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68 N.Y.U. L. Rev. 552 (1993)
Toward a Rational Treatment of Fraudulent Conveyance Cases Involving Leveraged Buyouts

handle is hein.journals/nylr68 and id is 570 raw text is: TOWARD A RATIONAL TREATMENT OF FRAUDULENT CONVEYANCE CASES INVOLVING LEVERAGED BUYOUTS ROBERT A. FOGELSON INTRODUCTION Leveraged buyouts (LBO's) have become a popular method of corpo- rate acquisition... So far, relatively few... LBO's have gone bank- rupt, suggesting that they have been judiciously chosen and financed by lenders. But financial fashion has a cyclical quality to it. Some LBO's will certainly end in bankruptcy, and many general creditors will challenge the financing lender's security interests, mortgages, and guaranties as fraudulent conveyances.1 The passage of time has demonstrated the prescience of the above statement made by Professor David Carlson in 1985. Numerous lever- aged buyouts (LBOs) completed during the 1980s have resulted in bank- ruptcy, and lending institutions have been faced with fraudulent conveyance challenges by unsecured creditors seeking to improve their distribution positions.2 This wave of litigation has touched off a renaissance in the arcane field of fraudulent conveyance law. Numerous judges and scholars have debated the applicability of fraudulent conveyance statutes to the series of transactions composing an LBO.3 Although this debate has not been I David G. Carlson, Leveraged Buyouts in Bankruptcy, 20 Ga. L. Rev. 73, 73-74 (1985) (footnotes omitted). 2 Cases spawned by this phenomenon include: Kaiser Steel Corp. v. Pearl Brewing Co. (In re Kaiser Steel Corp.), 952 F.2d 1230, 1239-40 (10th Cir. 1991) (applying fraudulent con- veyance laws to LBO situation), cert. denied, 112 S. Ct. 3015 (1992); Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635, 645-48 (3d Cir. 1991) (recognizing applicability of fraudulent conveyance laws to LBOs but holding that standard was not met in this case), cert. denied, 112 S. Ct. 1476 (1992); Kupetz v. Wolf, 845 F.2d 842, 850 (9th Cir. 1988) (same); Crowthers McCall Pattern, Inc. v. Lewis, 129 B.R. 992, 997-98 (S.D.N.Y. 1991) (refusing to dismiss claims under fraudulent conveyance laws in LBO situation); Moody v. Security Pac. Business Credit, Inc., 127 B.R. 958, 989 (W.D. Pa. 1991) (recognizing applicability of fraudu- lent conveyance laws to LBOs but holding that standard was not met in this case), aff'd, 971 F.2d 1056 (3d Cir. 1992); Murphy v. Meritor Say. Bank (In re O'Day Corp.), 126 B.R. 370, 393-97 (Bankr. D. Mass. 1991) (holding LBO arrangement lacked fair consideration and was thus actionable under fraudulent conveyance laws); Wieboldt Stores, Inc. v. Schottenstein, 94 B.R. 488, 499-506 (N.D. Ill. 1988) (refusing to dismiss claims under fraudulent conveyance laws in LBO situation); United States v. Gleneagles Inv. Co., 565 F. Supp. 556 (M.D. Pa. 1983), aff'd sub nom. United States v. Tabor Court Realty Corp., 803 F.2d 1288, 1296-97 (3d Cir. 1986) (holding LBO was fraudulent conveyance), cert. denied, 483 U.S. 1005 (1987). 3 For those who favor application of fraudulent conveyance laws to LBOs, see Jenny B. 552 Imaged with the Permission of N.Y.U. Law Review

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