<PAGE>
EXHIBIT 99.2
Wells Fargo Bank Minnesota, N.A. Moody's Investors Service, Inc.
Wells Fargo Center 99 Church Street
Sixth & Marquette New York, NY 10007
Minneapolis, MN 55479
First Union Securities, Inc.
Standard & Poor's Ratings Services, One First Union Center
a Division of The McGraw-Hill Charlotte, North Carlina 28288
Companies, Inc.
25 Broadway
New York, New York 10004
Re: Conseco Finance Lease 2000-1, LLC
Lease-Backed Notes
Ladies and Gentlemen:
We have acted as counsel for Conseco Finance Corp., a Delaware corporation
("Conseco Finance"), Conseco Finance Vendor Services Corporation, a Delaware
corporation and a subsidiary of Conseco Finance ("Vendor Services"), Green Tree
Lease Finance II, Inc., a Minnesota corporation and a subsidiary of Vendor
Services (the "SPC"), and Conseco Finance Lease 2000-1, LLC, a Delaware limited
liability company of which the SPC is the sole and managing member (the
"Issuer"), in connection with the issuance of Lease-Backed Notes (the "Notes")
pursuant to an Indenture, dated as of July 1, 2000 (the "Indenture") between the
Issuer and U.S. Trust National Association (the "Trustee"), as Trustee.
The Issuer was formed in November 1998 and is governed by a Limited
Liability Company Agreement (the "LLC Agreement") executed by the SPC as its
sole member. Pursuant to a Transfer Agreement dated as of July 1, 2000 (the
"Transfer Agreement"), among the SPC, as Purchaser, and Vendor Services, as
Seller and Servicer, Vendor Services has sold certain leases, including all
collections received with respect to the leases and certain other related rights
(the "Leases") and its interests (which may be deemed an ownership interest or a
security interest, depending on the terms of the related Lease) in the equipment
related to such Leases (such interests being hereinafter referred to as the
"Equipment") to the SPC. The Leases will be transferred by the SPC to the Issuer
pursuant to the terms of a Contribution and Servicing Agreement dated as of July
1, 2000 (the "Contribution and Servicing
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Agreement"), among the Issuer, the SPC, Vendor Services, in its individual
capacity and as Servicer, and the Trustee. Pursuant to the Contribution and
Servicing Agreement, the SPC will also grant to the Issuer certain rights to the
proceeds of the Equipment (the "Residual Realizations").
Pursuant to the Indenture, the Issuer has issued five classes of Notes with
an aggregate principal amount of $________ (the "Notes"). The Notes were offered
to the public pursuant to the Prospectus dated July ___,2000, by First Union
Securities, Inc. (the "Underwriter"). Principal of and interest on the Notes
will be payable solely from the Amount Available (consisting primarily of
amounts received in respect of the Leases).
The Issuer has requested that we render to you our opinion whether, in the
event Vendor Services became a debtor under the United States Bankruptcy Code
(the "Code"), a court would order that the assets and liabilities of the SPC be
consolidated with those of Vendor Services under either the bankruptcy doctrine
of substantive consolidation or the non-bankruptcy law doctrines commonly
referred to as "piercing the corporate veil."1/ In rendering the opinion set
forth below, we have reviewed such questions of law as we have deemed necessary
and have examined (a) the Articles of Incorporation and Bylaws of the SPC, (b)
representations and warranties as to matters of fact made by the Issuer in the
Contribution and Servicing Agreement, (c) representations and covenants of the
SPC and Vendor Services contained in the Transfer Agreement and the Contribution
and Servicing Agreement, and (d) such additional
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1/ Substantive consolidation was accomplished in early cases by "piercing the
corporate veil" of the debtor, i.e., by finding that the entity with which
consolidation was sought was the "alter-ego" or an "instrumentality" of the
debtor which was used by the debtor to hinder, delay or otherwise defraud
creditors. See, e.g., Maule Industries, Inc. v. Gerstel, 232 F.2d 294 (5th Cir.
