Even though he’s not coaching on Sunday, Nick Saban has won the big one, in 2590 Associates, LLC, 5615 Associates, LLC, as Successor in Interest to, 5615 Associates, LP, Tax Matters Partner, 2019 T. C. Memo. 3, filed 1/31/19, Judge Goeke raising his hands for the winning play.

Nick was in a real estate deal with his buddy Joseph Spinosa. Joe needed the readies to get started while negotiating with KeyBank (the firm I was then in represented them years ago), and Nick stumped up $2 million plus on a note from a couple Joe’s LLCs (hi, Judge Holmes).

If you want to read an extensive description of how real estate development deals died during the Black ’08, you can read Judge Goeke’s exhaustive account. Joe was an optimist, like all developers. As with all my developer clients, his motto was that of Tug McGraw: “Ya Gotta Believe.”

Nick’s note got renegotiated a couple times (see above) between 2006 and 2008, but as Joe’s negotiations and renegotiations with lenders spiraled downward, Nick wasn’t getting paid.

But his note, at each iteration, was not a novation under LA State law (no new parties, no extinguishment of debt), provided for stated above-market interest, stated maturity, attorneys’ fees in case of default, and identifiable event of default.

Nick couldn’t manage Joe’s operations, although they were both in some of Joe’s deals.

Well, Joe’s development deal craters. Nick put his note in an LLC he got from Joe, because he didn’t want anyone in LA to know he was around after he turned to the Crimson side.

Nick took a bad debt deduction through the LLC, claiming the loan went south in 2011. IRS only disputed this in pretrial brief, so IRS has burden of proof, and doesn’t sustain it.

Nick proves the debt was real, not a contribution to capital in Joe’s deal. The thirteen (count ‘em, thirteen) factors 5 Cir. uses to unpack real indebtedness doesn’t long detain Judge Goeke.

“Respondent has conceded that the Saban loan was bona fide; i.e., the cash transfer from Mr. Saban to [Joe’s outfit] created a bona fide debt between Mr. Saban and [Joe’s outfit].  The debt was evidenced by three promissory notes with fixed maturity dates.  Each note provided for an interest charge, increased the interest rate upon default, and provided for the payment of attorney’s fees for any collection actions.  Upon default, Mr. Saban negotiated with [Joe’s outfit] to ensure repayment, first by extending the maturity date for one year (the 2007 note) and a second time by again extending the maturity date (the 2008 note) after which he transferred the note to [his LLC] as a capital contribution, placing the risk of the debt with the company.” 2019 T. C. Memo. 3, at pp. 23-24.

IRS claims the transfer to Saban’s LLC extinguished the debt, but Judge Goeke says no.

Repayment wasn’t limited to the success of this deal, the cash Nick advanced wasn’t used to buy capital assets, and Joe’s outfit wasn’t thinly capitalized. And Joe testifies how experienced he is, and how he was sure the deal would work.

Nick is ahead as the game ends.