Billionaire Rennert Found Liable in MagCorp Looting LawsuitTiffany Kary and Erik Larson
Billionaire Ira Rennert, owner of one of the biggest private homes in the U.S., was found liable for looting his Utah magnesium company in the years before it filed for bankruptcy.
A Manhattan federal jury decided Rennert should pay $16 million in damages, while his Renco Group Inc. is liable for $101 million. The jury found Friday that they were unjustly enriched by money transferred out of the company. With interest, the penalty may rise by as much as $400 million, according to the trustee’s lawyer, Scot Stirling.
A trustee for Magnesium Corp. of America accused Rennert, 80, of siphoning money from the company to help build Fairfield, a 29-bedroom mansion in New York’s Hamptons. The money never should have left MagCorp because massive environmental claims already threatened to push the company into bankruptcy, according to the trustee.
While Rennert’s lawyers called the mansion a sideshow, the trustee said the home was proof Rennert benefited personally from $118 million transferred from MagCorp before its 2001 bankruptcy. The trustee was seeking as much as $700 million including interest and damages.
The jury also found that Rennert aided and abetted the transfers and that he and other managers breached their fiduciary duties to the company’s stakeholders. It didn’t find that the company was technically insolvent at eight points in time when the transfers were made. Rennert wasn’t hit with punitive damages.
H. Peter Haveles, a lawyer for Rennert, said he’ll seek a retrial based on an inconsistent verdict.
“The jury answered four specific fact questions,” Haveles said in a phone interview. “In its answer to each of them, the jury said that MagCorp was solvent and that Renco and Ira Rennert did nothing wrong.”
The case raised questions about what Rennert and other company managers knew, or should have known, about the cyclical nature of magnesium prices, technological upgrades needed for refining the metal and environmental liabilities at MagCorp’s plant in Rowley, Utah. The lawyers for each side offered sharply contrasting narratives.
Rennert’s legal team portrayed him as a hardworking businessman who properly withdrew profits from a booming enterprise just before an industrial recession hit and the Chinese flooded the market with powdered magnesium.
His lawyers argued during trial that making him pay damages would be tantamount to giving a “windfall” to MagCorp’s current creditors. Those “vulture” investors aren’t the original bondholders and bought MagCorp debt at 2 cents on the dollar, attorney Tai Hyun Park said in closing arguments.
The trustee, on the other hand, depicted Rennert as a willfully negligent tycoon who looted MagCorp to subsidize the sprawling Hamptons estate while turning a blind eye to pollution. The Brooklyn-born billionaire’s Italianate home boasts a 164-seat theater, 100-car garage and 39 bathrooms, and is valued at $500 million.
MagCorp’s Rowley facility is one of the world’s largest magnesium plants and one of Utah’s worst polluters, according to the lawsuit. Toxins including hexachlorobenzene, dioxin, PCBs, lead, arsenic, chromium and barium flowed out of the plant in a red stream that emptied into a 400-acre pond, which wasn’t lined to prevent leaks into groundwater, according to the complaint.
The EPA still hasn’t sampled some of the site’s most contaminated areas, according to court papers.
‘Above My Head’
Rennert, asked at trial whether he knew there were hazardous substances in the company’s waste ponds, said: “It is way above my head.”
In reaching its verdict, the jury had to weigh the “fraudulent transfer” provisions of bankruptcy law, which hinge on whether, after money was moved out, the company was left with too little to address foreseeable costs. The jury found that a fraudulent transfer had occurred under New York law.
Haveles said after the jury left the courtroom that the verdict was “irreconcilably inconsistent.” He said the jury agreed there had been a fraudulent conveyance of money despite finding MagCorp wasn’t insolvent or left under-capitalized as a result of the money transfers in the 1990s.
“The jury acted in an irrational and confused way,” Haveles said. He asked for an immediate mistrial, which was denied.
Stirling, the trustee’s lawyer, said he was pleased with the jurors’ conclusions.
“They understood the evidence and delivered a just verdict,” he said.
In a statement, New York-based Renco said it would try to have the verdict set aside or seek an appeal.
“The jury was swayed by a passionate, but wholly unsupported, argument,” the company said. “Renco and the management of MagCorp always acted properly and did not engage in the acts of which the Trustee wrongly accused them.”
The case is Magnesium Corp. of America v. Renco Group Inc., 13-cv-07948, U.S. District Court, Southern District of New York (Manhattan).
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