Capmark Creditors Seek Right to Sue Citigroup, Goldman Sachs

In a twist on a theme we've seen in a couple of prior bankruptcies, the creditors committee in the Capmark Financial Group case is taking aim at heavyweight lenders who loaned Capmark money just before its bankruptcy and the advisers who negotiated the loans -- including Dewey & LeBoeuf. The creditors have asked the court to allow them to sue the key lenders, including Goldman Sachs and Citigroup, claiming Capmark and Dewey won't file the suit themselves, according to court papers filed Wednesday and Bloomberg.

A Dewey team led by partners Martin Bienenstock and Michael Kessler was providing Capmark general restructuring advice before the lender filed for Chapter 11 protection in October. About seven months prior to that filing, a group of lenders headed by Citi, Goldman and Dune Capital Management essentially exchanged $1.5 billion in unsecured debt for the same amount of secured debt, according to papers filed by the creditors committee. The committee, represented by Kramer Levin Naftalis & Frankel and Kasowitz, Benson, Torres & Friedman, claim in papers filed Wednesday that the transaction was a fraud designed to place Citi, Goldman and Dune at the top of the creditors list -- first in line to be repaid -- in the "inevitable" and "imminent" event that Capmark filed for bankruptcy.

The creditors committee wasn't done. In the same papers, they also accuse Capmark and its counsel (Dewey) of stonewalling the committee's efforts to obtain evidence creditors might be able to use to sue Goldman and Citi. Capmark and Dewey have rejected the committee's requests for document discovery, according to court papers. Why? If you ask Kramer Levin and Kasowitz, they'd tell you it's because Capmark higher-ups and their counsel helped craft the loans at issue and don't want anyone poking around at their handiwork. "The debtors are attempting to block the pursuit of such claims, motivated by their inherent conflicts and desire to protect potentially complicit insiders," the filing says. "Moreover, the debtors' financial advisors, Lazard, also participated in the transaction, and the debtors' current bankruptcy counsel, Dewey & LeBoeuf, was general restructuring counsel to Capmark at the time."

Kessler declined to comment except to say the firm "disagrees with the statements." Bienenstock did not immediately return a message seeking comment. Attorneys at Kramer Levin and Kasowitz either declined comment or did not return calls.

Fredric Sosnick, a Shearman & Sterling partner representing Citigroup in the matter, did not immediately return a call seeking comment. Citigroup served both as Capmark's agent lender and a direct lender in the $1.5 billion transaction at the center of the mess. Lawyers for Goldman and Dune could not immediately be located.

We've seen versions of this before. In the Washington Mutual bankruptcy, shareholders have accused the bank's estate of squandering potentially lucrative fraud claims against JPMorgan Chase, which purchased WaMu out of receivership. The shareholders, repped by Susman Godfrey, recently got permission to continue their fight. And in the Tribune Co. bankruptcy, angry creditors want the disastrous 2007 leveraged buyout of Tribune declared a fraud, a finding which could invalidate top-level claims from the banks who financed the buyout -- a group that includes JPMorgan and Merrill Lynch. The recalcitrant creditors are seeking to torpedo a proposed reorganization plan that would give senior creditors (including JPMorgan and Merrill) control over Tribune. Some of those creditors have accused Chadbourne & Parke, counsel to the creditors committee, of lacking the motivation to pursue claims against the top banks because of the firm's close relationships with those same banks, court records show.

(Published by The American Lawyer - August 12, 2010)