United States v. Tabor Court Realty Corp.
United States Court of Appeals for the Third Circuit
803 F.2d 1288 (1986)
- Written by Eric Miller, JD
Facts
Raymond Colliery Co., Inc., a major coal producer, and its subsidiaries (collectively, Raymond) (defendants) encountered serious financial difficulties. The shareholders sought a buyout. Raymond president James Durkin incorporated a holding company, Great American, to serve as a vehicle for a leveraged buyout. Durkin obtained a loan of $8,530,000 from Institutional Investors Trust (ITT), secured by mortgages on Raymond’s assets. Great American paid $6.7 million to purchase the Raymond stock. A smaller portion of the loan was used to pay off existing debts, which were extensive. The buyout brought no improvement, however, as Raymond became completely insolvent and soon ceased all mining operations. ITT sold the mortgages, on which Raymond was in default, to Pagnotti Enterprises (defendant), which in turn sold them to McClellan Reality (McClellan) (defendant). Later, the United States (plaintiff) brought an action in federal district court to convert tax assessments against Raymond and Great American to a judgment and assert priority of its tax liens. The court found that the mortgages given to ITT were fraudulent conveyances under the Pennsylvania Uniform Fraudulent Conveyance Act because ITT made the loan in bad faith. The mortgages held by McClellan were voided. McClellan appealed. The United States Court of Appeals for the Third Circuit granted certiorari.
Rule of Law
Issue
Holding and Reasoning (Aldisert, C.J.)
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