Herrick Prevails in Winstar Case
Kudos once again to the bankruptcy team at TAGLaw's New York member firm, Herrick, Feinstein, which prevailed at the Court of Appeals for the Third Circuit in the Lucent-Winstar litigation. After winning at the bankruptcy court level and an initial appeal to US District Court, Herrick successfully argued to the Court of Appeals in a case now valued at about $340 million. This case also changes dramatically the bankruptcy landscape by defining for the first time instances where a company can by its own actions make itself an "insider" of another company -- a crucial (and unwanted) designation in preference cases. The Third Circuit panel, in upholding the District Court, found Lucent to be an insider of Winstar, meaning that a $188 million payment by Winstar to Lucent, more than three months before that company declared bankruptcy, must be disgorged to the Winstar bankruptcy estate as a preference payment. The decision deals with other significant bankruptcy issues, such as earmarking, new value, core versus non-core jurisdiction, right to a jury trial and equitable subordination. This judgment is the only significant asset remaining in the estate and will allow the Winstar bankruptcy Trustee to make payments to certain of Winstar's creditors.
Winstar and Lucent entered into a strategic partnership in 1998 to provide telecommunications equipment and services. When Winstar filed for bankruptcy in 2001, it claimed that Lucent's breach of that agreement caused the company's downfall, and sued Lucent for breach of contract. The Court appointed the Chapter 7 Trustee in early 2002, and the Trustee hired Herrick.
For more information on Herrick's Restructuring and Bankruptcy department, click www.herrick.com/RestructuringAndBankruptcy
