Less than one month after it emerged from bankruptcy on September 30, 2011, reorganized Capmark commenced an action in the U.S. District Court for the Southern District of New York seeking to avoid as a preference $139 million in debt and $5.5 million in cash that the Goldman Lenders obtained as part of a $1.5 billion secured term loan facility (Secured Credit Facility) that Capmark borrowed in May 2009. Because the Secured Credit Facility transaction occurred more than 90 days before Capmark’s October 2009 bankruptcy filing, Capmark’s preference claim depended on the Goldman Lenders being deemed “insiders” of Capmark.

Embracing the arguments that Davis Polk advanced on behalf of the Goldman Lenders, Judge Sweet rejected Capmark’s attempt to cast the lenders as “insiders” of Capmark based on an indirect equity interest in Capmark held by funds managed by affiliates of Goldman Sachs and Goldman Sachs’s alleged service as an adviser to Capmark. In doing so, Judge Sweet held that Capmark failed to allege facts that would show the “extraordinary circumstances” required for veil piercing, and stated that participation in an arm’s-length transaction as an ordinary commercial lender will not give rise to non-statutory insider status. Judge Sweet also held that reorganized Capmark was judicially estopped from alleging that the Secured Credit Facility transaction was not at arm’s length because Judge Sontchi had adopted Capmark’s representation that the Secured Credit Facility was negotiated at arm’s length in approving a 2010 settlement between Capmark and the Secured Credit Facility lenders.

The Davis Polk bankruptcy and litigation team included partners Benjamin S. Kaminetzky and Marshall S. Huebner, associates Andrew D. Schlichter, Hilary Dengel, Marc J. Tobak, Darren Mahone, Sagar K. Ravi, Adam Mehes, Edith Beerdsen and Angela Libby and former associates Molly Shima McDonnell and Anjali Sara Bonner. Tracy M. Wright and Elliot C. Law were the legal assistants and Dana Gorodetsky was the former legal assistant on this matter. All members of the Davis Polk team are based in the New York office.