- Tribune Defendants

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13-3992(L)
13-3875, 13-4178, 13-4196
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
IN RE: TRIBUNE COMPANY FRAUDULENT CONVEYANCE LITIGATION
On Appeal From the United States District Court
for the Southern District of New York
DEFENDANTS-APPELLEES-CROSS-APPELLANTS’ RESPONSE
AND PRINCIPAL BRIEF ON STANDING AND SECTION 546(e)
JOEL A. FEUER
OSCAR GARZA
GIBSON, DUNN & CRUTCHER LLP
2029 Century Park East
Los Angeles, CA 90067
(310) 551-8808
Counsel for Chandler Trust No. 1 and
Chandler Trust No. 2
DAVID C. BOHAN
JOHN P. SIEGER
KATTEN MUCHIN ROSENMAN LLP
525 West Monroe Street
Chicago, IL 60661
(312) 902-5556
PHILIP D. ANKER
ALAN E. SCHOENFELD
ADRIEL I. CEPEDA DERIEUX
PABLO G. KAPUSTA
WILMER CUTLER PICKERING
HALE AND DORR LLP
7 World Trade Center
250 Greenwich Street
New York, NY 10007
(212) 230-8800
[email protected]
Counsel for Susquehanna Capital Group,
Susquehanna Investment Group, and
Susquehanna Investment Group as custodian
of the SIG-SS CBOE Joint Account
Counsel for The Robert R. McCormick
Foundation and Cantigny Foundation
ADDITIONAL COUNSEL LISTED IN SIGNATURE BLOCK
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CORPORATE DISCLOSURE STATEMENT
The undersigned Defendants-Appellees-Cross-Appellants previously filed
corporate disclosure statements pursuant to Federal Rule of Appellate Procedure
26.1. See Dkt. Nos. 30, 135, 136, 138, 139. Defendants-Appellees-CrossAppellants incorporate by reference and rely upon those corporate disclosure
statements in satisfaction of their obligations under Federal Rule of Appellate
Procedure 26.1. Those corporate disclosure statements are complete and current,
and no amendment is required.
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TABLE OF CONTENTS
Page
CORPORATE DISCLOSURE STATEMENT ..........................................................i
TABLE OF AUTHORITIES ..................................................................................... v
JURISDICTIONAL STATEMENT .......................................................................... 1
ISSUES PRESENTED FOR REVIEW ..................................................................... 1
PRELIMINARY STATEMENT ............................................................................... 2
STATEMENT OF FACTS ........................................................................................ 9
A.
Tribune’s LBO And Bankruptcy ........................................................... 9
B.
Bankruptcy Proceedings ...................................................................... 10
1.
The bankruptcy examiner ......................................................... 10
2.
The estate action........................................................................ 11
3.
Appellants’ efforts to evade §546(e) ........................................ 12
4.
Tribune’s bankruptcy plan ........................................................ 14
C.
Proceedings Below .............................................................................. 15
D.
The District Court’s Order .................................................................. 16
SUMMARY OF ARGUMENT ............................................................................... 17
STANDARD OF REVIEW ..................................................................................... 18
ARGUMENT ........................................................................................................... 18
I.
THE DISTRICT COURT CORRECTLY HELD THAT APPELLANTS
LACK STANDING ............................................................................................. 18
A.
Appellants Lack Standing Because The Estate Action Cut
Off Creditors’ Standing, If Any, To Avoid The Same
Transfers As The Estate Representative ............................................. 19
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B.
C.
II.
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1.
Appellants lack standing to bring claims that are
“similar in object and purpose to” the estate
representative’s claims .............................................................. 23
2.
An estate representative’s “support” for
Appellants’ claims is irrelevant ................................................ 28
Neither The Automatic Stay Nor The Bankruptcy Plan
Affected Appellants’ Standing ............................................................ 30
1.
The lifting of the stay did not affect Appellants’
standing ..................................................................................... 30
2.
The Plan did not adjudicate—much less
recognize—Appellants’ standing .............................................. 32
3.
Appellants did not gain standing as a result of the
transition from the Creditors’ Committee to the
Litigation Trustee ...................................................................... 36
The District Court Properly Dismissed Appellants’
Claims Rather Than Sua Sponte Holding Them In
Abeyance ............................................................................................. 37
THE DISTRICT COURT ERRED IN HOLDING THAT §546(e) DOES
NOT BAR APPELLANTS’ STATE-LAW FRAUDULENT-TRANSFER
CLAIMS ........................................................................................................... 38
A.
Section 546(e) Expressly Bars Appellants’ Claims ............................ 41
B.
Even If Appellants’ Claims Were Not Expressly Barred
By §546(e), They Would Be Precluded Under Settled
Principles Of Implied Conflict Preemption......................................... 45
1.
State law that stands as an obstacle to the
accomplishment of Congress’s full purposes is
preempted .................................................................................. 46
2.
Congress enacted §546(e) to ensure stability in the
securities markets and finality for investors ............................. 48
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3.
Because Appellants’ claims would thwart
Congress’s full purposes and objectives, they are
preempted .................................................................................. 53
4.
The district court’s reliance on legislative history
and §544(b)(2) was misplaced .................................................. 59
5.
If permitted to proceed, Appellants’ claims will
render the safe harbor close to a dead letter,
nullifying Congress’s intent to protect settlement
payments ................................................................................... 66
CONCLUSION ........................................................................................................ 70
CERTIFICATE OF COMPLIANCE
CERTIFICATE OF SERVICE
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TABLE OF AUTHORITIES
CASES
Page(s)
AP Services LLP v. Silva, 483 B.R. 63 (S.D.N.Y. 2012)...................................49, 55
Arizona v. United States, 132 S. Ct. 2492 (2012) .............................................passim
Baron Financial Corp. v. Natanzon, 509 F. Supp. 2d 501 (D. Md.
2007) ......................................................................................................27, 29
Bogle-Assegai v. Connecticut, 470 F.3d 498 (2d Cir. 2006) ................................... 33
Branch v. Human, 109 S.E.2d 732 (Ga. 1959) ........................................................ 26
Carrion v. Agfa Construction, Inc., 720 F.3d 382 (2d Cir. 2013) ...............46, 64, 65
Chisom v. Roemer, 501 U.S. 380 (1991) ................................................................. 44
Christian v. Mason, 219 P.3d 473 (Idaho 2009)...................................................... 26
Contemporary Industries Corp. v. Frost,
564 F.3d 981 (8th Cir. 2009) .....................................................50, 55, 56, 59
Cox v. Roth, 348 U.S. 207 (1955) ............................................................................ 54
Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000) .......................... 62
Eastern Equipment & Services Corp. v. Factory Point National Bank,
236 F.3d 117 (2d Cir. 2001) ..................................................................19, 47
Eberhard v. Marcu, 530 F.3d 122 (2d Cir. 2008).................................................... 19
FDIC v. Davis, 733 F.2d 1083 (4th Cir. 1984) ........................................................ 26
Garrett v. BNC Mortgage, Inc., 929 F. Supp. 2d 1120 (D. Colo. 2013) ................. 31
Geier v. American Honda Motor Co., 529 U.S. 861 (2000).................................... 63
Grede v. Bank of New York Mellon, 409 B.R. 467 (N.D. Ill. 2009) ........................ 35
Hartford Underwriters Insurance Co. v. Union Planters Bank, N.A.,
530 U.S. 1 (2000) ........................................................................................ 44
v
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Hartford v. Glastonbury, 561 F.2d 1042 (2d Cir. 1977) ......................................... 37
Hatchett v. United States, 330 F.3d 875 (6th Cir. 2003) ...................................26, 63
Hays & Co. v. Merrill Lynch, 885 F.2d 1149 (3d Cir. 1989) .................................. 43
Hillman v. Maretta, 133 S. Ct. 1943 (2013) ................................................46, 48, 54
Hines v. Davidowitz, 312 U.S. 52 (1941) ................................................................ 47
In re American Hawk Enterprises, Ltd., 52 B.R. 395 (E.D. Va. 1985) ................... 43
In re Berg, 376 B.R. 303 (Bankr. D. Kan. 2007)..................................................... 22
In re Bernard L. Madoff Investment Securities, LLC, 740 F.3d 81
(2d Cir. 2014).............................................................................20, 21, 25, 43
In re Boyer, 354 B.R. 14 (Bankr. D. Conn. 2006) ................................................... 22
In re Bridge Information Systems, Inc., 325 B.R. 824 (Bankr. E.D.
Mo. 2005) .................................................................................................... 24
In re Chaffee Aggregates, Inc., 300 B.R. 170 (Bankr. W.D.N.Y. 2003)................. 31
In re Colonial Realty Co., 980 F.2d 125 (2d Cir. 1992) ....................................30, 42
In re Crane, __ F.3d __, 2013 WL 6731850 (7th Cir. Dec. 23, 2013) .................... 31
In re Daniele Laundries, Inc., 40 B.R. 404 (Bankr. S.D.N.Y. 1984) ...................... 21
In re Enron Creditors Recovery Corp., 651 F.3d 329 (2d Cir. 2011) ..............passim
In re Hechinger Investment Co. of Delaware, 274 B.R. 71 (D. Del.
2002) .....................................................................................................passim
In re Integrated Agri, Inc., 313 B.R. 419 (Bankr. C.D. Ill. 2004) ........................... 26
In re Jones, 21 B.R. 469 (Bankr. D.S.C. 1982) ....................................................... 23
In re Kaiser Steel Corp., 952 F.2d 1230 (10th Cir. 1991) ...........................49, 50, 58
In re Lyondell Chemical Co., 503 B.R. 348 (Bankr. S.D.N.Y. 2014) .........51, 67, 68
In re MortgageAmerica Corp., 714 F.2d 1266 (5th Cir. 1983) ............................... 42
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In re MTBE Products Liability Litigation, 725 F.3d 65 (2d Cir. 2013) .................. 47
In re National Gas Distributors, LLC, 556 F.3d 247 (4th Cir. 2009) ...............51, 53
In re PHP Healthcare Corp., 128 F. App’x 839 (3d Cir. 2005) ............................. 64
In re Plassein International Corp., 590 F.3d 252 (3d Cir. 2009) ............................ 40
In re Pruitt, 72 B.R. 436 (Bankr. E.D.N.Y. 1987) .................................................. 23
In re PWS Holding Corp., 303 F.3d 308 (3d Cir. 2002)........................19, 22, 42, 43
In re Qimonda Richmond, LLC, 467 B.R. 318 (Bankr. D. Del. 2012) .................... 49
In re Quebecor World (USA) Inc., 719 F.3d 94 (2d Cir. 2013) ........................passim
In re Smith, 400 B.R. 370 (Bankr. E.D.N.Y. 2009) ................................................. 69
In re Stanwich Financial Services Corp., 488 B.R. 829 (D. Conn.
