District Court apparently meant the opportunity to avoid default, to facilitate the enterprises rehabilitation, and to avoid bankruptcy . (Id. at 73.) The District Court made no factual finding that compared the value of the interests (i.e., the liens) that the Conveying Subsidiaries transferred, with the value of the opportunity to financially survive. Nevertheless, the District Court characterized the opportunity to avoid default as having immense economic value and enormous economic benefit. (Dist. Op. at 85, 80.) By contrast, the Bankruptcy Court made the following observations: Not a single expert or fact witness for [appellees] has even attempted to quantify the value of the indirect benefits they claim were received by the Conveying Subsidiaries. (Bankr. Op. at 146.) There is no reason to believe that the replacement of a contingent litigation liability with a massive amount of secured debt rendered TOUSA better able to weather the extreme downturn in the housing market. (Id. at 108.) To the extent [the Conveying Subsidiaries] received any value at all, it was minimal and did not come anywhere near the $403 million of obligations they incurred collectively, or the obligations that each incurred 5

Case: 11-11071

Date(402 of07/13/2011 Filed: 503)

Page: 13 of 25

individually. (Id. at 105.) [E]ven if there were a bankruptcy [of the Conveying Subsidiaries], [debtor in possession] financing would likely have been available. Although such refinancing might have resulted in some fees, those fees would have been minimal in relation to the size of the new obligations that the Conveying Subsidiaries incurred . (Id. at 111.) II. A decrease in the odds of bankruptcy does not necessarily justify all transfers, no matter how large. The District Court erred in assuming that a decrease in the odds of bankruptcy justifies any transfer, no matter how large. First, there is no evidence, in this case or generally, that an increased chance of avoiding bankruptcy has immense economic value. (Dist. Op. at 85.) Academic lawyers and economists have studied the costs that financial distress can inflict on a corporation. The relevant literature1 tends to demonstrate that the direct costs of bankruptcy are low, on the order of 1-3% of the market value of the firm. Empirical estimates of the broader costs of financial distress (including, but not See, e.g., Jerold B. Warner, Bankruptcy Costs: Some Evidence, 32 J. FIN. 337 (1977); Gregor Andrade and Steven N. Kaplan, How Costly Is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions That Become Distressed, 53 J. FIN. 1443 (1998); Lawrence A. Weiss, Bankruptcy Resolution: Direct Costs and Violation of Priority Claims, 27 J. FIN. ECON. 285 (1990); Stephen J. Lubben, Corporate Reorganization & Professional Fees, 82 AMER. BANKR. L.J. 77 (2008); and Lynn M. LoPucki and Joseph W. Doherty, The Determinants of Professional Fees in Large Bankruptcy Reorganization Cases, 1 J. EMPIRICAL LEGAL STUD. 111 (2004).
1

Case: 11-11071

Date(403 of07/13/2011 Filed: 503)

Page: 14 of 25

limited to, the direct costs of bankruptcy) rarely exceed 10-20% of the firms market value.2 Second, any valuation of a chance to avoid the costs of financial distress must consider both the amount of those costs and the probability that the transfer will avoid or reduce them. Here, for example, the Bankruptcy Court found that the asset value of the Conveying Subsidiaries was about $1.1 billion. Applying 20% as an estimate of the costs of financial distress would give $220 million as a potential upper limit. If the transfer reduced the chances of entering financial distress by a third (33%), then the expected value of the costs that the transfer would avoid is 33% x $220 million = $73.3 million, or less than 20% of the $403 million value that the Bankruptcy Court ascribed to the value of the transferred liens.3 (Bankr. Op. at 105.) The District Court made no effort to determine either the cost of financial distress to the Conveying Subsidiaries, or the reduction in the likelihood of incurring those costs after the challenged transfer. To the contrary, the District Court concluded that it was enough that the transaction left the Conveying

2 3

Andrade and Kaplan, supra note 1.

