LendingTree’s Legal Dispute With a Subsidiary Over a $40 Million Dividend
While the circumstances leading a business to file for bankruptcy may sometimes seem cut-and-dry, in many instances litigation is required to identify the substance behind a company’s financial problems. This may be true for bankrupt LendingTree subsidiary Home Center Loan Inc. (“HLC”).
According to court records, HLC is accusing LendingTree’s CEO, Doug Lebda, of authorizing a fraudulent transfer of a $40 million dividend while he was serving as the only member of HLC’s board. HLC filed for chapter 11 bankruptcy protection in July. It made the claim regarding Lebda’s actions in a motion filed in the U.S. Bankruptcy Court for the Northern District of California.
The dividend in question was issued to LendingTree’s operating subsidiary, LendingTree, LLC, the sole shareholder of HLC. In motion, HLC contends that Lebda breached his fiduciary duty by authorizing the dividend while HLC was dissolving and still had several debts and liabilities to meet.
LendingTree cited the dividend dispute in a recent quarterly filing. It began settlement talks with HLC over the declaration of the dividend, but if a settlement cannot be reached, it plans to “vigorously contest” the claims regarding the dividend.
Back in 2012, LendingTree sold “substantially all of the operating” assets of HLC to Discover Financial Services. However, according to a LendingTree securities filing, HLC remains a wholly-owned, non-operating subsidiary of LendingTree.
In 2013, Residential Funding Company (“Residential”) sued HLC after it allegedly sold mortgage loans where consumers eventually defaulted or had become delinquent. In part as a result of the losses Residential incurred in lawsuits over the loans, it announced that it had to file for bankruptcy. After a jury trial in June, Judge Susan Richard Nelson of the U.S. District Court for the District of Minnesota ordered HLC to pay $68 million to Residential’s creditors.
HLC appealed the judgment and then filed for chapter 11 bankruptcy, claiming $11 million in assets (not including the $40 million dividend) and $111.8 million in liabilities. The dividend transfer was made in 2016 while the Residential suit against HLC was pending. According to the motion, HLC was already winding down its operations and financial affairs by that time.
Recently, ResCap Liquidating Trust (“ResCap”), the entity formed by Residential’s creditors, filed a motion in bankruptcy court alleging the HLC bankruptcy case was a “scheme” orchestrated by Lebda and HLC’s parent company, LendingTree. In its motion, ResCap requests the HLC bankruptcy case be converted from a chapter 11 reorganization to a chapter 7 liquidation case instead to allow an independent trustee to investigate the claims over the dividend.
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