2013) ............................................................................................................ 43
In re Stein, 314 B.R. 306 (D.N.J. 2004) ............................................................20, 43
In re Tessmer, 329 B.R. 776 (Bankr. M.D. Ga. 2005) ..........................21, 22, 28, 31
In re Towery, 53 B.R. 76 (Bankr. W.D. Ky. 1985) ................................................. 22
In re Tribune Co. Fraudulent Conveyance Litigation,
831 F. Supp. 2d 1371 (J.P.M.L. 2011) ........................................................ 16
In re U.S. Mortgage Corp., 492 B.R. 784 (Bankr. D.N.J. 2013).......................50, 56
Ivester v. Miller, 398 B.R. 408 (M.D.N.C. 2008) .................................................... 24
Kappel v. Comfort, 914 F. Supp. 1056 (S.D.N.Y. 1996) ......................................... 38
Klingman v. Levinson, 158 B.R. 109 (N.D. Ill. 1993) ............................................. 26
Lumbard v. Maglia, Inc., 621 F. Supp. 1529 (S.D.N.Y. 1985) ............................... 26
Marchi v. BOCES, 173 F.3d 469 (2d Cir. 1999) ..................................................... 38
Mary Jo C. v. New York State & Local Retirement System,
707 F.3d 144 (2d Cir. 2013) ....................................................................9, 18
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Matney v. Combs, 198 S.E. 469 (Va. 1938)............................................................. 26
Motorola Credit Corp. v. Uzan, 322 F.3d 130 (2d Cir. 2003) ................................ 37
Munson v. Rinke, 919 N.E.2d 438 (Ill. App. Ct. 2009) ........................................... 26
Nardone v. United States, 308 U.S. 338 (1939) ...................................................... 55
National American Insurance Co. v. Ruppert Landscape Co., 122 F.
Supp. 2d 670 (E.D. Va. 2000) ..................................................................... 26
National American Insurance Co. v. Ruppert Landscaping Co.,
187 F.3d 439 (4th Cir. 1999) ...........................................................20, 23, 24
NLRB v. Martin Arsham Sewing Co., 873 F.2d 884 (6th Cir. 1989) ....................... 19
Northern Trust Bank, FSB v. Wells Fargo Bank, N.A.,
464 B.R. 269 (E.D. Va. 2012) ..................................................................... 24
Official Committee of Unsecured Creditors of Color Tile, Inc. v.
Coopers & Lybrand, LLP, 322 F.3d 147 (2d Cir. 2003) ............................. 11
Oneida Indian Nation of New York v. New York,
691 F.2d 1070 (2d Cir. 1982) ...................................................................... 58
Pereira v. United Jersey Bank, N.A., 201 B.R. 644 (S.D.N.Y. 1996) ..................... 48
PHP Liquidating, LLC v. Robbins, 291 B.R. 603 (D. Del. 2003) ........................... 64
Poth v. Russey, 99 F. App’x 446 (4th Cir. 2004)..................................................... 24
Quantum Servicing Corp. v. Haugabrook, No. 26542, 2013 WL
4131562 (Ohio App. Ct. Aug. 14, 2013) ..................................................... 31
Ross v. Bank of America, N.A., 524 F.3d 217 (2d Cir. 2008) .................................. 37
Seligson v. New York Produce Exchange, 394 F. Supp. 125
(S.D.N.Y. 1975) ........................................................................................... 60
Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114
(2d Cir. 1991)............................................................................................... 43
St. Paul Fire & Marine Insurance Co. v. PepsiCo., Inc., 884 F.2d 688
(2d Cir. 1989).............................................................................22, 30, 43, 44
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Stellwagen v. Clum, 245 U.S. 605 (1918) ................................................................ 47
Sure-Snap Corp. v. State St. Bank & Trust Co., 948 F.2d 869 (2d Cir.
1991) ............................................................................................................ 36
U.S. Bank N.A. v. Verizon Communications Inc., 892 F. Supp. 2d 805
(N.D. Tex. 2012)....................................................................................55, 56
United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc.,
216 F. Supp. 2d 198 (S.D.N.Y. 2002) ......................................................... 42
United States v. Locke, 529 U.S. 89 (2000) ............................................................. 48
United States v. Naftalin, 441 U.S. 768 (1979) ....................................................... 54
Universal Church v. Geltzer, 463 F.3d 281 (2d Cir. 2006) ..................................... 20
Whyte v. Barclays Bank PLC, 494 B.R. 196 (S.D.N.Y. 2013) ..........................48, 57
Wood v. General Motors Corp., 865 F.2d 395 (1st Cir. 1988)................................ 63
Woods v. Empire Health Choice, Inc., 574 F.3d 92 (2d Cir. 2009) ........................ 18
STATUTES
11 U.S.C.
§101 ............................................................................................................. 40
§362 .......................................................................................................13, 30
§522 .......................................................................................................22, 23
§544 ......................................................................................................passim
§546 ......................................................................................................passim
§547 .......................................................................................................25, 48
§548 ......................................................................................................passim
§550 ............................................................................................................. 25
§1107 ........................................................................................................... 11
§1123 ........................................................................................................... 36
12 U.S.C.
§632 ............................................................................................................... 1
§1821 ........................................................................................................... 52
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28 U.S.C.
§1291 ............................................................................................................. 1
§1334 ............................................................................................................. 1
§1409 .......................................................................................................7, 42
§1441 ............................................................................................................. 1
Davis-Bacon Act, 40 U.S.C. §§276a et seq. ........................................................... 64
N.Y. Debt. & Cred. Law §278 ................................................................................. 19
LEGISLATIVE MATERIALS
H.R. Rep. No. 97-420 (1982), reprinted in 1982 U.S.C.C.A.N. 583 ...................... 49
Bankruptcy Act Revision: Hearings on H.R. 31 and H.R. 32 Before the
Subcomm. on Civil & Constitutional Rights of the H. Comm.
on the Judiciary, 94th Cong., Supp. App. pt. 4 (1976) ............................... 61
Bankruptcy Reform Act: Hearings on S. 2266 and H.R. 8200 Before
the Subcomm. on Improvements in Judicial Machinery of the
S. Comm. on the Judiciary, 95th Cong. (1978) ........................................... 62
OTHER AUTHORITIES
Merrett, Daniel J. & John H. Chase, Safe Harbor Supernova, 21 J.
Bankr. L. & Prac. 3 Art. 1 (2012) ................................................................ 67
Merrill, Thomas W., Preemption and Institutional Choice, 102 Nw.
U. L. Rev. 727 (2008) .................................................................................. 64
Metzger, Gillian E., Administrative Law as the New Federalism, 57
Duke L.J. 2023 (2008) ................................................................................. 64
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JURISDICTIONAL STATEMENT
The district court had jurisdiction under 28 U.S.C. §§1334(b) and 1441, and
12 U.S.C. §632. The court granted defendants’ motion to dismiss on September
23, 2013, SA1-SA16, and entered final judgment on September 27, 2013, A1233A1234. Appellants filed their notice of appeal on September 30, 2013. A1235A1244. Appellees filed notices of cross-appeal on October 28, 2013. A1255A1299. This Court has jurisdiction under 28 U.S.C. §1291.
ISSUES PRESENTED FOR REVIEW
1.
Whether Appellants—individual creditors of Tribune Company—lack
standing to avoid and recover payments made to former Tribune shareholders in
exchange for their stock where an authorized representative of Tribune’s
bankruptcy estate, acting on behalf of all of Tribune’s creditors, previously filed an
action during Tribune’s bankruptcy proceedings, and continues to pursue that
action, to avoid and recover the same payments from the same Tribune
shareholders.
2.
Whether the Bankruptcy Code’s safe-harbor provision, which
prohibits the avoidance and recovery under state fraudulent-transfer law of
securities “settlement payments” made by bankrupt debtors, bars Appellants’ statelaw fraudulent-transfer claims because (a) the provision’s reference to the
“trustee”—the “statutory successor” to the creditors of the bankrupt debtor for
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purposes of state-law fraudulent-transfer actions—encompasses creditor claims
like Appellants’ here, or (b) the safe harbor preempts creditor state-law claims that
would frustrate Congress’s purpose in enacting the safe harbor of insulating the
securities markets from turmoil and protecting the finality of securities transactions
in the event the securities issuer is forced into bankruptcy.
PRELIMINARY STATEMENT
In 2007, Tribune Company closed a leveraged buyout in which thousands of
shareholders were required to give up their stock in exchange for cash. Following
Tribune’s bankruptcy filing in 2008, the authorized representative of Tribune’s
bankruptcy estate sued those shareholders to “avoid” and recover the payments
they received from Tribune as intentional fraudulent transfers under federal (and,
initially, state) law. The estate representative’s successor continues to prosecute
that action, for the benefit of all Tribune creditors. That case is not before this
Court. In the actions that are before this Court, a group of individual Tribune
creditors seeks to avoid the same transfers and recover them from the same
Tribune shareholders. The district court dismissed the individual creditors’ actions
and entered judgment in favor of the shareholders.
The judgment should be affirmed on two independent grounds:
First, the district court correctly held that Appellants lack standing to assert
their claims for constructive fraudulent transfer under state law. Those claims seek
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to avoid and recover the same transfers from the same Tribune shareholders that
the representative of Tribune’s bankruptcy estate also seeks to avoid and recover.
Second, contrary to the district court’s additional conclusion, the “safe harbor” for
securities “settlement payments” in §546(e) of the Bankruptcy Code also precludes
Appellants’ claims. Section 546(e) expressly bars creditor claims, like those
asserted by Appellants, to avoid settlement payments under state law and, even if it
did not, the claims would be precluded under the settled law of implied conflict
preemption because they would frustrate Congress’ purpose by vitiating the safe
harbor.
