Case Study

Partial Contingency is Win-Win Arrangement

Film Company Collects in Loan Fraud Case

Challenge

The Los Angeles branch of a French bank loaned $21 million to a New York film production company on the basis of an audited financial statement that turned out to be more fictitious than the movies it produced. When the film company voluntarily filed for bankruptcy, the bank sued to collect on its loan.

Solution

Trachtenberg Rodes & Friedberg represented the bank seeking recourse for the fraudulently obtained loan. In addition to filing malpractice claims against the film company’s auditor, we filed a lawsuit against the film company’s officers/directors based on then-developing Delaware case law concerning the shifting fiduciary duties of officers and directors of companies that are in or near the “zone of insolvency.” After we had initiated the action on behalf of the lending bank, the trustee of the bankruptcy debtor also engaged our firm to initiate similar claims on behalf of the debtor against the same defendants.

The debtor’s estate could not afford to pay hourly fees, and the bank, the film company’s only secured creditor, preferred not to pay full hourly fees to press its claims. We took the case on a “blended” contingent fee basis, charging a discounted hourly fee, advanced by the secured creditor, in exchange for a partial contingent fee interest in any recovery achieved. The bankruptcy court approved the arrangement, and we filed a consolidated complaint on behalf of both the lender and the trustee.

Result

We successfully resolved this matter on a timely basis. Our strategy resulted in securing from the defendants a high-seven-figure settlement, which was paid by their D&O insurers.