Whether an equipment lease that is part of a leveraged lease transaction is recognized as a true lease or recharacterized as a sale and a secured loan has significant consequences for the parties to the transaction, especially if the lessee files for bankruptcy and claims that the equipment is property of the estate. This was the issue tried recently in In re Horsehead Industries, Inc. in the U.S. Bankruptcy Court for the Southern District of New York, in which Friedman Kaplan represented Teachers Insurance and Annuity Association of America ("TIAA") and Wilmington Trust Company, the latter as owner-trustee and lessor of a zinc ore processing facility leased to Horsehead, a major domestic producer of zinc.

Our clients sought to compel the payment of rent under the lease. Horsehead claimed, based on the terms of the transaction documents and the testimony of its CEO and CFO, that the parties had understood and intended that the lessor would have no meaningful reversionary interest in the facility, that the financing provided by TIAA was in reality a secured loan to Horsehead, and that Horsehead was the owner of the property under lease. After trial, however, the Court disagreed. Citing our firm's legal analysis and quoting the testimony of Horsehead's witnesses on cross-examination as well as our clients' witnesses, the Court granted our clients all the relief they sought, confirming their status as the owners of the facility and the holders of administrative claims for rent in the bankruptcy proceeding.

Litigation partners Edward A. Friedman and Hal Neier and associate Marci R. Etter represented TIAA and Wilmington at trial; corporate partner Gary D. Friedman provided advice and counsel to the trial team.