Of course, even if the transfer reduced the chances of entering financial distress by 100%, the value of that transfer to the Conveying Subsidiaries would be $220 million, or just 55% of the value of the transferred liens. 7

Case: 11-11071

Date(404 of07/13/2011 Filed: 503)

Page: 15 of 25

Subsidiaries in a better position to remain as going concerns than they would have been without the settlement. (Dist. Op. at 80.) That conclusion is unreliable since it is unsupported by any factual analysis. The District Courts approach was also inconsistent with the cases the District Court cited to support its position. For example, the District Court relied heavily on the often-cited opinion of the Court of Appeals for the Third Circuit in Mellon Bank, N.A. v. Official Comm. of Unsecured Creditors of R.M.L., Inc. (In re R.M.L., Inc.), 92 F.3d 139 (3d Cir. 1996). There, the Third Circuit observed that, so long as there is some chance that a contemplated investment will generate a positive return at the time of the disputed transfer, we will find that value has been conferred. Id. at 152. But In re R.M.L. stresses that determining reasonably equivalent value is a two-step inquiry. First, determine if the debtor received value. Second, determine if the value is reasonably equivalent to the transfer. Id. at 149. Notably, the Third Circuit upheld the Bankruptcy Courts finding that value, while it existed (satisfying the first step), was not reasonably equivalent (failing the second step): The bankruptcy court concluded that while a debtor reasonably might pay $ 390,000 in fees for a real chance to obtain a $ 53 million credit facility, the commitment letter at issue in this case was so conditional that it provided Intershoe with little chance, if any, to obtain the loan it sought.

Case: 11-11071

Date(405 of07/13/2011 Filed: 503)

Page: 16 of 25

Id. at 154. The District Court also relied on In re AppliedTheory Corp., 330 B.R. 362 (S.D.N.Y. 2005), for the proposition that case law recognizes as reasonably equivalent value the opportunity to facilitate [a firms] rehabilitation, and to avoid default and bankruptcy, including even if this breathing room may have ultimately proved to be short-lived . (Dist. Op. at 83, quoting 330 B.R. at 364.) But the District Court simply misread In re AppliedTheory Corp. There, the court did not claim that the chance to avoid bankruptcy provided reasonably equivalent value. Rather, the court applied a per se rule that a security interest granted to secure an antecedent debt created by a cash loan constitutes reasonably equivalent value. 330 B.R. at 363. Here, the Conveying Subsidiaries did not grant liens to secure a present or antecedent debt of the debtor. Id. at 364 (quoting 11 U.S.C. 548(d)(2)(A)). Rather, the liens were granted to secure a loan used to pay off the debts of a related entity, even though the Conveying Subsidiaries were not liable for that debt. The District Court also cited Leibowitz v. Parkway Bank & Trust Co. (In re Image Worldwide, Ltd.), 139 F.3d 574 (7th Cir. 1998) for the proposition that cross-stream guarantees may provide reasonably equivalent value when the transaction strengthens the viability of the corporate group . (Dist. Op. at 83, quoting 139 F.3d at 581.) But here the District Court omitted discussion of the most relevant portion of the Seventh Circuit opinion it cited, which recognized that 9

Case: 11-11071

Date(406 of07/13/2011 Filed: 503)

Page: 17 of 25

the indirect benefits that such cross-stream guarantees may provide to other members of a corporate group still must be evaluated for their reasonable equivalence to the transfer made: On the other hand, the circumstances of this case do not fit the circumstances when indirect benefits from a guarantee are found to constitute reasonably equivalent value. **** In effect, by paying off IMs debts, IW kept IM out of bankruptcy by bankrupting itself. This shift of risk from the creditors of the debtor to the creditors of the guarantor is exactly the situation that fraudulent transfer law seeks to avoid when applied to guarantees. Thus, while IW received an indirect benefit from the transaction, it did not receive reasonably equivalent value. In re Image Worldwide, Ltd., 139 F.3d. at 581-82 (emphasis added) (footnote and citation omitted). Similarly, the District Court cited Rubin v. Mfrs. Hanover Trust Co., 661 F.2d 979 (2d Cir. 1981) for the proposition that [w]hat is key in determining reasonable equivalency then is whether, in exchange for the transfer, the debtor received in return the continued opportunity to financially survive, where, without the transfer, its financial demise would [have] been all but certain. (Dist. Op. at 74.) But the District Court ignored that part of Rubin that found the lower courts analysis unacceptable because it failed to consider whether the benefits received were proportionate to the transfer: The district court did not undertake such an analysis. The court observed that both USN and UMO had a vital interest in inducing MHT to make loans to (National, TWO, and Propper), and it 10

