LENDER LIABILITY CLAIMS IN THE "BIG APPLE" IF THEY CAN MAKE IT THERE, THEY'LL MAKE IT ANYWHERE

In recent years, the federal courts in New York have imposed significant limits on the prevailing "lender liability" claims favored by bankruptcy trustees, receivers and creditors' committees of failed borrowers. New York is at the forefront of jurisdictions refusing to allow trustees to sue third parties for collaborating with a debtor's management in a scheme to defraud creditors. A second area in which federal courts in New York have distinguished themselves in recent years as lender-friendly is in their handling of "deepening insolvency" claims. A deepening insolvency claim is premised on the theory that the defendant wrongfully prolonged a corporation's life and allowed it to spiral deeper and deeper into debt, injuring the corporation and its creditors. Lenders should move quickly, once a bankruptcy case or one of these lawsuits is filed, to analyze whether there are grounds to move the matter to a better venue such as New York.