On August 19, 2005, the Firm achieved a significant victory for its clients, Citibank, N.A. and JPMorgan Chase Bank, N.A. (as trustee), plaintiffs in a multi-district litigation pending before Judge Kathleen M. O'Malley of the United States District Court for the Northern District of Ohio. The Court granted in its entirety Citibank's motion for judgment on the pleadings and ruled that Citibank was entitled to full recovery under a surety contract issued by Illinois Union Insurance Company guaranteeing $50 million in obligations owing to Citibank.
In the underlying transaction, Citibank purchased $50 million in notes issued by a special purpose entity, which notes were to be re-paid from leases originated by Commercial Money Center and sold to the special purpose entity. Illinois Union issued a surety contract guaranteeing the obligations of CMC and the lessees. Soon after the transaction closed, there were substantial defaults upon the leases, and CMC declared bankruptcy. Illinois Union refused to honor its obligations under the surety contract, instead contending that CMC was a Ponzi scheme, that the leases were fictional, and that as a matter of insurance and surety law, no action could be brought to enforce an insurance contract guaranteeing amounts due in a Ponzi scheme. Citibank filed a pre-discovery motion for judgment on the pleadings, asserting that there were no valid defenses under the surety contract.
In today's opinion in In re Commercial Money Center, Inc. Equipment Lease Litigation, the Court granted judgment as a matter of law in favor of Citibank based upon the pleadings. The Court held that any fraud by CMC was no defense to Illinois Union's obligations to Citibank, and that Illinois Union had no valid defense under its surety contract.
The Simpson Thacher team consists of Barry Ostrager, George Wang, Amy Semet, Tim Cornell, Tiffany Liston, Katherine Weall and paralegals Gleny Ramirez and Mario Hyacinth.