Each of these independent grounds to affirm the judgment below is rooted in
the same legal soil: Chapter 5 of the Bankruptcy Code. There, Congress
established comprehensive rules for, and limits on, the assertion of fraudulenttransfer claims in bankruptcy. When a debtor files for bankruptcy, Chapter 5
grants the bankruptcy trustee broad and exclusive powers to avoid and recover
fraudulent transfers for the benefit of all creditors. In particular, §548 of the Code
gives the trustee federal causes of action to avoid and recover intentional and
constructive fraudulent transfers. And §544 vests him with the further power to
stand in the shoes of the debtor’s creditors and bring fraudulent-transfer claims
under state law that, had the debtor not filed for bankruptcy, those creditors could
have brought. But, critically, §546(e) limits these powers with regard to
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“settlement payments.” Under the safe harbor, the trustee cannot bring any
fraudulent-transfer claim, state or federal, to avoid and recover a settlement
payment, except for a federal-law intentional fraudulent-transfer claim under
§548(a)(1)(A).
Consistent with this statutory framework, the trustee of a litigation trust
established under Tribune’s plan of reorganization, as the representative of
Tribune’s bankruptcy estate, is prosecuting the estate’s action to avoid and recover
the more than $8 billion that Tribune’s former shareholders received in exchange
for their Tribune stock. Exercising his Chapter 5 powers, the trustee asserts the
one claim that Congress carved out from the §546(e) safe harbor: a federal claim
for intentional fraud under §548(a)(1)(A). He invokes the full scope of authority
Congress granted to anyone to challenge the settlement payments. And through
him, Appellants and all other Tribune creditors will receive the full benefit to
which they are entitled under Chapter 5, because the estate representative seeks to
avoid and recover the same transfers from the same defendants as do Appellants.
In contrast, Appellants’ actions are at war with this statutory framework.
They fail both because Appellants lack standing to seek to avoid the same transfers
that Tribune’s bankruptcy estate is seeking to avoid, and because the safe harbor,
both expressly and impliedly, bars the claims.
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Standing. Under well-established authority, Appellants lack standing to
bring their own separate actions seeking to avoid and recover the same transfers
that the Tribune bankruptcy estate had previously sought and continues to seek to
avoid and recover. When the Tribune creditors committee, acting as the dulyappointed estate representative prior to the litigation trustee, filed its action, it
exercised the estate’s authority under Chapter 5 to seek to avoid and recover the
payments Tribune made to its shareholders for the benefit of all Tribune creditors.
By exercising the exclusive standing Congress granted it, the estate representative
“cut off”—in the words of the District Court and other courts—any possible
standing of Appellants to bring a later challenge to the same transfers.
Appellants cannot cure their lack of standing by asserting an alternative legal
theory of liability—that is, by suing for constructive fraudulent transfer under state
law, rather than intentional fraudulent transfer under federal law. So long as they
seek to avoid the same transfers, Appellants’ actions have the same “object and
purpose” as the estate representative’s action. That is all that is required, under
settled law, to preclude those actions. Nor is it relevant that the estate
representative “consents” to Appellants’ separate actions. An estate representative
lacks authority unilaterally to restore a creditor’s standing once it has been “cut
off” by the estate representative’s own action.
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It is likewise beside the point that the bankruptcy court lifted the automatic
stay in bankruptcy to allow Appellants to file their complaints so as to prevent a
potential running of the statute of limitations, and later confirmed a plan of
reorganization that authorized Appellants to pursue whatever rights they might
have. The bankruptcy court did not purport to grant Appellants standing or
prejudge any defense of the shareholders in lawsuits that were not even before it.
To the contrary, the court was emphatic, and Appellants’ counsel was equally clear
in his repeated assurances to the court and the parties, that nothing in the orders or
the plan could or did determine Appellants’ standing or prejudice any defense of
the shareholders.
Section 546(e). The payments Tribune made to its shareholders in exchange
for their stock were classic “settlement payments” under §546(e)—payments to
complete a securities transaction. Accordingly, the safe harbor bars any
constructive fraudulent-transfer claims brought after Tribune filed for bankruptcy
to avoid those payments. This is true whether the claims are asserted by the
bankruptcy trustee, as the statutory representative of the creditors, or by the
creditors themselves.
In reaching the contrary conclusion, the district court reasoned that §546(e)
applies, by its terms, to claims brought by the “trustee,” not to claims brought by
the debtor’s creditors. But the Bankruptcy Code does not distinguish between the
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“trustee” and the “creditors” when it comes to the assertion of state-law fraudulenttransfer claims in bankruptcy. It makes the trustee the “statutory successor to the
… creditors under section … 544(b),” 28 U.S.C. §1409(c), and §544(b) gives the
trustee, standing in the creditors’ shoes, the sole right to bring such claims for the
benefit of all the creditors. The district court erred when it considered §546(e) in
isolation from §544, even though §546(e) concerns—indeed, expressly
references—§544.
In so doing the court vitiated §546(e) in a way Congress could not have
intended. For even if Appellants’ claims were not expressly barred by §546(e),
Appellants’ attempt to accomplish what the safe harbor seeks to prevent would run
afoul of well-established principles of implied conflict preemption. In enacting the
safe harbor, Congress balanced two federal priorities—maintaining an efficient and
equitable bankruptcy system, and protecting the finality of securities transactions
and the stability of the Nation’s securities markets. To preserve that balance,
Congress permitted the avoidance of settlement payments that were made with
actual intent to defraud in violation of federal law, but prohibited the avoidance of
merely “constructive fraudulent transfers” (essentially, transfers made for less than
fair value when the debtor was insolvent) under state law. Section 546(e) reflects
Congress’s determination that the interests of transactional finality and financial
stability outweigh the interests of creditor protection in every circumstance, except
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one: Where a debtor transfers assets within two years of its bankruptcy filing with
the “actual intent to hinder, delay or defraud” creditors as set forth in
§548(a)(1)(A), then, and only then, may a settlement payment be avoided.
Appellants’ actions conflict with the purpose of §546(e). They assert
constructive fraudulent-transfer claims under state law, the very claims the safe
harbor is designed to preclude. That the claims are brought—in an admitted effort
to “end run” or “Work-Around” the safe harbor—by Appellants, rather than by the
estate representative, is immaterial. Appellants’ claims threaten the finality of
securities transactions and the stability of securities markets no less than those
same claims would if brought by the estate representative. Those claims, like
similar state-law claims that several other courts have held impermissibly conflict
with the safe harbor, are preempted.
If permitted, Appellants’ gambit will be replicated in countless bankruptcy
cases; indeed, variations of it are already being tried in several other pending cases,
including Whyte v. Barclays Bank PLC, the case being heard in tandem with this
appeal.1 Creditors will simply see to it that (i) the estate representative does not
bring any action to avoid a settlement payment, and (ii) the bankruptcy plan or
order of the bankruptcy court “disclaims” or “abandons” the estate’s right to bring
1
Whyte does not raise the standing ground for affirmance here; it raises the
§546(e) issue.
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state-law constructive fraudulent-transfer claims that the estate could not prosecute
in any event because of §546(e). And, if this Court holds that individual creditors
have standing to pursue separate actions to avoid the same payment that the estate
representative also seeks to avoid under an alternative theory of liability, the plan
or order will preserve the estate’s right to bring federal-law intentional fraudulenttransfer claims. There will then be a multiplicity of fraudulent-transfer actions,
some brought by the bankruptcy estate and some by individual creditors. Both
Congress’s desire to centralize all fraudulent-transfer actions with the trustee, and
the safe harbor itself, will be nullified. Congress did not intend its handiwork to be
so easily destroyed.
The judgment of the district court should be affirmed.2
STATEMENT OF FACTS3
A.
Tribune’s LBO And Bankruptcy
Tribune went public in 1983. It thereafter had thousands of shareholders,
including individuals and employees who invested in the stock of their employer
2
In addition, this Court may affirm the district court’s judgment on the
alternative grounds set forth in the Cross-Appellants’ Principal Brief on State Law
(“State Law Brief”) and the Cross-Appellants’ Principal Brief on Reverter, which
Defendants-Appellees-Cross-Appellants join.
3
These facts—drawn from the operative complaints (A840-A922, A379A498), and public documents, including documents from Tribune’s bankruptcy
proceeding—are assumed to be true for purposes of this Court’s review of the
district court’s decision granting the motion to dismiss. See Mary Jo C. v. New
York State & Local Ret. Sys., 707 F.3d 144, 149 (2d Cir. 2013), cert. dismissed,
133 S. Ct. 2823 (2013).
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(Tribune); other individuals; financial institutions; pension, mutual, and hedge
funds; educational institutions; and charitable and other not-for-profit
organizations. A428-A467, A873-A881. Those former shareholders are
Defendants-Appellees-Cross-Appellants here (“Appellees”).4
In 2007, in connection with a leveraged buyout (“LBO”) by investor Sam
Zell and Tribune’s Employee Stock Ownership Plan, Tribune’s stockholders
received approximately $8.2 billion in exchange for their Tribune shares. A384,
A867, A885. Tribune operated for nearly a year following the LBO. In December
2008, however, amid the worldwide financial crisis, Tribune and its subsidiaries
were forced to file for bankruptcy. A388, A898.
B.
Bankruptcy Proceedings
1.
The bankruptcy examiner
The bankruptcy court appointed an examiner to investigate potential claims
arising out of the LBO that might be available to Tribune’s bankruptcy estate.5
The examiner reached the “straightforward” conclusion that §546(e) of the
Bankruptcy Code—which provides an absolute safe harbor from state-law
fraudulent-transfer claims directed at settlement payments—would bar the
4
Many of the Defendants-Appellees-Cross-Appellants signed an amicus brief
in support of the defendant-appellee in Whyte, No. 13-2653.
5
See Report of Examiner, In re Tribune Co., No. 08-13141 (Bankr. D. Del.
July 26, 2010), ECF Nos. 5130-5134 (“Examiner Report”).
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bankruptcy estate from avoiding the payments to Tribune’s shareholders as
fraudulent transfers under state law.6
The examiner noted, however, that some Tribune creditors had suggested a
“Section 546(e) Work-Around.” The creditors proposed to have the bankruptcy
estate “abandon” its right to bring creditor state-law constructive fraudulenttransfer claims, so that the creditors could “allegedly … assert” those claims
“unburdened by section 546(e)[.]” The examiner declined to opine on whether
such a “Work-Around” was lawful, deeming that question beyond his mandate.7
2.
