Provided expert opinion in real estate client’s bankruptcy dispute

Provided expert opinion in real estate client’s bankruptcy dispute

Stout provided expert testimony in a real estate dispute related to a bankruptcy during the global financial crisis. 

The dispute arose out of a Chapter 11 bankruptcy case involving a National Homebuilder that filed for bankruptcy in 2008. The court approved the sale of real property, free and clear of liens. A third-party developer (the purchaser and ultimately Stout’s client) purchased several partially complete residential subdivisions out of bankruptcy. Subsequent to the purchase, the surety/bonding company that had issued performance bonds for each subdivision, sued the purchaser of these assets in State Court. As a result of these lawsuits, the purchaser was prevented from developing and/or selling the assets – due to the cloud of the pending litigation. This delay continued for six years, until the Bankruptcy Court ruled that the surety/bonding company “…in bringing the claims against the 'purchaser' in State Court Lawsuits, they have violated the terms of the Plan Injunction, and in so doing, have subject itself to further order of this court and civil contempt damages.” The Violation Decision directed the surety/bond company to dismiss its claims against the purchaser in the state court, and schedule a hearing to address damages.

Stout was hired by attorneys for the purchaser to prepare an opinion of the damages related to the diminution in value caused by the “forced delay” of six years, which prevented the purchaser from developing and/or selling the real property over that time period. Stout issued an expert report, and provided expert testimony at deposition and at trial in the Bankruptcy Court. Our analysis focused on a thorough analysis of the cash flows associated with the property under two scenarios: 1) Present value of the cash flows assuming no delay in developing and/or selling the real properties; 2) Present value of the cash flows assuming a six-year “forced delay” in developing and/or selling the real properties. The difference between the two scenarios reflects the diminution in value caused by the six-year “forced delay” – and exceeded $7.7 million. In addition, Stout provided counseling services related to rebuttal of the expert put forth by opposing counsel.

The Bankruptcy judge issued a decision awarding damages to Stout’s client amounting to more than $9.5 million, including the over $7.7 million in property damages opined to by Stout.