Quinn Emanuel Wins Appellate Reversal in $500 Million Distressed-Debt Battle

Quinn Emanuel won a sweeping victory in a massive case seeking to hold more than a dozen QE clients liable for hundreds of millions of dollars in damages. The striking appellate win, reversing summary judgment, earned the firm a Litigator of the Week Runner-Up honor, for a decision likely to influence multiple areas of New York law.

The stakes for ACP Re, Tower Group International, and associated companies, directors, and officers couldn’t have been higher, nor the victory more emphatic. The New York appellate panel unanimously flipped a lower-court ruling that threatened to expose our clients to a trial damages decision of about $500 million, including interest.

The appellate order, in a sprawling case over a series of trust preferred securities, or TruPS, came on October 20 in New York State Supreme Court’s Appellate Division, First Department, against a group of hedge funds and other sophisticated investors.

“We are extremely pleased with the First Department’s thorough decision dismissing all claims against defendants,” said Quinn Emanuel Co-Managing Partner Michael Carlinsky, counsel for ACP, Tower Group, and others. “This was a complete vindication of our clients’ rights.”

Wrong Target

The investors had purchased about $230 million of the TruPS, issued by holding companies that intended to repay the debt using revenue from their insurance operating subsidiaries. Those subsidiaries thrived and eventually grew into the Tower Group. But by mid-2013, Tower found itself unable to accurately calculate its expected liabilities on the thousands of policies it had issued, and the insurance subsidiaries began to collapse.

The plaintiff investors then sought relief from third parties that had played no role in that collapse. Those parties included ACP, which had acquired Tower Group in an arm’s-length transaction intended to protect policyholders and run off the failing insurance companies profitably.

The trial court granted the investors’ summary judgment motions in full, and struck our clients’ affirmative defenses while also denying their summary judgment motions. That left our clients to face trial over hundreds of millions of dollars of debt.

In entering its complete reversal of the court’s decision, the five-judge appellate panel of the First Department held that summary judgment should have been granted to dismiss each of the plaintiffs’ claims against ACP, Tower, and every other non-issuer defendant, including AmTrust Financial Services, Inc. Subject to any further appeal, the decision ends the investors’ campaign to seek relief from our clients.

Formidable Team

John Bash, Co-Chair of Quinn Emanuel’s National Appellate Practice, and Lisa Geary, an experienced appellate litigator who rejoined the firm in 2024 as Of Counsel, led the appeal. They distilled thousands of record pages to address the ways in which the trial court had erred. 

The trial team was led by Carlinsky, who is also QE’s Global Head of Complex Litigation and Co-Chair of Insurance; Isaac Nesser, Chair of the firm's National Banking and Financial Institutions Practice; and Toby Futter, Of Counsel, who was instrumental from document discovery to depositions, expert reports, summary judgment, and the appeal. Ryan Rakower played key roles in discovery and briefing. 

Intense teamwork is a hallmark of Quinn Emanuel. When the trial court rebuffed our summary judgment motion, Carlinsky immediately proposed the appellate strategy that would bring this resounding victory. In a case with a massive record and dozens of legal issues, Bash anticipated every oral question and instantly delivered perfect answers, without written notes.

There were several core legal doctrines at issue. The plaintiffs pursued claims for contractual and common law successor liability, alter ego liability, tortious interference, fraud, and breach of fiduciary duty theories, along with aiding-and-abetting claims. In its reversal, the appellate court rejected every claim, often on multiple grounds.

Central to the panel’s decision was unrebutted expert evidence showing that none of our clients were contractual successors to the issuers. The panel also held that the plaintiffs had offered no expert to dispute the defense experts’ opinion that the TruPS went unpaid not because of ACP’s 2014 acquisition of the Tower Group, but because of adverse development on insurance policies written by the Tower insurance subsidiaries in prior years.

The fiduciary duty claims failed because directors owe no fiduciary duties to creditors of a subsidiary, and the record showed no fraud or bad faith.