Summary Judgment for Chase Bank Affirmed on Appeal

On May 19, 2008, the United States Court of Appeals for the Third Circuit affirmed the grant of summary judgment in favor of The Chase Manhattan Bank NA (on behalf of a syndicate of 22 banks), in the long-running Hechinger fraudulent conveyance litigation arising out of the leveraged buyout of Hechinger and its merger with Builders Square. Cravath is representing Chase in this matter. The lawyers on the appeal were partners Richard W. Clary, Elizabeth L. Grayer and associate Christopher M. Colorado.

An adversary proceeding was initiated against The Chase Manhattan Bank NA and 21 other lenders (the “Chase Bank Group”) in connection with the Chapter 11 bankruptcy petition filed by Hechinger Company and its affiliates. The plaintiff’s claims arose out of the acquisition and subsequent combination of assets of Builders Square, Inc. with Hechinger by defendant Leonard Green & Partners, L.P. (“LGP”), in September 1997. The Chase Bank Group provided interim financing as part of the transaction and established a $600 million secured credit facility for the combined entity. Hechinger and its affiliates alleged that security interests in Hechinger’s assets were conveyed to Chase for less than reasonably equivalent value and therefore constituted fraudulent conveyances under the bankruptcy laws.

On July 19, 2005, the United States District Court for the District of Delaware granted Cravath’s motion for summary judgment in all respects and dismissed the complaint as to the Chase Bank Group in its entirety. Upon appeal of that decision, the Third Circuit affirmed the District Court’s prior finding regarding the worth of Hechinger’s assets, which established reasonably equivalent value, and affirmed the District Court’s grant of summary judgment for the Chase Bank Group. The case is In re Hechinger Investment Company of Delaware, Inc., 2008 WL 2083145 (3d Cir. 2008).