April 2009
Arnold & Porter LLP achieved victory for its client, Health Care REIT, Inc. ("HCN"), recovering US$137 million in a bankruptcy proceeding involving LandAmerica Financial Group, Inc. Arnold & Porter recovered the money within three months of the bankruptcy petition and before any other claimant received payment. The case was reported in The Wall Street Journal and Richmond Times Dispatch.
The case's success drew on three distinct areas of the firm's legal disciplines: bankruptcy law; tax expertise, particularly regarding the complex Treasury regulations regarding Section 1031 like-kind exchanges; and emergency litigation expertise. The outcome was a joint effort of Arnold & Porter's Bankruptcy, Tax, and Litigation practice groups. The team's ability to move fast and keep the pressure on was key to quickly getting to the top of the agenda, which is often difficult in complex bankruptcy proceedings with numerous claimants.
Founded in 1970, HCN is a member of the S&P 500 Index and was the first real estate investment trust to invest exclusively in health care facilities. LandAmerica was the largest company serving as a qualified intermediary under Section 1031 of the Internal Revenue Code. Buying and selling property under Section 1031 allows taxpayers to obtain favorable tax treatment, but the Code requires that the qualified intermediary obtain title to property in the transaction and limit the taxpayer's control of the sales proceeds.
HCN entered into contracts with LandAmerica to facilitate the sale and purchase of health care facilities. In November, 2008, LandAmerica filed for bankruptcy protection in the Eastern District of Virginia. At the time it filed bankruptcy, LandAmerica held funds for approximately 400 like-kind exchangers. HCN was the largest of these, with US$137 million in funds. The bankruptcy filing froze all funds.
While creditors in bankruptcy often receive only cents on the dollar, Arnold & Porter, on behalf of HCN, took the position that the funds being held by LandAmerica were not property of LandAmerica's estate, and that as a result HCN should receive payment in full. Within days of the bankruptcy filing, Arnold & Porter filed an adversary complaint, sought injunctive relief, and pushed for an expedited trial.
As a result, the Bankruptcy Court set an expedited schedule with discovery to be completed in weeks, summary judgment motions due within two months, and trial within two months after that. Faced with the results of expedited discovery, the creditors committee asked for a settlement. Arnold & Porter promptly negotiated a settlement under which HCN received the full US$137 million, and then paid US$2 million to the bankruptcy estate on the condition that the settlement be approved and payment made to HCN within one week. The judge approved the settlement on February 23, 2009 and the US$137 million was wired to HCN the next day.
The Arnold & Porter team was led by partners Michael Bernstein (Washington, DC--Bankruptcy), Randall Miller (McLean, VA--Litigation), and Joseph Howe (Washington, DC--Tax) and associates Nicholas DePalma (McLean, VA--Litigation), and Rosa Evergreen (Washington, DC--Bankruptcy).