Dillworth v Ginn Lawsuit Dismissed on Technicality – Will be Refiled

Bump in the road. Bankruptcy Trustee Dillworth’s lawsuit seeking return of alleged ”fraudulently transferred” funds to Bobby Ginn and Lubert-Adler from a $675M Credit Suisse loan will move forward.

Ginn  Blimp - GoToby.comPalm Coast, FL – December 16, 2010 – Judge Paul Hyman, Chief Judge o f the U. S. Bankruptcy Court in the Southern District of Florida dismissed the Adversary Proceeding Dillworth v. Ginn Without Prejudice." Hyman granted the plaintiff 20 days to amend the complaint. The ruling amounts to a bump in the road for Dillworth. The ruling was based on a technical issues, not on the merits of the complaint.
Read: Order
Dillworth is trying to recover $148M from the defendants; Bobby Ginn and Lubert-Adler entities. Ginn and LA are alleged to have participated in a "fraudulent transfer" of approximately $330M of a $675M Credit Suisse loan in 2006. The transaction left the mortgaged developments insolvent, resulting in the sale of Laurelmor, the foreclosure of Ginn sur Mer, and the bankruptcies of Tesoro and Quail West.
Dillworth goes further by naming as defendants over 300 high-profile investors in Lubert-Adler funds. A portion of their money was invested in the bankrupted Ginn projects; Tesoro and Quail West. They are alleged to have received a portion of the fraudulent distribution. Dillworth’s strategy parallels the tactics of the trustee in the Madoff case. That trustee is pursuing investors that took early distributions from Madoff’s Ponzi scheme.

[Update 12-17-2010] The estate of Jeffry Picower, a major investor in Bernard Madoff’s Ponzi scheme, has agreed to repay $7.2 billion to victims of the fraud in a settlement with the trustee overseeing the investment firm’s bankruptcy and federal prosecutors in Manhattan, according to people familiar with the situation. The settlement is by far the largest related to the Ponzi scheme, and would quadruple the amount of money recovered for victims to date.

The technical issues causing the dismissal revolve around subsequent pleadings by the plaintiff that need to be incorporated into the complaint. Judge Hyman granted 20 days to file an amended complaint. The defendant will have 20 days from the amended filing to file a responsive pleading.
Unless the parties reach a settlement, the lawsuit will proceed as follows:
  1. Fact Discovery
  2. Expert reports and depositions
  3. Dispositive motions
  4. Pre-trial conference
  5. Trial
  6. The preconference conference is scheduled for January 3, 2011.

"The wheels of justice grind slowly," as measured in billable hours.

Lawsuit’s significance

In a similar case, Charlotte, NC based Duke Energy burdened its real estate subsidiary, Crescent Resources, with more than $1.2B in debt, funneling nearly all the loan proceeds directly to Duke. Burdened with massive debt in a rapidly declining real estate market, Crescent was soon forced to file for bankruptcy protection. Creditors have filed suit.

The lawsuit is significant not only because of the amount of money involved and the well known defendants, but also because it’s not isolated. Its outcome could impact or be impacted by the outcomes of similar cases. Credit Suisse made loans to several luxury resort developers; among them Lake Las Vegas and Yellowstone Club. In nearly all cases, a large portion of the loan proceeds were distributed directly to investors, essentially taking out profits before they were earned. Each of the Credit Suisse loans ended in the bankruptcies of the debtor developments, resulting in a spate of lawsuits.

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