Case: 11-11071

Date(407 of07/13/2011 Filed: 503)

Page: 18 of 25

stated that the issuers receipt of indirect benefits because of (their) affiliation and identity of interest with the direct recipients of the loans was receipt of fair consideration; but it did not attempt to quantify the indirect benefits to either issuer or to compare those benefits with the obligations assumed by the issuers under the guarantees. Without such an analysis, it was impossible for the court to determine whether the estate of either issuer had been conserved in accordance with the principles of [section] 67(d), and it was therefore error for the court to conclude that those purposes had been satisfied. Rubin, 661 F.2d. at 993. Consistent with these cases, this Courts leading case on reasonably equivalent value in the context of indirect benefits also teaches the need to evaluate whether a transferor receives reasonably equivalent value when it makes transfers to benefit a related entity: In sum, we agree with the lower courts that Domino neither directly nor indirectly benefitted from the payments it made to GECC, and that the payments should be voided . [T]he payments drained assets that would otherwise have been available to Dominos creditors without providing the creditors with reasonably equivalent value in return. In re Rodriguez, 895 F.2d 725, 729 (11th Cir. 1990). These cases stand for an obvious proposition: One cannot reliably determine whether the value of an opportunity to avoid bankruptcy is reasonably equivalent to the price paid to obtain that opportunity without a careful analysis of both the costs and benefits of bankruptcy, and the chance that the transfer will help avoid it. The District Court performed no such careful analysis here. Finally, the District Courts view of bankruptcy overstates its costs while also failing to consider its potential benefits. The basic problem that 11

Case: 11-11071

Date(408 of07/13/2011 Filed: 503)

Page: 19 of 25

bankruptcy law is designed to handle, both as a normative matter and as a positive matter, is that the system of individual creditor remedies may be bad for the creditors as a group when there are not enough assets to go around. Thomas H. Jackson, The Logic and Limits of Bankruptcy Law 10 (1986). [T]here is no reason to treat bankruptcy as a bogeyman, as a fate worse than death . The bankruptcy process probably reduces rather than increases the cost of a financial restructuring. Olympia Equip. Leasing Co. v. W. Union Tel. Co., 786 F.2d 794, 802 (7th Cir. 1986) (Easterbrook, J., concurring). CONCLUSION The District Courts approach risks becoming the evil twin of the now mostly-defunct (but long-litigated) deepening insolvency theory of liability and damages. See, e.g., Mukamal v. Bakes, 378 F. Appx 890, 900 (11th Cir. 2010) (citing Trenwick Am. Litig. Trust v. Ernst & Young, LLP, 906 A.2d 168, 174, 204 (Del. Ch. 2006)) (The only injury alleged in the Amended Complaint was to the Debtors creditors as a result of Far & Wide staying in business longer and deepening its insolvency, when it would have been in the best interest of the creditors for Far & Wide to cease business and liquidate. Delaware law, however, does not recognize a cause of action for deepening insolvency.), cert. denied, No. 10-939, 2011 WL 196327 (Mar. 28, 2011). In that theory, debtors have argued that additional debt that prolongs the life of the company is always bad. See, e.g., 12

Case: 11-11071

Date(409 of07/13/2011 Filed: 503)

Page: 20 of 25

J.B. Heaton, Deepening Insolvency, 30 IOWA J. CORP. L. 465 (2005). The District Court's finding stakes out the opposite view: Additional debt that may prolong the life of the company is always good. Neither view is well-grounded in law or fact.

