On November 14, 2007, the United States Court of Appeals for the Sixth Circuit affirmed an award of liability in favor of our client Citibank against Illinois Union Insurance Company in a multi-district litigation relating to Commercial Money Center, a now-defunct entity alleged to have run a Ponzi scheme whereby it re-paid investors through funds raised from new investors.
In January 2001, Citibank purchased $50 million in Notes to be re-paid through lease receivables originated by CMC. After all of the lease receivables in Citibank’s asset pool defaulted within a year, Citibank sought recovery from Illinois Union, which had issued a surety contract—in the form of an insurance policy—guaranteeing the receipt of all amounts due. Illinois Union contended that its insurance policy was void ab initio on account of the fraud of the insured, a CMC affiliate. Citibank's lawsuit was coordinated in the MDL with dozens of similar actions filed by other financial institutions who had invested in CMC receivables.
In August 2005, the District Court granted Citibank’s motion for judgment on the pleadings, holding that it was entitled to recovery notwithstanding any fraud by CMC, and awarded final judgment in favor of Citibank in August 2006. Citibank is the only investor in the MDL to have been awarded final judgment in its favor. The remaining financial institutions are proceeding today toward trial of their cases.
The Sixth Circuit affirmed the District Court’s liability ruling in all respects, rejecting all of the arguments the insurer advanced to avoid liability. On damages, the District Court awarded Citibank the full amount of damages it sought, and also prejudgment interest and reasonable attorney's fees. The Sixth Circuit remanded for further proceedings simply to determine the amount due under the Notes purchased by Citibank.
The Simpson Thacher team has consisted of Barry Ostrager, George Wang, Tim Cornell, Tiffany Liston, Carlos Lopez, Heather Shaffer and paralegal Mario Hyacinth.