1956); Fish v. East, 114 F.2d 177 (10th Cir. 1940). Although later cases relaxed
the requirement of fraud in favor of the test described below, courts will still
pierce the corporate veil to effect a substantive consolidation if fraud or
similar activity is present. See, e.g., Carte Blanche (Singapore) Ptd., Ltd. v.
Diners Club International Inc., 2 F.3d 24 (2nd Cir. 1993). See also, e.g., In re
Daily, 107 B.R. 996 (Bankr. D. Hawaii 1989), rev'd on other grounds, 940 F.2d
1306 (9th Cir. 1991); In re Stop & Go of America, Inc., 49 B.R. 743 (Bankr. D.
Mass. 1985); In re Tureaud, 45 B.R. 658, 662-63 (Bankr. N.D. Okla. 1985), aff'd,
59 B.R. 973 (N.D. Okla. 1986).
Recent decisions have concluded that the comparison of the two doctrines is
not particularly suitable. See, e.g. F.D.I.C. v. Colonial Realty Co., 966 F.2d
57, 60-61 (2d Cir. 1992) ("The focus of piercing the corporate veil is the
limited liability afforded to a corporation[;]" whereas the focus of substantive
consolidation is "the equitable treatment of all creditors.") Federal courts
have increasingly looked to federal bankruptcy law precedent rather than state
corporate law doctrine when ruling on substantive consolidation motions. See,
e.g., Colonial Realty, 966 F.2d at 60-61; Eastgroup Properties v. Southern Motel
Assoc. Ltd., 935 F.2d 245 (11th Cir. 1991); In re Augie/Restivo Baking Co., 860
F.2d 515 (2d Cir. 1988); In re Auto-Train Corp., Inc., 810 F.2d 270 (D.C. Cir.
1987); In re Continental Vending Machine Corp., 517 F.2d 997, 1001 (2d Cir.
1975), cert. denied sub nom James Talcott, Inc. v. Wharton, 424 U.S. 913 (1976);
In re Flora Mir Candy Corp, 432 F.2d 1060 (2d Cir. 1970); Chemical Bank New York
Trust Company v. Kheel, 369 F.2d 845, 847 (2d Cir. 1966); Soviero v. Franklin
National Bank of Long Island, 328 F.2d 446 (2d Cir. 1964); Stone v. Eacho, 127
F.2d 284 (4th Cir.), cert. denied, 317 U.S. 635 (1942); but see In Re Moran Pipe
& Supply Co., Inc., 130 B.R. 588 (Bankr. E.D. Okla. 1991) (recent case invoking
substantive consolidation based on alter-ego theory). We will analyze the
question under both lines of authority.
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documents as we have deemed necessary. Where matters of fact material to such
opinions were not independently established, we have relied, to the extent we
deemed proper, on certificates of public officials.
The power of a bankruptcy court to consolidate the assets and liabilities
of separate entities, which derives from the bankruptcy court's equitable
powers, is not defined in the Code and is not precisely defined in the case
law.2/ See, e.g., In re Continental Vending Mach. Corp., 517 F.2d 997, 1000 (2d
- Cir. 1975), cert. denied sub nom. James Talcott, Inc. v. Wharton, 424 U.S. 913
(1976). Although the substantive consolidation cases decided under the Code and
its predecessor statute rely on certain factual matters, which are discussed
below, to support their conclusions, cases decided under the Code tend to
emphasize the balancing of the benefits and harm resulting from substantive
consolidation and whether any injustice or fraud has been perpetrated against
creditors. See, e.g., Holywell Corporation v. The Bank of New York, 59 B.R. 340
(S.D. Fla. 1996); In re DRW Property Co. 82, 54 B.R. 489 (Bankr. N.D. Tex.
