Bankrupt homebuilder Tousa Inc. on Thursday asked a Florida bankruptcy judge to approve a settlement whereby its insurers will pay $67 million to end a lawsuit accusing Tousa's top brass of disregarding their duty to the company and its creditors.
The deal is part of a broader "grand bargain" at the heart of the company's Chapter 11 liquidation plan, according to a motion filed with the court, resolving disputes among Tousa and its lenders over the company's failed 2005 joint venture to acquire fellow Florida homebuilder Transeastern Properties Inc.
"This settlement agreement and the settlements embodied in the plan will finally bring to a close these Chapter 11 cases that have been pending for over five years," Tousa said.
Under the deal, the insurers — including Federal Insurance Co., XL Specialty Insurance Co. and Zurick American Insurance Co. — will pay $47.8 million to unsecured creditors of certain Tousa subsidiaries. The company's first-lien lenders will receive $7.6 million of the settlement amount, while second-lien lenders will get $11.4 million, according to the motion.
XL and Federal will also pony up $8.2 million to pay defense costs incurred by Tousa officers and directors named in the lawsuit.
Tousa's official committee of unsecured creditors filed the suit in 2009, claiming the company's directors gave creditors the shaft when they issued $500 million in debt to settle litigation stemming from the Transeastern venture.
In July 2007, Tousa paid $421 million to resolve claims brought by lenders who funded the Transeastern joint venture. But after Tousa filed for bankruptcy in January 2008, the committee sued the Transeastern lenders to recover the settlement payment and won a disgorgement order from a bankruptcy judge.
That ruling was overturned by the district court in Florida, which was then reversed by the Eleventh Circuit in 2012, finally securing a victory for the committee.
With the litigation ongoing for four years, the company decided to start winding down its operations in 2009 and transitioned from built-to-order new sales and construction starts to closing sales of homes that were already under construction, and selling its remaining inventory and many land assets, according to the motion.
Since March 2009, the company generated $230 million and has $308 million in cash-on-hand to distribute to creditors, according to court documents.
Tousa is represented by Paul Steven Singerman of Berger Singerman LLP, and Richard M. Cieri and Joshua A. Sussberg of Kirkland & Ellis LLP.
The committee is represented by Daniel H. Golden and Philip C. Dublin of Akin Gump Strauss Hauer & Feld LLP and Patricia A. Redmond of Stearns Weaver Miller Weissler Alhadeff & Sitterson PA.
The case is In re: Tousa Inc, et al., case number 0:08-bk-10928, in the U.S. Bankruptcy Court for the Southern District of Florida.
REPRINTED WITH PERMISSION FROM THE JUNE 10, 2013 EDITION OF LAW360 © 2013 PORTFOLIO MEDIA INC. ALL RIGHTS RESERVED. FURTHER DUPLICATION WITHOUT PERMISSION IS PROHIBITED