The estate action
The bankruptcy court granted the Official Committee of Unsecured
Creditors appointed in Tribune’s bankruptcy (the “Committee”) standing to act for
the bankruptcy estate and bring claims arising out of the LBO (the “Estate
Action”).8 A21-A24.
In drafting its multiple complaints, the Committee was aware of the
implications of §546(e). The Committee brought claims seeking to avoid LBOrelated transfers other than Tribune’s payments for shares (e.g., transfers to
6
2 Examiner Report 241.
7
Id. at 254-255.
8
In a Chapter 11 reorganization like Tribune’s, the “debtor in possession” has
all the rights of the “trustee.” 11 U.S.C. §1107(a). As is common in Chapter 11
cases, the bankruptcy court here authorized the Committee to bring claims acting
as the “trustee.” See Official Comm. of Unsecured Creditors of Color Tile, Inc. v.
Coopers & Lybrand, LLP, 322 F.3d 147, 146-157 (2d Cir. 2003).
11
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Tribune officers and directors, professionals and counterparties involved in the
LBO) as constructive fraudulent transfers under both state and federal law, because
such transfers were not safe-harbored settlement payments. See A122-A126,
A128-A130, A133-A134. The Committee also initially brought fraudulent-transfer
claims under both federal and state law seeking to avoid and recover the payments
to Tribune’s shareholders in exchange for their stock. Two and one-half years
later, no doubt recognizing that the state-law claims were doomed under §546(e),
the Litigation Trustee, as successor to the Committee, dropped them.9 Thereafter,
the Litigation Trustee sought to avoid the payments to Tribune’s former
shareholders, Appellees in this case, only as intentional fraudulent transfers under
federal law, §548(a)(1)(A), the one fraudulent-transfer claim carved out from
§546(e).
3.
Appellants’ efforts to evade §546(e)
Despite the pendency of the Estate Action, several creditors were not content
to abide by the limitations of §546(e). Appellants—Tribune’s bondholders, led by
hedge funds that purchased the company’s debt at a discount after it went into
9
See Official Comm. of Unsecured Creditors of Tribune Co. v. Fitzsimons,
10-ap-54010 (Bankr. D. Del.), ECF No. 1 (complaint, Nov. 1, 2010) ¶¶ 317-320,
321-333, 334-340, 347-354; ECF No. 61 (first amended complaint, Dec. 7, 2010)
¶¶ 317-321, 322-328, 341-347, 354-362; ECF No. 327 (second amended
complaint, Nov. 1, 2011) (same); ECF No. 408 (third amended complaint, Jan. 11
2012) (same); 1:12-cv-02652 (S.D.N.Y.), ECF No. 514 (fourth amended
complaint, Nov. 8, 2012) ¶¶ 317-321, 322-328, 341-347, 354-362.
12
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bankruptcy, and a subset of retiree creditors10—sought to execute the “Section
546(e) Work-Around” that had been previewed for the Examiner. Appellants
moved the bankruptcy court for relief from the automatic stay in bankruptcy, 11
U.S.C. §362, in order to file lawsuits asserting state-law constructive fraudulenttransfer claims to avoid and recover the payments to Tribune’s shareholders. A21A24. The Committee supported Appellants’ motion,11 insisting that the
“Committee deliberately did not initiate any Creditor [state-law constructive
fraudulent-transfer] Claims against the Former Shareholders,” to avoid the
payments to shareholders, and “[i]nstead … inten[ded] … that individual creditors
have the ability to pursue the Creditor [state-law constructive fraudulent-transfer]
Claims on their own behalf.”12
The bankruptcy court held a hearing on the motion. The court observed that
some former shareholders had asserted “the argument[,] if I can put it in my own
words[,] … that what [the moving creditors] want is … an end run around
10
While Appellants cloak themselves in the mantle of Tribune’s retiree
creditors, the 186 individuals who are plaintiffs in these actions have debt claims
that total less than 5% of the sum sought to be recovered from Appellees. In fact, a
far greater number of retirees will be adversely affected by Appellants’ suit, which
names as a defendant the Tribune Company 401(k) Savings Plan, from which
Appellants seek to recover hundreds of millions of dollars of retirement savings
funds of thousands of present and former employees. See State Law Br. 30-31, 42.
11
Deutsche Bank Trust Company Americas—an Appellant here—was itself a
member of the Committee.
12
See Committee Statement 4, In re Tribune Co., No. 08-13141 (Bankr. D.
Del. Mar. 17, 2011), ECF No. 8396.
13
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546(e).”13 Counsel for the Committee agreed that “the metaphor of an end run”
was apt.14
The bankruptcy court granted relief from the stay, permitting creditors to file
state-law fraudulent-transfer claims against Tribune’s shareholders. A371-A374.
But the court stressed that it was “mak[ing] no finding and issu[ing] no ruling
determining the standing of the [Noteholders or Retirees] (or any creditor) to assert
the Creditor [state-law constructive fraudulent-transfer] Claims or whether such
claims are preempted or otherwise impacted by … § 546(e).” A374 n.2. The court
confirmed that “[n]othing in this Order shall prejudice or impair any claims or
defenses of any defendant in any proceeding in respect of a Creditor [state-law
constructive fraudulent-transfer] Claim.” A374. Each subsequent order of the
bankruptcy court concerning the stay “reiterated” that it did not determine or
recognize any creditor’s standing or adjudicate any defense Appellees might have.
Appellants Br. 17, 19, 27-28; A374; A378; A523.
4.
Tribune’s bankruptcy plan
In July 2012, the bankruptcy court confirmed Tribune’s reorganization plan
(“Plan”). The Plan dissolved the Committee and in its place established a
“Litigation Trust” to prosecute the Estate Action and otherwise pursue, for the
13
Tr. 53:12-14, In re Tribune Co., No. 08-13141 (Bankr. D. Del. Mar. 22,
2011), ECF No. 8485-3.
14
Id. at 57:24-58:3.
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benefit of substantially all of Tribune’s creditors including Appellants, all of the
bankruptcy estate’s claims arising out of the LBO (and many other estate
fraudulent-transfer or other claims), except allegedly one: state-law constructive
fraudulent-conveyance claims to avoid the payments to Tribune’s shareholders in
exchange for their shares. A643, A650, A656, A729, A733. Those claims were
purportedly “disclaimed” by the estate (though the Plan did not actually disclaim
them, see infra n.20) for Tribune’s creditors to attempt to pursue—because §546(e)
would have barred the estate from bringing them. Again, the bankruptcy court,
counsel for the Committee, and Appellants’ counsel all confirmed that Appellees’
defenses to “the disclaimed state law avoidance claims … are unaffected by the
Plan.”15
C.
Proceedings Below
Beginning around June 2011, with the stay lifted, Appellants filed
complaints virtually identical to those in the Estate Action. Both sets of cases seek
to avoid and recover the same payments made to former Tribune shareholders.16
Indeed, the Litigation Trust, which is represented in the Estate Action by the same
15
Tr. 29:21-31:6, In re Tribune Co., No. 08-13141 (Bankr. D. Del. June 8,
2012), ECF No. 11,812; see also id. at 23:16-25:7 (“We certainly don’t believe that
the Plan adjudicates [Appellees’] defenses[.]”); Opinion on Confirmation 98, In re
Tribune Co., No. 08-13141 (Bankr. D. Del. Oct. 31, 2011), ECF No. 10,133.
16
Compare, e.g., A899-A901 (Note Holder Compl. ¶¶ 115-132), with A120A121 (Committee Compl. ¶¶ 317-320).
15
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lawyers who represent Appellants in their suits, told the district court that it brings
essentially the same case to avoid the same transfers to substantially the same
defendants—the only material difference being that while the Litigation Trust (as
representative of the estate) proceeds on the one fraudulent-transfer theory that
Congress excepted from the safe harbor (intentional fraudulent transfer under
federal law), the creditors proceed on claims that Congress barred (constructive
fraudulent transfer under state law). A590-A591. Appellants’ actions and the
Estate Action were coordinated for pre-trial proceedings. 831 F. Supp. 2d 1371
(J.P.M.L. 2011).
D.
The District Court’s Order
The district court granted defendants’ motion to dismiss by order dated
September 23, 2013. The court dismissed Appellants’ actions on the ground that
Appellants “lack standing to bring their own fraudulent conveyance claims
targeting the very same transactions” that an estate representative had previously
sought (thus “cut[ting] off the claims of creditors”) and continues to seek to avoid.
SA9-SA14. Though it did not have to reach the issue, the district court further
concluded that §546(e) did not bar plaintiffs’ state-law fraudulent-transfer claims.
SA5-SA8.
In view of its holding that the Estate Action cut off any standing of
Appellants to avoid the same payments to shareholders challenged in the Estate
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Action, the district court directed the Litigation Trust to inform the court whether it
intended to abandon its fraudulent-conveyance claims. SA13-SA14. The
Litigation Trust responded that it would not do so (A1245), and this appeal
followed.
SUMMARY OF ARGUMENT
The district court’s dismissal of plaintiffs’ state-law fraudulent-transfer
claims should be affirmed on two independent grounds.
First, Appellants lack standing to avoid the same transfers that the Tribune
estate representative had previously sought and continues to seek to avoid. The
Estate Action “cut[] off the claims of creditors,” SA13, to avoid the same transfers.
Second, Appellants’ state-law fraudulent-transfer claims are barred by the
Bankruptcy Code’s safe harbor for settlement payments, for two reasons.
(A) Section 546(e)’s reference to the “trustee,” the creditors’ statutory “successor,”
and to “section[] 544,” which incorporates state fraudulent-transfer law, evidences
Congress’s determination to apply the safe harbor to bar creditor claims under state
law, like Appellants’ here, brought to unwind settlement payments made by a
debtor that files for bankruptcy. (B) Congress’s intent in enacting §546(e)—to
protect settlement payments from avoidance under state law where, as here, the
debtor has gone into bankruptcy—would be thwarted if creditors could pursue such
avoidance free and clear of the safe harbor.
