Fox Rothschild Secures $400M Judgment on Behalf of the Chapter 7 Trustee of Downey Financial Corp.October 10, 2013 – Press Releases
Michael Menkowitz, Raymond Patella and William Stassen, partners with Fox Rothschild LLP, recently secured a judgment awarding ownership of more than $400 million to their client, the chapter 7 trustee of Downey Financial Corp.
On October 8, 2013, Bankruptcy Judge Christopher S. Sontchi entered summary judgment in favor of the chapter 7 trustee, Alfred T. Giuliano, in litigation against the Federal Deposit Insurance Corporation as receiver for Downey Savings & Loan Association, previously Downey Financial’s wholly owned subsidiary over ownership of over $400 million in tax refunds.
On November 25, 2008, Downey Financial Corp. filed for bankruptcy in the District of Delaware. The day before, its wholly owned subsidiary, Downey Savings & Loan Association was taken over by the FDIC and sold to US Bank. At the time, the bank failure was the third largest in 2008 during the financial crisis. In the bankruptcy case, a chapter 7 trustee was appointed who retained Fox Rothschild as counsel.
As a result of the takeover, sale of the subsidiary, and operations, the Downey Financial consolidated tax group reported massive losses, exceeding more than $1 billion. Those losses were then carried back to recover taxes previously paid by the consolidated tax group, resulting in refunds that totaled in excess of $400 million. The chapter 7 trustee, on behalf of the parent Downey Financial, asserted that the parent owned any refunds pursuant to a tax sharing agreement with Downey Savings. The FDIC, as receiver for the failed bank, Downey Savings, asserted it owned the refunds.
In securing the summary judgment victory, Fox convinced the bankruptcy court that the parent owned the refund as a matter of law under the terms of a tax sharing agreement between the parent and its subsidiary. The bankruptcy court rejected each of the FDIC’s arguments and excluded parol evidence offered by multiple factual and expert witnesses offered by the FDIC. Finally, the bankruptcy court adopted the team’s arguments and positions distinguishing two recently decided 11th Circuit opinions addressing nearly identical issues.
Menkowitz began his career at Fox and ascended the ranks to become chair of its national Financial Restructuring & Bankruptcy Department. During his tenure at the firm, he served as the driving force behind complex, high-profile bankruptcy cases, particularly in Delaware, Pennsylvania and New Jersey.
Patella has a local and national practice in bankruptcy and related litigation matters as well as in other corporate restructurings and business finance matters. He primarily represents creditors' committees, individual creditors, asset purchasers, debtors, banks, funds, utilities, trustees and other parties.
Stassen is a seasoned litigator and trial attorney with extensive experience in commercial, auditor malpractice, director and officer, trade secret, tax, real property valuation cases and complex bankruptcy litigation matters. He also serves as a trusted advisor to his clients, providing strategic guidance on various corporate, contract and employment matters, and has secured multimillion-dollar recoveries in jury and bench trials across the country.