1985); In re Donut Queen, Ltd., 41 B.R. 706 (Bankr. E.D.N.Y. 1984); In re Snider
Bros., Inc., 18 B.R. 230 (Bankr. D. Mass. 1982).
Although different cases phrase the applicable standard differently,
several recent decisions in the United States Courts of Appeals describing the
general standard for substantive consolidation in bankruptcy proceedings can be
summarized as follows:
(a) The proponent of substantive consolidation must show that (1) there is
substantial identity between the entities to be consolidated, and (2)
consolidation is necessary to avoid some harm or to realize some
benefit. Eastgroup Properties v. Southern Motel Ass'n, Ltd., 935 F.2d
245, 249 (11th Cir. 1991); see also In re Auto-Train Corp., 810 F.2d
270, 276 (D.C. Cir. 1987).
(b) Once the proponent has made this prima facie showing, the creditor
objecting to substantive consolidation must show that (1) it has
relied on the separate credit of one of the entities to be
consolidated, and (2) it will
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2/ Courts generally have recognized that substantive consolidation affects the
substantive rights of creditors, and accordingly have treated substantive
consolidation as a remedy to be used only in unusual circumstances. See
Continental Vending, supra, 517 F.2d at 1001; Flora Mir Candy Corp, supra, 432
F.2d at 1062. See also Kheel, supra, 369 F.2d at 847 (it should be the "rare
case" where substantive consolidation is granted); In re DRW Property Co. 82, 54
B.R. 489, 494 (Bankr. N.D. Tex. 1986) (courts should grant substantive
consolidation sparingly because of the possibility of unfair treatment of some
creditors). Because the rules for substantive consolidation are not statutorily
provided, however, the courts must examine the facts and circumstances of each
case to determine if substantive consolidation is warranted. See 5 Collier on
Bankruptcy P. 1100.06[1] at 1100-35 (15 ed. 1995) (stating that substantive
consolidation cases are, to a great degree, sui generis).
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be prejudiced by substantive consolidation. Eastgroup, supra, 935 F.2d
at 249; see also In re Augie/Restivo Baking Co., Ltd., 860 F.2d 515,
518-19 (2d Cir. 1988); Auto-Train, supra, 810 F.2d at 276.
(c) If an objecting creditor makes that showing, the court may order
consolidation only if the benefits of consolidation heavily outweigh
the harm. Eastgroup, supra, 935 F.2d at 249; see also In re Gillen,
962 F.2d 796, 799 (8th Cir. 1992); Auto-Train, supra, 810 F.2d at 276.
The analysis used in the piercing the corporate veil cases in Delaware is
similar, although stated differently. To pierce the corporate veil, a court must
first analyze the relationship between the two (or more) entities involved to
determine whether they are in fact conducting business as a single entity, and
second, conclude that the separate corporate form has been used to wrongly or
unfairly harm creditors. See, e.g., Alberto v. Diversified Group, Inc., 55 F. 3d
201 (5th Cir. 1995) (summarizing Delaware law).
In determining whether the proponent has satisfied the requirements set
forth in clause (a) above (which can establish a prima facie case for
substantive consolidation), many courts have relied on a list of objective
factors. The most frequently cited list consists of the following:
(1) the degree of difficulty in segregating and ascertaining individual
assets and liabilities;
(2) the presence or absence of consolidated financial statements;
(3) the profitability of consolidation of offices or other operations at a
single physical location;
(4) the commingling of assets and business functions;
(5) the unity of interests and ownership between various corporate
entities;
(6) the existence of parent and intercorporate guarantees on loans; and
(7) the existence of transfers of assets without formal observance of
corporate formalities.3/
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3/ Accord, In re Murray Industries, Inc., 119 B.R. 820, 830 (Bankr M.D. Fla.
1990); In re Mortgage Investment Company of El Paso, Tex., 111 B.R. 604, 610
(Bankr. W.D. Tex. 1990); Holywell Corp., supra, 59 B.R. at 347.