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STANDARD OF REVIEW
This Court reviews de novo the district court’s grant of Appellees’ motion to
dismiss on standing grounds as well as the district court’s rejection of Appellees’
motion on grounds of §546(e) and preemption. See Mary Jo C., 707 F.3d at 149;
Woods v. Empire Health Choice, Inc., 574 F.3d 92, 96 (2d Cir. 2009).
ARGUMENT
I.
THE DISTRICT COURT CORRECTLY HELD THAT APPELLANTS LACK
STANDING
The district court correctly held that where, as here, a bankruptcy estate
representative acts to avoid a transfer, it “cuts off the claims of creditors” to
challenge the same transfer. SA13. This Court should thus affirm the district
court’s ruling that Appellants “lack standing to bring their own fraudulent
conveyance claims targeting the very same transactions” as the Litigation Trustee,
regardless of whether Appellants rely on different theories of recovery or have the
Litigation Trustee’s “support.” SA13-SA14. Although the district court also
reasoned that the automatic stay in bankruptcy prevents Appellants from pursuing
their claims, it is unnecessary for this Court to adopt that rationale in order to
affirm the judgment below.
18
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Appellants Lack Standing Because The Estate Action Cut Off
Creditors’ Standing, If Any, To Avoid The Same Transfers As
The Estate Representative
Unless and until a debtor files for bankruptcy, its creditors can avail
themselves of state law to unwind fraudulent transfers that hinder repayment of
their claims against the debtor. See, e.g., N.Y. Debt. & Cred. Law §278; Eberhard
v. Marcu, 530 F.3d 122, 129-131 (2d Cir. 2008). Any creditor may bring a
separate state-law fraudulent-transfer action, recovering on a “first-come-firstserved” basis. NLRB v. Martin Arsham Sewing Co., 873 F.2d 884, 887 (6th Cir.
1989).
Once a debtor files for bankruptcy protection, however, state law gives way
to “a comprehensive federal system of penalties and protections to govern the
orderly conduct of debtors’ affairs and creditors’ rights.” Eastern Equip. & Servs.
Corp. v. Factory Point Nat’l Bank, 236 F.3d 117, 120 (2d Cir. 2001) (per curiam).
The bankruptcy trustee acquires complete dominion and control over any creditor’s
state-law fraudulent-transfer claims, including the “power … to resolve [such]
fraudulent transfer claims” through litigation, settlement, or extinguishment of the
claims in a plan of reorganization. In re PWS Holding Corp., 303 F.3d 308, 315
(3d Cir. 2002). As Appellants acknowledge, “the trustee has the exclusive right to
bring an action for fraudulent conveyance during the pendency of the bankruptcy
proceedings[.]” Appellants Br. 45 (internal quotation marks omitted; emphasis
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added); see In re Bernard L. Madoff Inv. Sec., LLC, 740 F.3d 81, 94 (2d Cir. 2014)
(barring creditors’ “purported tort claims [that] are, in essence, disguised
fraudulent transfer actions, which belong exclusively to the Trustee”).
This “exclusive right” derives from Chapter 5 of the Bankruptcy Code,
which provides the bankruptcy estate representative with a set of federal-law
remedies to recover assets for the benefit of all creditors. One of these powers is
the right to “avoid any transfer … of an interest of the debtor in property” as a
fraudulent conveyance under federal law. 11 U.S.C. §548(a)(1).
The Code also incorporates state fraudulent-transfer law, giving the estate
representative the right to “avoid any transfer … that is voidable under applicable
law by a creditor.” 11 U.S.C. §544(b). In Appellants’ own words, §544 “vests the
bankruptcy trustee” with the “right to ‘step into the shoes of a creditor under state
law and avoid any transfers such a creditor could have avoided.’” Appellants Br.
44 (quoting Universal Church v. Geltzer, 463 F.3d 281, 222 n.1 (2d Cir. 2006)).
Under §544, “the Trustee is conferred with the authority to represent all creditors
and the Debtor’s estate and with the sole responsibility of bringing actions on
behalf of the Debtor’s estate to marshal assets for the estate’s creditors.” In re
Stein, 314 B.R. 306, 311 (D.N.J. 2004). The “trustee’s single effort eliminates the
many wasteful and competitive suits of individual creditors.” National Am. Ins.
Co. v. Ruppert Landscaping Co., 187 F.3d 439, 441-442 (4th Cir. 1999). Upon the
20
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commencement of a bankruptcy case, therefore, it is “axiomatic that … creditors of
the estate have no right to proceed independently” to pursue fraudulent-transfer
actions under state law. In re Daniele Laundries, Inc., 40 B.R. 404, 408 (Bankr.
S.D.N.Y. 1984).
Applying this settled body of law, the district court correctly held that when
an estate representative “acts” to avoid a transfer, it “cuts off the claims of
creditors” to avoid the same transfer. SA13. That ruling is consistent with
considerable precedent, including this Court’s recent decision in Madoff, where the
Court held that individual creditors could not bring their own actions against the
same defendants the estate representative had already sued to recover billions of
dollars in payments Madoff had made. See Madoff, 740 F.3d at 96 (individual
creditors could not sue on claims that “echo those made by the Trustee in his New
York action for the recovery of fraudulent transfers”).
For example, in In re Tessmer, 329 B.R. 776 (Bankr. M.D. Ga. 2005), an
individual creditor brought a fraudulent-transfer claim in state court even though
the bankruptcy court had already approved the trustee’s settlement of the right to
avoid the same transfer. The Tessmer court held that the creditor’s right to sue had
been “fully and permanently cut off” by the trustee:
Once the Trustee acts under § 544(b), the rights of all other parties to
bring a suit based on the same transaction are fully and permanently
cut off unless the Trustee later abandons his claim…. [The individual
creditor] is permanently enjoined from taking any steps to further
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prosecute her state law fraudulent conveyance action against the
[transferees], and she is permanently enjoined from initiating any
other suit that arises from the transfer of property in question.
Id. at 780 (emphasis added); see also In re Boyer, 354 B.R. 14, 36 (Bankr. D.
Conn. 2006), aff’d on other grounds, 372 B.R. 102 (D. Conn. 2007); In re Berg,
376 B.R. 303, 314 (Bankr. D. Kan. 2007).
Here, when the Committee filed the Estate Action, it exercised its exclusive
standing and authority to “commence and prosecute the claims of the Debtors’
estates,” including its right to “assert fraudulent conveyance claims arising under
state law,” “relating to the leveraged buy-out of Tribune in 2007.” A22-A23. The
Estate Action cut off any possible right Appellants might have had to avoid the
same payments, and Appellants are “bound by the outcome of the [Estate Action].”
St. Paul Fire & Marine Ins. Co. v. PepsiCo., Inc., 884 F.2d 688, 702 (2d Cir.
1989); see also PWS, 303 F.3d at 315.
A similar rule governs an individual debtor’s standing to bring an avoidance
action when an estate representative has attempted to avoid the same transfer. In
limited circumstances, Bankruptcy Code §522(h) “empowers the debtor to avoid
certain transfers to the same sweeping extent, and armed with the same defenses,
as the trustee”; §522(h) is intended to “enable the debtor to protect his exemptions,
in which a trustee might take no interest.” In re Towery, 53 B.R. 76, 77 (Bankr.
W.D. Ky. 1985). Section 522(h), however, provides that a debtor may avoid a
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transfer of its property only if (1) “such transfer is avoidable by the trustee under
section 544 … [or] 548,” and, importantly, (2) “the trustee does not attempt to
avoid such transfer.” 11 U.S.C. §522(h). An estate representative’s suit to avoid a
transfer cuts off any right of a debtor to avoid the same transfer. See In re Pruitt,
72 B.R. 436, 439 (Bankr. E.D.N.Y. 1987) (debtor may bring avoidance claim
under §522(h) only if the trustee “has not made any attempt to avoid the transfer”);
In re Jones, 21 B.R. 469, 472-473 (Bankr. D.S.C. 1982) (Ҥ522(h) is not applicable
in this case [because] the trustee is attempting to recover the property. Section
522(h) can only be used by the debtors if the trustee does not pursue an avoiding
power to recover a transfer of property that would be exempt.”). The same rule
applies here, as the cases establish.
1.
Appellants lack standing to bring claims that are “similar in
object and purpose to” the estate representative’s claims
It does not matter that the Litigation Trustee is pursuing an intentional
fraudulent-transfer claim, now only under federal law, whereas Appellants seek to
pursue constructive fraudulent-transfer claims under state law. Courts have
consistently held that individual creditors lack standing to pursue any claim that is
“similar in object and purpose to” a fraudulent-transfer claim that an estate
representative has already brought or may still bring. For example, in Ruppert,
creditors challenged a transfer the debtor had made before filing for bankruptcy on
theories of successor liability, tortious interference with contract, and conspiracy,
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even though the trustee had the authority to seek to avoid the same transfer as a
fraudulent conveyance. The Fourth Circuit held that the creditors lacked standing
notwithstanding that the trustee had not yet filed suit, because their claims were
“similar in object and purpose to” the trustee’s potential fraudulent-transfer claim.
187 F.3d at 441. The court reasoned that, “[a]lthough the [creditors’] claims and
the trustee’s fraudulent conveyance claim do not contain identical elements, they
all share [the] same underlying focus”—to “challenge the [same] transaction.” Id.
The Fourth Circuit reaffirmed this rule in Poth v. Russey, 99 F. App’x 446
(4th Cir. 2004), explaining that “[w]hen a creditor brings a state-law challenge to a
transaction that a bankruptcy trustee could avoid as a fraudulent conveyance, the
state-law cause of action is ‘so similar in object and purpose’ to the fraudulent
conveyance claim that the creditor lacks standing to assert it.” Id. at 457 (quoting
Ruppert, 187 F.3d at 441). Numerous cases are in accord. See, e.g., Northern
Trust Bank, FSB v. Wells Fargo Bank, N.A., 464 B.R. 269, 270 (E.D. Va. 2012)
(“[R]egardless of how the [creditor’s] claims are couched[,] … [t]he Trustee’s
ongoing prosecution of its fraudulent conveyance action ‘on behalf of all the
creditors’ deprives [the creditor] of standing to pursue its individual claims.”); In
re Bridge Info. Sys., Inc., 325 B.R. 824, 835-836 (Bankr. E.D. Mo. 2005), aff’d,
344 B.R. 587 (E.D. Mo. 2006); Ivester v. Miller, 398 B.R. 408, 430-431 (M.D.N.C.
2008).
