Overview
(August 14, 2024, Houston) – The Fifth Circuit has affirmed a summary judgment resulting in a $10.3 million final judgment in favor of Steptoe client Richard Schmidt, Litigation Trustee (the Trustee) for Black Elk Energy Offshore Operations LLC (Black Elk). The Fifth Circuit’s decision is the latest victory in the Trustee’s seven years of tracing and recovering funds fraudulently transferred from Black Elk.
Black Elk was a Houston oil and gas company that was majority owned and controlled by New York hedge fund Platinum Partners (Platinum). Mark Nordlicht was Platinum's Chief Investment Officer. When both Black Elk and Platinum ran into financial trouble, Nordlicht and others at Platinum created a scheme to improperly redeem Platinum's equity interests in Black Elk ahead of payments to Black Elk's noteholders and trade creditors, and implemented the scheme by transferring $77.5 million from Black Elk to Platinum. The scheme further included Platinum using the fraudulently transferred funds for the benefit of many of Platinum's long-time and core investors, including in this case $10.3 million of Black Elk funds being paid to billionaire businessman Shlomo Rechnitz and his wife to redeem their investments. Nordlicht has been criminally convicted for the scheme.
In addition to confirming the Trustee's right to collect millions for the benefit of Black Elk's creditors, the Fifth Circuit addressed and resolved three important bankruptcy issues. The Fifth Circuit reaffirmed the "person aggrieved" standard and rejected any argument attempting to create standing through indirect harm. The Fifth Circuit also held that there was no genuine issue of fact that Nordlicht was the agent of the Rechnitzes and further held that Nordlicht's actual knowledge of the fraudulent scheme would be imputed to the Rechnitzes, precluding any good faith defense by the Rechnitzes. Finally, the Fifth Circuit confirmed the bankruptcy court's methodology in tracing the funds from Black Elk to the Rechnitzes, which the Fifth Circuit termed the "proceeds-in, first-out rule" and focused on Platinum's intent to pay the funds through the Platinum entities to the core investors like the Rechnitzes. A copy of the opinion is available here.
The Steptoe team consists of partners Jeff Potts, Jarod Stewart, Justin Waggoner (who argued the appeal), Craig Smyser, associate Austin Kreitz, and paralegal Sallie Woodell. Steptoe's co-counsel included Matt Okin and David Curry of Okin Adams Bartlett Curry LLP.
About Steptoe
In more than 110 years of practice, Steptoe has earned an international reputation for vigorous representation of clients before governmental agencies, successful advocacy in litigation and arbitration, and creative and practical advice in structuring business transactions. Steptoe has more than 500 lawyers and other professional staff across offices in Beijing, Brussels, Chicago, Hong Kong, Houston, London, Los Angeles, New York, San Francisco, and Washington. For more information, visit www.steptoe.com.