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In re Vecco Construction Industries, Inc., 4 B.R. 407, 410 (Bankr. E.D. Va.
1980). Other factors cited include:
(8) the entities have common officers and directors;
(9) a subsidiary transacts business solely with its parent; and
(10) both entities disregard the legal requirements of the subsidiary as a
separate corporation.
In re Gainesville P-H Properties, Inc., 106 B.R. 304, 306 (Bankr. M.D. Fla.
1989). It should be stressed, however, that the factors set forth above are
merely "examples of information that may be useful to courts charged with
deciding whether there is a substantial identity between the entities to be
consolidated and whether consolidation is necessary to avoid some harm or
realize some benefit." Eastgroup Properties, 935 F.2d at 250. Therefore,
although the proponent of consolidation may frame its argument using the factors
outlined above, the existence or absence of any number of those factors is not
necessarily determinative. Id. at 249.
In the piercing the corporate veil cases, the relevant factors are set
forth somewhat differently:
(1) insufficient capitalization of one entity;
(2) failure to observe corporate formalities;
(3) the solvency of each entity at the time of the relevant transactions;
(4) "siphoning" of funds to dominant shareholder or entity;
(5) absence of corporate records; and
(6) function of separate entity as a "facade" for the dominant shareholder
or entity.
See United States v. Golden Acres, Inc., 707 F. Supp. 1097, 1104 (D. Del. 1988)
(applying Delaware law); Mass v. McClenahan, 893 F. Supp. 225, 233 (S.D.N.Y.
1995).
Of the factors set forth above defining the relationship among related
corporations, the first, third, fourth, seventh, ninth and tenth factors cited
in the substantive consolidation cases, and the second and fifth factors cited
in the piercing the corporate veil cases, are precluded by provisions of the
SPC's Articles of Incorporation. The Articles of Incorporation of the SPC
require the SPC to (a) maintain books
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and records separate from any other person or entity owning beneficially more
than 50% of the outstanding shares of common stock of the SPC and from any
subsidiaries and affiliates of such owner ("Affiliates"); (b) maintain an office
through which its business will be conducted, which will be separate and apart
from that of any Affiliates; (c) not commingle its assets with those of any
other entity; (d) observe the corporate formalities of holding regular meetings
of its board of directors, and having the board of directors review the actions
of its officers, and authorize and approve all transactions outside the ordinary
course of business; and (e) confine its business activities to those
transactions contemplated by the Transfer and Servicing Agreement and the
Contribution and Servicing Agreement, and other similar transactions.
In Section 6.5 of the Contribution and Servicing Agreement, the SPC
covenants that it will conduct its business in its own name, it will provide for
its own operating expenses and liabilities and expenses from its own funds, it
will not hold itself, or permit itself to be held out, as having agreed to pay,
or as generally being liable for, the debts of Vendor Services, and it will
maintain an arm's length relationship with Vendor Services with respect to any
transactions between the SPC, on the one hand, and Vendor Services, on the
other. The SPC also covenants that it will at all times remain adequately
capitalized for the conduct of its business, and will not make any dividend or
other distribution to its shareholders unless its net worth following such
distribution is adequate for the normal obligations reasonably foreseeable in
the conduct of its business, although a court's examination of this issue will
necessarily be based on the facts and circumstances at that time. Compliance
with these covenants should preclude application of the sixth factor cited in
the substantive consolidation cases, and the first, third, fourth and sixth
factors cited in the piercing the corporate veil cases.
The factors that will be present among the SPC, on the one hand, and
Conseco Finance and Vendor Services, on the other, are consolidated financial
statements, unity of interests and ownership, and common directors and officers.