24
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These cases necessarily reject Appellants’ argument that they should have
standing because they assert a different legal theory than the one asserted by the
estate representative in the Estate Action. Appellants Br. 44-45. Appellants have
not cited a case—and Appellees know of none—holding that creditors had
standing to initiate a separate action to avoid the same transfer that an estate
representative had already sought and continued to seek to avoid, simply because
the creditors relied on an alternative theory of liability the estate representative did
not pursue. In fact, this Court recently rejected a similar ploy, upholding an
injunction barring creditor suits after concluding that the creditors’ claims were
“disguised fraudulent transfer actions, which belong exclusively to the Trustee.”
Madoff, 740 F.3d at 94.
Appellants’ argument is not only inconsistent with the relevant Bankruptcy
Code sections giving the trustee the exclusive right to avoid and recover a
“transfer” (see 11 U.S.C. §§544(a), 544(b)(1), 547(b), 548(a)(1), 550(a)), but it is
also contrary to Appellants’ own cases. Those cases explain that creditors “regain
standing” only when the estate representative can no longer bring any claim to
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avoid the transfer, not when the estate representative has brought such a claim
without pursuing the particular legal theory the creditors wish to advance.17
Appellants cite two cases that they contend “allowed creditors to file suit to
avoid the very same transfers that the estate representative was trying to avoid.”
Appellants Br. 64. Each case only underscores Appellants’ lack of standing. In
Lumbard v. Maglia, Inc., 621 F. Supp. 1529 (S.D.N.Y. 1985), a secured lender’s
bankruptcy trustee sued to avoid transfers made by its borrower. But the borrower
was not yet in bankruptcy, so there was no statutory representative to stand in the
shoes of the borrower’s creditors for purposes of avoiding the same transfers.
17
See Hatchett v. United States, 330 F.3d 875, 885-886 (6th Cir. 2003)
(although “the trustee ha[d] [exercised its] exclusive right to bring an action for
fraudulent conveyance,” he later “officially abandoned” that action); FDIC v.
Davis, 733 F.2d 1083, 1084-1085 (4th Cir. 1984) (“[T]he trustee [did not] take
affirmative steps in the bankruptcy court to set aside [the] transfer.”); In re
Integrated Agri, Inc., 313 B.R. 419, 427-428 (Bankr. C.D. Ill. 2004) (creditor only
“regains standing” if the trustee fails or is unable to exercise “the right to pursue
recovery of fraudulently conveyed assets”); National Am. Ins. Co. v. Ruppert
Landscape Co., 122 F. Supp. 2d 670, 674 (E.D. Va. 2000) (“[T]he trustee
examined and rejected the cause of action for fraudulent conveyance … and the
Bankruptcy Court auctioned off the right to pursue the claim.” (citations omitted));
Klingman v. Levinson, 158 B.R. 109, 113 (N.D. Ill. 1993) (creditors had standing
because “the trustee never sought to recover the conveyance challenged”);
Christian v. Mason, 219 P.3d 473, 479-480 (Idaho 2009) (trustee failed to bring
“an action” challenging the transfer); Branch v. Human, 109 S.E.2d 732, 734 (Ga.
1959) (“[T]here was … no intervention by a trustee for the benefit of creditors[.]”);
Matney v. Combs, 198 S.E. 469, 473 (Va. 1938) (“[T]he trustee in bankruptcy
failed to take action to recover the property alleged to have been fraudulently
transferred.”); Munson v. Rinke, 919 N.E.2d 438, 442 (Ill. App. Ct. 2009) (“[T]he
trustee ultimately did not pursue the action [to] pursue the fraudulently conveyed
assets.”).
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When the borrower later filed for bankruptcy, the trustee for the borrower’s estate
joined in the action brought by the trustee for the secured lender’s estate, rather
than pursue its own suit, because the borrower, “by then an assetless shell,” lacked
sufficient funds to pursue an independent action. Id. at 1532-1533. Here, in
contrast, Appellants initiated these actions after Tribune had filed for bankruptcy,
and after a representative of Tribune’s bankruptcy estate—hardly “assetless” in its
vigorous pursuit of its claims—had already brought a fraudulent-transfer action to
recover the same payments from the same defendants, cutting off any standing
Appellants may otherwise have had to avoid those payments.
Baron Financial Corp. v. Natanzon, 509 F. Supp. 2d 501 (D. Md. 2007)—
the other case Appellants cite—also provides no support. It involved a “carefully
crafted and court-approved” settlement agreement permitting a debtor’s creditor to
pursue contract and tort claims against third parties. Id. at 522. Those claims had
been amended “to avoid infringing upon the rights of the Trustee” and were not
“property of the Estate.” Id. at 519. The court ruled that the creditor had standing
to bring the claims because the creditor was “not trying to recover assets diverted
from [the debtor]” through a fraudulent-transfer claim, id. at 520—exactly what
Appellants seek to do here. While in Baron there was merely “some similarity”
between the creditor’s claims and those of the trustee, id. at 521 n.34, here there is
an identity of object and purpose between Appellants’ claims and the Estate
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Action: Both are fraudulent-transfer actions seeking to avoid and recover the same
payments.
Finally, granting Appellants standing would have serious, adverse practical
implications. “[D]efendants … would be unwilling to negotiate settlements” with
an estate representative if those defendants could also be sued by individual
creditors pursuing alternative theories of liability. Tessmer, 329 B.R. at 780.
Because an estate representative often cannot pursue every possible theory and
claim—where, for example, the claim would be barred under §546(e)—
Appellants’ position would undermine bankruptcy’s goal of facilitating settlement
by “consolidat[ing] … claims in one entity—the trustee.” SA13.
2.
An estate representative’s “support” for Appellants’ claims
is irrelevant
Appellants also argue that it would be “insensible” to determine that they
lack standing because they have the “support,” “consent,” and “approval” of the
estate representative to pursue their claims—though, evidently, not enough
“support” that the Litigation Trustee would abandon his claims to enable
Appellants to attempt to pursue theirs. Appellants Br. 42, 65-66. As the district
court correctly reasoned, “[w]hether the [estate representative] supports
[Appellants’] claims is of no moment”: Nothing in the Bankruptcy Code or the
case law suggests that “a bankruptcy trustee’s druthers may trump” Appellants’
lack of standing to avoid the same transfer an estate representative is seeking to
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avoid. SA13. The one case Appellants cite in support—Baron—emphasized that
the creditor and trustee were not seeking to avoid the same transfers. 509 F. Supp.
2d 520. The opposite is true here.
Creating an exception to the standing case law simply because the estate
representative “supports” the creditors’ claims would cause the detrimental effects
that the Bankruptcy Code, and its grant of exclusive standing to the trustee, are
designed to avoid. If an estate representative could “support its way around” a
party’s lack of standing, then presumably he could also later deny that party’s
standing by withdrawing his support, then still later re-establish that party’s
standing by “supporting” it once again. This would frustrate Congress’s goal of an
orderly and efficient administration of bankruptcy estate assets, waste scarce
judicial and estate resources, and subject defendants to a multiplicity of litigation.
Moreover, the estate representative has “consented” in this case to Appellants’
assertion of state-law constructive fraudulent-transfer claims only because federal
law—the Bankruptcy Code’s statutory safe harbor for settlement payments—bars
him from pursuing those claims, and he and Appellants are seeking to evade that
bar. See infra Part II. If anything, the Litigation Trustee’s support undermines
Appellants’ standing.
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Neither The Automatic Stay Nor The Bankruptcy Plan Affected
Appellants’ Standing
Although it correctly held that Appellants “lack standing to bring their own
fraudulent conveyance claims targeting the very same transactions” as an estate
representative, the district court went an extra, unnecessary step by concluding that
Appellants lack standing because of the automatic stay in bankruptcy, 11 U.S.C.
§362. SA14. This Court need not address whether the stay provides additional
support for the district court’s dismissal of Appellants’ action on standing grounds.
All that matters is that, contrary to Appellants’ contentions, neither the lifting of
the automatic stay nor the confirmed Plan vested them with standing to bring these
actions.18
1.
The lifting of the stay did not affect Appellants’ standing
Appellants cite cases for the uncontroversial proposition that, where a party
otherwise has standing to bring claims, a bankruptcy court’s lifting of the stay may
enable that party to “‘press its claims outside of the bankruptcy proceeding.’”
Appellants Br. 36 (quoting St. Paul, 884 F.2d at 702), 63-64 (citing In re Colonial
Realty Co., 980 F.2d 125 (2d Cir. 1992)). But none of those cases involved the
standing problem at issue here because, in each of those cases, no estate
18
The district court purported to adopt “[Appellees’ argument] that …
[Appellants’] claims are held in abeyance by the automatic stay in Section 362 of
the Code.” SA11. But no Appellee advanced that rationale in briefing or at oral
argument. See Appellants Br. 39.
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representative had cut off the parties’ standing by suing to avoid the same
transfers. Where, as here, creditors’ standing has been cut off not by operation of
the stay, but because the trustee has sued to avoid the same transfers, a subsequent
lifting of the automatic stay cannot confer standing. See Tessmer, 329 B.R. at 779780 (creditor’s “right to sue has been cut off by Trustee” even though “the stay on
actions … would not interfere with [her] ability to sue”); see also Garrett v. BNC
Mortg., Inc., 929 F. Supp. 2d 1120, 1125 (D. Colo. 2013); Quantum Servicing
Corp. v. Haugabrook, No. 26542, 2013 WL 4131562, at *1, *3-4 (Ohio App. Ct.
Aug. 14, 2013).19
The bankruptcy court recognized the difference between standing and the
automatic stay by lifting the stay only to the extent necessary for creditors to file
their claims before the statute of limitations might expire, but without adjudicating
or recognizing their standing to pursue those claims. When Appellants moved the
bankruptcy court for an order determining that “eligible creditors have regained the
right … to prosecute” state-law constructive fraudulent-transfer claims, the court
made it “clear that [it was] not disposing of substantive rights … [or] making a
19
The reason that relief from the automatic stay cannot cure a lack of standing
is that the “stay operates only to stay the exercise of rights,” and is “not a
determination of ultimate right.” In re Chaffee Aggregates, Inc., 300 B.R. 170,
172 (Bankr. W.D.N.Y. 2003); see also In re Crane, __ F.3d __, 2013 WL
6731850, at *6 (7th Cir. Dec. 23, 2013) (“An order granting a creditor relief from
the automatic stay … is not an adjudication of the substantive rights of the
parties.”).
