The Monkey and the Cat tells about a clever monkey that got a cat to burn its paw fetching chestnuts from a fire.
The Third Circuit today upheld a bankruptcy court's judgment ordering Lucent Technologies to return $188.2 million to Winstar Communications, which filed for bankruptcy protection on April 18, 2001.
The decision pivoted on whether Lucent counted as an "insider" of Winstar at the time it received the money less than a year before the bankruptcy filing. If Lucent did move from mere creditor to insider, 11 U.S.C. 547(b) allowed Winstar's trustee to recover the $188.2 million remittance.
The Third Circuit affirmed the lower court's classification of Lucent as a Winstar insider. Winstar's dependence on Lucent, as creditor and supplier, had so progressed by the time of the payment that Winstar had ceased to deal with its master at arm's length. That Lucent had manipulated its dealings with Winstar — including forcing Winstar to buy Lucent equipment it didn't need — didn't help. Nor did Lucent's purpose: inflating its earnings. In re Winstar Communications, Inc. (Schubert v. Lucent Technologies, Inc.), No. 07-2569 (3d Cir. Feb. 3, 2009).
Lucent also lost its appeal from a $62 million breach of contract award and beat an equitable subordination claim only to the extent the Third Circuit ordered the bankruptcy court not to subordinate Lucent's claims against Winstar below the claims of equity holders.