These factors are generally present in all parent-subsidiary situations,
however, and have not been sufficient, by themselves, to justify substantive
consolidation or piercing the corporate veil. See Eastgroup, supra, 935 F.2d at
249-50; Augie/Restivo Baking Co., supra, 860 F.2d at 518-19; Auto-Train, supra,
810 F.2d at 276.
The existence of consolidated financial statements is occasionally
mentioned as one factor among several upon which substantive consolidation may
be founded. Gainesville P-H Properties, supra; Holywell Corp., supra. Federal
tax law and generally accepted accounting principles require the consolidation
of the financial statements of Conseco Finance and its subsidiaries, including
Vendor Services and the SPC, for tax and financial reporting purposes. The SPC
is, however, required to maintain separate accounting books and records. In
addition, due to the limited nature of the SPC's business, its assets and
liabilities should be readily identifiable. The SPC's only assets will be the
Equipment and its membership interest in the Issuer, and other similar assets in
connection with other similar transactions, and its only liabilities will be its
expenses incurred in the course of conducting its business of holding such
assets. Accordingly, the difficulty of disentangling the assets and liabilities
of the parent and the subsidiary, which is the principal concern associated with
consolidated financial statements, will not favor consolidation of
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the SPC with Conseco Finance or Vendor Services. See Gainsville P-H Properties,
supra, 106 B.R. at 305-6 (regarding extent of intermingling of assets required
to justify substantive consolidation); DRW Property Co. 82, supra, 54 B.R. at
495-96 (same).
Unity of ownership or interest, by itself, is not sufficient to justify
substantive consolidation or piercing the corporate veil. The domination by a
parent corporation of its subsidiary is noted by several courts addressing
substantive consolidation as a factor leading to the consolidation of parent and
subsidiary, if such domination causes the perpetration of a fraud:
The test set out in [Berger v. Columbia Broadcasting Sys., Inc., 453 F.2d
991, 995 (5th Cir. 1972), cert. denied, 409 U.S. 849 (1972)] requires that
a plaintiff seeking to set aside a corporate identity must show that there
has been: (1) Control, not mere majority or complete stock control, but
complete domination, not only of finances, but of policy and business
practice in respect to the transaction attacked so that the corporate
entity as to this transaction had at the time no separate mind, will or
existence of its own; and (2) Such control must have been used by the
defendant to commit fraud or wrong, to perpetrate the violation of a
statutory or other positive legal duty, or a dishonest and unjust act in
contravention of plaintiff's legal rights; and (3) The aforesaid control
and breach of duty must proximately cause the injury or unjust loss
complained of.
Bendix Home Sys., Inc. v. Hurston Enters., Inc., 566 F.2d 1039, 1041 (5th Cir.
1978). Delaware courts also require the existence of fraud, or at least
injustice, prior to piercing the corporate veil. "In order to reach a parent
corporation under the alter-ego theory, the plaintiff must show fraud,
injustice, or inequity in the use of the corporate form." Sears, Roebuck & Co.
v. Sears plc, 744 F. Supp. 1297, 1304 (D. Del. 1990) (applying Delaware law);
see also Alberto v. Diversified Group, Inc., supra, 55 F.3d at 205-206 (applying
Delaware law).
Notwithstanding the fact that Vendor Services will own 100% of the common
stock of the SPC and that some of the SPC's directors will be officers or
directors of Conseco Finance or Vendor Services, or both, the SPC will act
independently of Conseco Finance and Vendor Services, due to various provisions
included in its Articles of Incorporation, the LLC Agreement and provisions in
the Contribution and Servicing Agreement. In addition to the "independent
director" requirement discussed below, these provisions include the restrictions
on the business purpose of the SPC, the requirement that the SPC maintain
separate books and records, the limitations of certain corporate actions and the
requirement that affiliate transactions be on an arms-length basis. The SPC was
created by Vendor Services in order to facilitate the formation of the Issuer
and the issuance of the Notes, and, if a court were to determine that a fraud or
injustice has been perpetrated on the creditors of Conseco Finance or Vendor
Services as a result of the creation of the SPC or the transfer of the Leases
and the Equipment, such court might also decide that the SPC functioned as a
mere instrumentality of Conseco Finance or Vendor Services. In the
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absence of such a determination, however, the unity of ownership between Conseco
Finance, Vendor Services, the SPC and the Issuer would not be sufficient to
justify substantive consolidation or the piercing of the SPC's corporate veil
under existing precedent.