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determination of what happens to state law fraudulent conveyance claims upon the
expiration of the estate’s ability to pursue them.” A357. Accordingly, the
bankruptcy court denied the creditors’ request for an order providing that
“creditors have regained the right to prosecute their … claims,” instead explaining
that “I would be willing to say something like … creditors have regained the right,
if any, to prosecute their … claims.” A355-A357 (emphasis added). The
bankruptcy court’s order lifting the stay included that qualification. Appellants Br.
16; A372-A373.
Appellants concede that the bankruptcy court’s order “left open” and
“reserved the ultimate question of standing,” and that each subsequent order with
regard to the stay “reiterated” that the bankruptcy court “makes no finding and
issues no ruling determining the standing of … any creditor.” Appellants Br. 17,
19, 27; A374; A378; A523. Any lifting of the stay is thus irrelevant to the standing
issue here.
2.
The Plan did not adjudicate—much less recognize—
Appellants’ standing
Appellants argue that the Plan “expressly preserved the rights of the Retirees
and Noteholders to bring the constructive fraudulent transfer claims at issue.”
Appellants Br. 27-28. They contend that (1) any challenge to their standing
constitutes “an impermissible collateral attack on the Plan”; and (2) by dismissing
Appellants’ claims for lack of standing, the district court “frustrat[ed]
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implementation of the plan” and “undermin[ed] the integrity of [the] … plan, and
the flexibility of the plan process.” Appellants Br. 26, 28, 30-31, 35, 59. All of
this is wrong.
As a threshold matter, Appellants never made this argument to the district
court, and it is therefore waived. See, e.g., Bogle-Assegai v. Connecticut, 470 F.3d
498, 504 (2d Cir. 2006). But even if that were not the case, the argument is
untenable. “The Bankruptcy Court took great pains to emphasize that it made ‘no
finding and issued no ruling determining [Appellants’] standing[.]’” SA13 n.16
(quoting A374) (alterations omitted). It is thus Appellants, not Appellees, who
now resort to “bait-and-switch” tactics to “cherry-pick” from the Plan. Appellants
Br. 35, 59.
Appellants claim that Plan §§1.1.67, 5.8.2, and 11.2.1 “provid[e] … that
prepetition fraudulent transfer claimants had the right to pursue ‘any and all LBORelated Causes of Action arising under state fraudulent conveyance law.’”
Appellants Br. 68 (emphasis added). In fact, none of those sections, or any other,
purports to grant or recognize any party’s standing or “right to pursue” such
claims.
Section 1.1.67 defines “Disclaimed State Law Avoidance Claims” as “any
and all LBO-Related Causes of Action arising under state fraudulent conveyance
law[.]” A643. The definition says nothing about creditors’ right to pursue such
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claims.20 Section 11.2.1 provides that “Debtor Released Claims do not include any
Disclaimed State Law Avoidance Claims.” Appellants Br. 19-20; A717-A718. It
too does not speak to any party’s standing to pursue such claims. Finally, §5.8.2
merely provides that “nothing in this Plan shall or is intended to impair” the rights
of creditors to attempt to pursue Disclaimed State Law Avoidance Claims. A694A695. It grants no such rights.
The reason Appellants cannot cite a single provision of the Plan recognizing
their standing is that the bankruptcy court, the Committee, and counsel for
Appellants all agreed that, like the order lifting the stay, the Plan could not and
would not affect Appellees’ standing, preemption, or other defenses. The
bankruptcy court “conclude[d] that issues regarding standing, preemption, and
applicability of §546(e) are best left for determination by the courts hearing these
20
If it has relevance, §1.1.67 actually undermines Appellants’ standing. It
excludes from the “Disclaimed State Law Avoidance Claims”—the claims the
bankruptcy estate “disclaims”—any and all LBO-Related Causes of Action
(defined in Plan §1.1.119 as any “causes of action, avoidance powers or rights …
arising from the [LBO],” A649) that were “set forth in the amended complaint
filed by the Creditors’ Committee on December 7, 2010.” A643. That amended
complaint included both intentional fraudulent-transfer claims under state law
seeking to avoid and recover the LBO payments to shareholders in exchange for
their stock and constructive fraudulent-transfer claims under state law against other
defendants seeking to avoid and recover other LBO payments. Thus, the estate did
not disclaim state-law fraudulent-transfer claims under the Plan. Appellants’
contention that the Plan recognizes their standing to bring state-law fraudulenttransfer claims is inaccurate.
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claims.”21 Appellants’ counsel concurred, assuring the bankruptcy court and the
parties that it was not necessary to add language to the Plan expressly reserving all
defenses to the Disclaimed State Law Avoidance Claims because the Plan did not
adjudicate any of the defenses that Appellants now claim the Plan did adjudicate:
[The Foundations assert] that what I’m asking you to do here today is
somehow asking you to adjudicate a defense that they want to raise in
those proceedings and nothing could be further from the truth…. We
certainly don’t believe that the Plan adjudicates their defenses or that
a confirmation of this Plan determines whether they are or are not
liable in the preserved causes of action and the disclaimed state law
actions, and there’s another section in the Plan that says that; that
says this Plan does not determine whether you are or are not liable on
these actions.22
And, for its part, counsel for the Committee agreed that Appellees’ defenses were
“unaffected by the Plan.”23
These concessions simply echoed settled law. All that was before the
bankruptcy court was a motion in the general bankruptcy case for confirmation of
the Plan—not the lawsuits that are now on appeal before this Court. It is wellestablished that “the less-formal confirmation process” cannot adjudicate the
“disputed rights of third parties” in separate litigation. Grede v. Bank of New York
Mellon, 409 B.R. 467, 471 (N.D. Ill. 2009), rev’d on other grounds, 598 F.3d 899
21
Order on Confirmation 98, In re Tribune Co., No. 08-13141 (Bankr. D. Del.
Oct. 31, 2011), ECF No. 10,133.
22
June 8, 2012 Tr. 23:16-25:7, In re Tribune Co., No. 08-13141 (Bankr. D.
Del. June 8, 2012), ECF No. 11,812 (emphasis added).
23
Id. at 29:21-31:6.
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(7th Cir. 2010); see also Sure-Snap Corp. v. State St. Bank & Trust Co., 948 F.2d
869, 873 (2d Cir. 1991). Indeed, as former shareholders, most defendants held
neither creditor claims nor equity interests in Tribune; having asserted no rights
that would be treated by a plan of reorganization, they had no reason even to
attempt to monitor the proceedings.
3.
Appellants did not gain standing as a result of the transition
from the Creditors’ Committee to the Litigation Trustee
Appellants also argue that their standing is “particularly clear” because the
Plan has been confirmed, which, they say, “terminate[d]” the “bankruptcy trustee,”
along with his “capacity to prosecute any claims.” Appellants Br. 46-47. To the
contrary, the Plan “appointed the Litigation Trustee as the duly appointed
representative of … the Estate[],” and specified that “the Litigation Trustee is
deemed to be acting in the capacity of a bankruptcy trustee[.]” A752-A753; see 11
U.S.C. §1123(b)(3)(B). Appellants’ argument that the Litigation Trustee is merely
a “product of contract” (Appellants Br. 47), with no statutory powers of the trustee,
is thus incorrect. It also misses the point. It was the Committee—not the
Litigation Trustee—that cut off Appellants’ standing when it brought suit to avoid
the LBO payments. That the Litigation Trustee—as the current representative of
the estate acting “for the benefit of substantially all of Tribune’s creditors,”
Appellants Br. 3—still seeks to avoid those payments merely confirms Appellants’
continued lack of standing to avoid the same transfers.
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The District Court Properly Dismissed Appellants’ Claims Rather
Than Sua Sponte Holding Them In Abeyance
Finally, Appellants argue that, rather than dismissing their claims, the
district court should have “held [them] in abeyance” pending “completion of the
Litigation Trustee’s intentional fraudulent conveyance claim.” Appellants Br. 74.
Appellants waived this argument as well by failing to raise it below.24
In any event, “[s]tanding is the threshold question in every federal case,
determining the power of the court to entertain the suit.” Ross v. Bank of Am.,
N.A., 524 F.3d 217, 222 (2d Cir. 2008) (internal quotation marks omitted). Where
a party fails to satisfy the threshold requirement of standing, dismissal of its claims
is required. Motorola Credit Corp. v. Uzan, 322 F.3d 130, 137 (2d Cir. 2003).
Once the district court determined that Appellants “lack standing,” SA13SA14, that was the end of the matter—regardless of whether the district court
afforded the Litigation Trustee an opportunity to abandon his claims so that
Appellants might attempt to pursue theirs. The district court could not “hold
Appellants’ reservation” in the event they subsequently acquired standing. See
Hartford v. Glastonbury, 561 F.2d 1042, 1051 n.3 (2d Cir. 1977) (en banc).
Whether Appellants would hypothetically have had standing if the Litigation
24
In the district court, Appellants argued that their claims and those of the
Litigation Trustee could proceed concurrently, with Appellants and the Litigation
Trustee standing “side by side” to avoid the same shareholder transfers. See
Individual Creditor Plaintiffs’ Memorandum of Law 36, No. 11 MD 2296, ECF
No. 2086 (“Plaintiffs’ Mem.”).
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Trustee had “actually and completely abandon[ed] [its] claims,” SA13-SA14—
something the Litigation Trustee refused to do—was not ripe for adjudication. See
Marchi v. BOCES, 173 F.3d 469, 478 (2d Cir. 1999).
Even if doing so would otherwise be possible, Appellants make no effort to
demonstrate how long staying their cases in the district court would be warranted.
See Kappel v. Comfort, 914 F. Supp. 1056, 1058 (S.D.N.Y. 1996). Indefinite
postponement of Appellants’ cases would prejudice the thousands of former
Tribune shareholders whom Appellants have sued, all of whom have had to endure
the financial uncertainty and, in the case of individual shareholders, anxiety,
engendered by litigation that seeks to undo payments they received more than six
years ago.
