Mellon Bank N.A. v. Metro Communications
United States Circuit Court for the Third Circuit
945 F.2d 635 (1991)
- Written by Rich Walter, JD
Facts
Total Communications, Inc. (TCI) acquired Metro Communications, Inc. (Metro) (defendant) in a leveraged buyout (LBO). Mellon Bank N.A. (Mellon) (plaintiff) financed the LBO by loaning $1.85 million to TCI. Metro guaranteed and secured this loan with its assets. Mellon simultaneously extended Metro a $2.3 million credit line. The LBO led to strong synergies between TCI and Metro. Within three months, Metro picked up significant broadcast rights that increased its net worth by over $343,000. Nevertheless, less than a year after the LBO, Metro declared Chapter 11 bankruptcy. Mellon sued Metro to enforce the security interest in the $1.85 million loan that Metro had guaranteed. The bankruptcy court found that Metro received no direct benefit from that loan and that Metro actually incurred financial liability from the loan because the loan was accompanied by Mellon’s simultaneous extension of the $2.3 million credit line. The court granted the bankruptcy trustee’s petition to void the loan as a fraudulent transfer. Mellon appealed to the Third Circuit.
Rule of Law
Issue
Holding and Reasoning (Rosenn, J.)
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