27 Apr 2017 Cases

Compass Lexecon Client Access Industries Prevails in Multi-Billion Dollar Lyondell Fraudulent Conveyance Litigation

3 minute read


Compass Lexecon President Professor Daniel R. Fischel leads Compass Lexecon Team

This case stems from the 2007 acquisition of Lyondell Chemical Company by Basell AF S.C.A and the subsequent bankruptcy of the merged firm, LyondellBasell AF S.C.A ("LBI"), in January 2009. The LB Litigation Trust, on behalf of the creditors of the merged firm, alleged multiple claims including fraudulent transfer, avoidable preference, and breach of contract. These claims centered on the Trustee's contention that LBI was insolvent on the date of the merger, December 20, 2007 as well as subsequently in April and October of 2008. In support of these claims, the Trustee retained three experts who submitted 11 reports collectively concluding that LBI was balance sheet insolvent, unable to meet its debts as they came due, and inadequately capitalized.

Compass Lexecon and its President, Professor Daniel R. Fischel were retained by the law firm of Quinn Emanuel Urquhart & Sullivan, LLP, to analyze the economic evidence with respect to these claims. Professor Fischel and the Compass Lexecon team analyzed the contemporaneous market evidence including market prices, credit ratings, the opinions of equity analysts, and the contemporaneous actions and analyses by market participants such as banks financing the transaction. Professor Fischel also conducted his own valuations of LBI and its projected ability to meet its debts as they came due under various sets of contemporaneous projections. Professor Fischel concluded that LBI was solvent as of the close of the transaction and further opined that the Trustee's expert analyses were fundamentally flawed in part because they relied on cherry-picked projections for LBI and ignored the voluminous market evidence which indicated that LBI was solvent. Professor Fischel expressed these opinions in three expert reports and two depositions prior to trial.

At trial, the Trustee and its experts claimed that LBI was insolvent because its debt exceeded the value of its assets on both the December and October valuation dates and that the transaction left the firm unable to pay its debts as they came due and with unreasonably small capital. In support of these claims, the Trustee submitted valuations of the merged firm as of both dates as well as analyses of LBI's projected cash flows which purported to show insolvency. We worked closely with Quinn Emanuel during the trial to assist counsel in exposing the flaws in these claims by the Trustee and their experts.

In his April 2017 ruling, Judge Martin Glenn of the United States Bankruptcy Court, Southern District of New York, ruled that during the trial, "serious flaws with the Trustee's experts were exposed, rendering the Trustee's experts' testimony largely unreliable...On the whole, the Court finds the expert testimony offered by the Trustee to be largely unreliable and the Trustee's case floundered without credible expert testimony on these critical issues." The Court emphasized in reference to market participants that "[t]he views of these sophisticated investors provided perhaps the clearest indication that the combined company was left with sufficient capital upon the merger closing, given that the financial projections prepared by both Lyondell management and the banks all reasonably showed LBI to be solvent on the closing of the merger," and with respect to the October 2008 claims that "the Trustee's insolvency case crumbled under the weight of [the expert's] errors." The Court ruled in favor of Defendants on all valuation-related claims.

We worked with Richard I. Werder, Jr., Susheel Kirpalani, Andrew J. Rossman, and Rex Lee of the Quinn Emanuel firm who successfully represented LBI. The Compass Lexecon team that worked with Professor Fischel included Rahul Sekhar, Rajiv Gokhale, Robin Stahl, Avisheh Mohsenin, Quinn Johnson, James Libby, Heather Freilich-Farby, and Nabila Lotayef.

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