Amici urge the Court to reverse that part of the District Court's ruling
which assumed that an opportunity to avoid bankruptcy constitutes reasonably equivalent value as a matter of law. Dated: May 12,2011 Respectfully Submitted,

By: James B. Heaton, III Ashley C. Keller BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP 54 W. Hubbard Street, Suite 300 Chicago, Illinois 60654 Tel: (312) 494-4400 Fax: (312) 494-4440

Counsel for Amici Curiae Bankruptcy Scholars

13

Case: 11-11071

Date(410 of07/13/2011 Filed: 503)

Page: 21 of 25

CERTIFICATE OF COMPLIANCE WITH RULE 32(a)


This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because it contains 3,111 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii). This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the style requirements of Fed. R. App. P. 32(a)(6) because this brief has been prepared in a proportionally spaced typeface using Microsoft Word version 2010 in 14-point Times New Roman. Dated: May 12,2011

es

. Heaton, III

BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP

54 W. Hubbard Street, Suite 300 Chicago, Illinois 60654 Tel: (312) 494-4400 Fax: (312) 494-4440

Counsel for Amici Curiae Bankruptcy Scholars

14

Case: 11-11071

Date(411 of07/13/2011 Filed: 503)

Page: 22 of 25

CERTIFICATE OF SERVICE
I hereby certify that on May 12, 2011, I served a true and correct copy of the Brief of Amici Curiae Bankruptcy Scholars in Support of Plaintiff-Appellant in Support of Reversal, by Federal Express and electronic mail (where e-mail addresses were provided), upon the individuals on the attached Service List.

By: - + - J es B

eaton, III

BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP

54 W. Hubbard Street, Suite 300 Chicago, Illinois 60654 Tel: (312) 494-4400 Fax: (312) 494-4440

Counsel for Amici Curiae Bankruptcy Scholars

15

Case: 11-11071

Date(412 of07/13/2011 Filed: 503)

Page: 23 of 25

SERVICE LIST Patricia A. Redmond David C. Pollack STEARNS WEAVER MILLER WESSLER ALHADEFF & SITTERSON, P.A. 150 West Flagler Street, Suite 220 Miami, FL 33130 Lawrence S. Robbins Donald J. Russell Michael L. Waldman ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP 1801 K Street, NW, Suite 411 Washington, DC 20006 Andrew M. Leblanc Atara Miller MILBANK, TWEED, HADLEY & McCLOY LLP 1 Chase Manhattan Plaza New York, NY 10005 aleblanc@milbank.com amiller@milbank.com Nancy A. Copperthwaite AKERMAN SENTERFITT SunTrust International Center One S.E. Third Avenue, 25th Floor Miami, FL 33131 Nancy.Copperthwaite@akerman.com Michael I. Goldberg AKERMAN SENTERFITT Las Olas Centre II, Suite 1600 350 East Las Olas Boulevard Fort Lauderdale, FL 33301 Michael.Goldberg@akerman.com

16

Case: 11-11071

Date(413 of07/13/2011 Filed: 503)

Page: 24 of 25

Ceci Culpepper Berman, Esq. Darren D. Farfante FOWLER WHITE BOGGS P.A. 501 E. Kennedy Boulevard, Suite 1700 Tampa, FL 33602 CBerman@fowlerwhite.com DFarfante@fowlerwhite.com Thomas J. Hall, Esq. Seven Rivera CHADBOURNE & PARKE LLP 30 Rockefeller Plaza New York, NY 10112 THall@chadbourne.com srivera@chadbourne.com Richard C. Prosser, Esq. STRICHTER, RIEDEL, BLAIN & PROSSER, P.A. 110 E. Madison Street, Suite 200 Tampa, FL 33602 RProsser.ecf@srbp.com Scott L. Baena Matthew I. Kramer Jeffrey I. Snyder BILZIN SUMBERG BAENA PRICE & AXELROD LLP 1450 Brickell Avenue, 23rd Floor Miami, FL 33131 sbaena@bilzin.com mkramer@bilzin.com jsnyder@bilzin.com

17

Case: 11-11071

Date(414 of07/13/2011 Filed: 503)

Page: 25 of 25

Evan D. Flaschen Gregory W. Nye Daynor M. Carman BRACEWELL & GIULIANI LLP Goodwin Square 225 Asylum Street, Suite 2600 Hartford, CT 06103 evan.flaschen@bgllp.com gregory.nye@bgllp.com daynor.carman@bgllp.com Stephen M. Mertz FAEGRE & BENSON, LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402-3901 smertz@faegre.com

18