Miller Barondess Thwarts Attempt by Lehman Brothers to Take Control of Client’s Multi-Billion Dollar Real Estate Projects

Miller Barondess Thwarts Attempt by Lehman Brothers to Take Control of Client’s Multi-Billion Dollar Real Estate Projects

Judge Orders Lehman, SunCal To Mediation Over CA Real Estate
Jacqueline Palank
04 November 2010

A California bankruptcy judge has put the brakes on Lehman Brothers Holdings Inc.’s bid to take control of 20 real-estate projects it backed with developer SunCal Cos. and ordered the two sides into mediation.Judge Erithe A. Smith of the U.S. Bankruptcy Court in Santa Ana, Calif., delayed a hearing set for Friday on the outlines of rival restructuring plans that SunCal and Lehman have put forth for the projects, court papers show.

But representatives for the projects will join SunCal and Lehman in court Friday for a hearing on the mediation, which Smith ordered them to begin before Feb. 11, 2011.”My clients are very pleased with Judge Smith’s mediation order in the Lehman bankruptcy case, which order was made over Lehman’s vehement objections,” said attorney Skip Miller of Miller Barondess, who represents some of the SunCal projects in bankruptcy. “We have been suggesting mediation for several months. We wholeheartedly support the order because we want to stop the litigation, stop the maneuvering and work toward a resolution to get the many creditors paid off.”A spokeswoman for Lehman Brothers declined comment.In the rival restructuring plans, SunCal and Lehman propose different fates for the 20 projects and their creditors. Under SunCal’s plan, the real-estate projects would be auctioned off and the proceeds used to pay creditors.SunCal says its plan would pay the projects creditors in full, a feat it aims to achieve by pushing down Lehman’s hundreds of millions of dollars in secured claims to a lower priority. In bankruptcy, high-ranking creditors such as secured creditors must be paid in full before lower-ranking creditors, like those holding unsecured claims, can recover anything.

Lehman, on the other hand, is proposing two separate plans for the projects. One Lehman plan concerns 12 developments, while the other plan concerns the remaining eight and has the backing of the bankruptcy trustee in charge of those projects.

Together, Lehman’s plans call for the investment bank to take control of the 20 projects. While its plans offer creditors between 10 cents and 50 cents of every dollar they’re owed, Lehman said this is still a better deal for creditors because their chance of recovery is greater under Lehman’s plans than under SunCal’s plan.

Smith’s ruling addresses a motion SunCal filed in conjunction with the real-estate projects in bankruptcy back in September. In that motion, SunCal seeks to temporarily halt all contested matters involving Lehman and its affiliates, like the restructuring plans.

SunCal had argued that Lehman was using the shield of its own bankruptcy proceeding as a “sword” in its fight to make sure SunCal’s restructuring plan doesn’t win out.

Smith’s ruling to grant the delay, made Oct. 29, is a departure from another ruling one week prior, in which Smith refused to grant a different SunCal request for a delay on the grounds that it needed more time to examine the motivations of the bankruptcy trustee for his signing onto “what appears to be a highly speculative conditional plan of liquidation that borders on being illusory.”

Smith had said there were “insufficient exigent circumstances” to grant SunCal’s request.

Approximately two dozen real-estate entities tied to SunCal have been placed into bankruptcy protection, either by SunCal or by creditors, since November 2008. SunCal itself, a family-owned developer in Irvine, Calif., isn’t in bankruptcy.

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