The existence of officers and directors common to both a company and its
subsidiary is a factor referred to in both substantive consolidation and some
piercing the corporate veil cases as favorable to consolidation. At least one of
the SPC's directors will be independent, however, as required by its Articles of
Incorporation, and the Articles of Incorporation require the affirmative vote of
the independent director before a variety of significant actions may be taken by
the SPC. The remaining directors of the SPC are expected to be either officers
or directors of Conseco Finance or Vendor Services (or both). We are aware of no
case in which the court ordered substantive consolidation due solely to the
existence of common officers and directors, and some cases expressly state that
merely having common officers and directors is not sufficient to justify
consolidation; it is instead the effect of common officers and directors which
must be avoided, namely, the domination of one corporation by another. Bendix
Home Sys., Inc. v. Hurston Enters., Inc., 566 F.2d 1039, 1042 (5th Cir. 1978).
However, not all courts make a distinction between the existence and the effect
of common officers and directors; they simply mention it as a factor to be
considered in a consolidation analysis.
We believe the common officers and directors factor is related to the
"domination" factor referred to above. Where there are common officers and
directors, presumably such common officers and directors could cause a
subsidiary to take actions for the benefit of the parent rather than the
subsidiary. For the purposes of this opinion, we have assumed that the SPC's
directors, particularly the independent director, will responsibly fulfill their
fiduciary obligations to the SPC, which should diminish the significance in the
eyes of a court of the existence of common officers and directors.
Throughout most courts' discussions of substantive consolidation and
piercing the corporate veil is the assumption, usually explicit, that
consolidation is justified to avoid an injustice or the perpetration of a fraud.
The enumerated factors described above as defining the relationship between a
subsidiary and its parent are often found where such fraud or injustice exists,
but they are not themselves evidence of fraud or injustice. For the purposes of
this opinion, we have assumed that the SPC and its directors and officers will
comply with the provisions of the SPC's Articles of Incorporation and the SPC's
Related Documents, and that none of the Issuer, the SPC, Conseco Finance and
Vendor Services will attempt to perpetrate a fraud or injustice in connection
with the issuance of the Notes.
Subject to the discussion set forth above, and based upon the continuing
accuracy of the facts and assumptions set forth in this opinion, we are of the
opinion that, in the event Vendor Services became a debtor under the Code, under
existing statutes and precedents the assets and liabilities of Vendor Services
would not be consolidated with those of the SPC based upon any legal theory
currently recognized under applicable law and applicable to the circumstances,
including (i) case law concerning piercing the corporate veil or (ii) any
equitable doctrine analogous to the bankruptcy law doctrine of
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substantive consolidation. We express no opinion as to the laws of any
jurisdiction other than the federal laws of the United States of America and the
laws of the State of Minnesota.
Although we believe this opinion represents a sound application of existing
statutes, regulations and case law, the situations contemplated by this opinion
involve equitable principles applied on a case-by-case basis in the context of
specific facts. This opinion is not a guaranty of any specific decision by a
particular court. Any determination by a court depends on an examination of
relevant law, facts and circumstances at a particular time, and a court might
reach a determination contrary to our conclusion if the facts of the case differ
from the assumed facts set forth above (which reflect the provisions of the
Articles of Incorporation and Bylaws of the SPC, the LLC Agreement and the terms
of the Related Documents to which the SPC, the Issuer or Vendor Services are
parties).
This opinion is being delivered to you at the Issuer's request solely for
your benefit and may not be relied upon by, nor may copies be delivered to, any
other person without our prior written consent.
Dated: July ___, 2000
Very truly yours,
CFS