II.
THE DISTRICT COURT ERRED IN HOLDING THAT §546(e) DOES NOT BAR
APPELLANTS’ STATE-LAW FRAUDULENT-TRANSFER CLAIMS
As discussed, once a debtor files for bankruptcy, the fraudulent-transfer
claims of a debtor’s creditors vest exclusively in the trustee, who stands in the
creditors’ shoes as their “successor” for purposes of pursuing those claims under
§544. But Congress limited these avoidance powers in critical ways where the
transfers that would otherwise be avoidable involved securities transactions. It
enacted an absolute “safe harbor,” In re Enron Creditors Recovery Corp., 651 F.3d
329, 330 (2d Cir. 2011), that applies “[n]otwithstanding section[] 544,” the
provision otherwise allowing the trustee, as the creditors’ statutory representative,
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to bring state-law fraudulent-transfer claims. And that safe harbor admits of only
one “except[ion]”: intentional fraudulent-transfer claims brought by the bankruptcy
estate under federal law, §548(a)(1)(A).
Entitled “Limitations on Avoiding Powers,” §546 of the Bankruptcy Code
provides:
Notwithstanding sections 544, … 548(a)(1)(B) … of this title, the
trustee may not avoid a transfer that is a … settlement payment …
made by or to (or for the benefit of) a commodity broker, forward
contract merchant, stockbroker, financial institution, financial
participant, or securities clearing agency, or that is a transfer made
by or to (or for the benefit of) a commodity broker, forward contract
merchant, stockbroker, financial institution, financial participant, or
securities clearing agency, in connection with a securities contract …
except under section 548(a)(1)(A).
11 U.S.C. §546(e) (emphasis added).
Originally enacted in 1978, and amended several times in the intervening
decades to broaden its reach, the safe harbor advances Congress’s goal of
“‘minimiz[ing] the displacement caused in the commodities and securities markets
in the event of a major bankruptcy affecting those industries.’” In re Quebecor
World (USA) Inc., 719 F.3d 94, 100 (2d Cir. 2013) (quoting Enron, 651 F.3d at
334), cert. denied, 2014 WL 684068 (Feb. 24, 2014).
The payments that Appellants seek to avoid are paradigmatic safe-harbored
transfers. They were made to Tribune’s shareholders in exchange for their shares
of publicly-traded securities—classic “settlement payments” within the meaning of
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§ 546(e). See, e.g., In re Plassein Int’l Corp., 590 F.3d 252, 258 (3d Cir. 2009).
And they were “made by or to … [a] financial institution,” as they were processed
through the shareholders’ agent and attorney-in-fact, CTC, a “trust company” and
therefore a “financial institution” under the Bankruptcy Code, 11 U.S.C.
§101(22)(A), and were cleared and settled through DTCC or its subsidiary DTC, a
registered “securities clearing agency.”
There is thus no question that §546(e) would bar Tribune’s bankruptcy estate
from bringing the same state-law fraudulent-transfer claims under §544 that
Appellants, Tribune creditors, now assert in their purported “Work-Around.”
Indeed, other than seeking to “preserve” their rights to seek possible en banc
review in this Court or certiorari from the Supreme Court, Appellants conceded
below that the controlling law of this Circuit would have barred the bankruptcy
estate from bringing the same state-law fraudulent-transfer claims.25 The question
presented in this appeal is whether Tribune creditors can “end run” §546(e) and
assert the same state-law fraudulent-transfer claims free and clear of the safe
harbor. They cannot.
First, §546(e) expressly bars Appellants’ claims. The reference to the
“trustee” in the safe-harbor makes sense, as the Code empowers only the
“trustee”—acting as the statutory “successor” to the creditors—to avoid and
25
See Plaintiffs’ Mem. 23-24.
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recover the debtor’s transfers in the first place. The Code thus makes clear
Congress’s intent to prevent creditor claims, like those asserted here, seeking to
avoid and recover safe-harbored transactions under state law.
Second, even if the statute did not on its face bar Appellants’ claims, the
Supremacy Clause of the United States Constitution would. As the Supreme Court
recently held, “[i]t is well-settled … that a state law is preempted where it stands as
an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress.” Arizona v. United States, 132 S. Ct. 2492, 2505 (2012).
Even if Appellants could advance under state law their claims to avoid and recover
transfers that are protected from avoidance and recovery by federal law—and there
is good reason to think they could not, see State Law Br. 16-39—those claims
would be preempted because they would stand as an obstacle to Congress’s
statutory directive. Congress surely did not intend its effort to balance “two
important national legislative policies on a collision course—the policies of
bankruptcy and securities law,” Enron, 651 F.3d at 263—to be undone by a simple
stratagem contrived by the estate representative and the debtor’s creditors.
A.
Section 546(e) Expressly Bars Appellants’ Claims
The district court held that Appellants’ claims did not fall within the express
terms of §546(e) because that provision refers only to the “trustee,” and the
creditors “have no relation to the bankruptcy trustee.” SA5. That was error.
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The “relation” between the trustee and the creditors is set forth in Chapter 5
of the Bankruptcy Code and reaffirmed by related provisions in Title 28 of the
United States Code (Judiciary and Judicial Procedure). The trustee is the creditor’s
“statutory successor” for purposes of asserting state-law fraudulent-transfer claims
under §544. 28 U.S.C. §1409(c) (venue for proceedings commenced by a “trustee
… as statutory successor to the … creditors under section … 544(b)”). Section
544 itself so specifies, identifying the trustee in its title as the “successor to …
creditors.” 11 U.S.C. §544. Simply put, “§544(b) places the [trustee] in the shoes
of [the] creditors.” PWS, 303 F.3d at 314.
Indeed, as Appellants acknowledge, the trustee has “exclusive” standing—
the trustee, and only the trustee, can bring creditors’ state-law fraudulent-transfer
claims after the debtor files for bankruptcy. Appellants Br. 45 (emphasis added);
see also Colonial Realty Co., 980 F.2d at 131-132; United Feature Syndicate, Inc.
v. Miller Features Syndicate, Inc., 216 F. Supp. 2d 198, 222 (S.D.N.Y. 2002) (“the
estate trustee has exclusive authority to maintain [fraudulent conveyance]
actions”).26 And, because the trustee is the creditors’ “successor,” “the creditors
are bound by the outcome of the trustee’s action” in any subsequent fraudulent26
Accord PWS, 303 F.3d at 314 (§544(b) gives trustee “the right to prosecute
individual creditors’ fraudulent transfer claims”); In re MortgageAmerica Corp.,
714 F.2d 1266, 1275-1276 (5th Cir. 1983) (“A trustee acting under section 544 acts
as a representative of creditors, and any property recovered is returned to the estate
for the eventual benefit of all creditors.” (internal quotation marks omitted)).
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transfer litigation. St. Paul, 884 F.2d at 701; see also PWS, 303 F.3d at 314-315
(creditor’s state-law fraudulent-transfer claims barred after bankruptcy trustee
released §544 claims); Stein, 314 B.R. at 310-311; In re Am. Hawk Enters., Ltd.,
52 B.R. 395, 397, 399-400 (E.D. Va. 1985), aff’d, 852 F.2d 132 (4th Cir. 1988).27
The purported distinction between the creditors and the trustee upon which
the district court rested its analysis is thus illusory. It is immaterial that §546(e)
refers only to the “trustee” and not to the debtor’s creditors. Once a debtor files for
bankruptcy, the trustee is the creditors for purposes of any state-law fraudulenttransfer claim. Indeed, the only party the Bankruptcy Code empowers to bring
creditors’ state-law fraudulent-transfer claims in the first place is the “trustee.” 11
U.S.C. §544; see Madoff, 740 F.3d at 93. That §546(e) also refers to the
“trustee”—the creditors’ “successor”—and applies “[n]otwithstanding section[]
27
This identity between the trustee and the creditors for purposes of state-law
fraudulent-transfer claims is well-settled in other aspects of bankruptcy law. For
example, this Court’s Wagoner rule generally bars a trustee from advancing “a
claim against a third party for defrauding [the debtor] with the cooperation of
management[.]” Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118
(2d Cir. 1991). But that rule does not apply to state-law fraudulent-transfer claims
because, “when acting under section 544(b), a trustee is vested with the rights of
actual creditors to avoid certain transfers.” In re Stanwich Fin. Servs. Corp., 488
B.R. 829, 834 (D. Conn. 2013). Likewise, when the trustee brings a claim standing
in the shoes of a debtor, he is bound by the debtor’s pre-petition arbitration
agreement; but the trustee is not so bound when bringing a fraudulent-transfer
claim, because in that context the trustee stands in the shoes of the creditors, not of
the debtor. See, e.g., Hays & Co. v. Merrill Lynch, 885 F.2d 1149, 1155 (3d Cir.
1989).
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544,” thus evidences Congress’s intent for the safe harbor to apply to all creditor
state-law fraudulent-transfer claims when the debtor files for bankruptcy. In short,
§546(e)’s references to the “trustee” and “section[] 544” is an express command
that the debtor’s creditors “may not avoid” safe-harbored transfers under state law.
A contrary reading of the statute would lead to results inconsistent with the
law of this Circuit. Take, for example, the rule that the outcome of a trustee’s
fraudulent-transfer action binds the creditors in future actions—a rule that exists
because the trustee and the creditors are in privity for purposes of fraudulenttransfer claims. See, e.g., St. Paul, 884 F.2d at 701. If §546(e) nevertheless barred
only the trustee, and not the creditors, from avoiding safe-harbored transactions,
then the trustee could bring a state-law fraudulent-transfer claim under §544(b) and
lose as a consequence of §546(e), and the creditors could bring suit on the same
claim free and clear of the judgment against the trustee. That is not the law of this
(or any) Circuit, yet the district court’s reading of §546(e) would require it.
Statutes should not be construed to achieve such anomalous results. See Chisom v.
Roemer, 501 U.S. 380, 402 (1991).
Finally, Hartford Underwriters Insurance Co. v. Union Planters Bank, N.A.,
530 U.S. 1 (2000), cuts against, not in favor of, the district court’s reading of the
Bankruptcy Code. See SA5. The Supreme Court concluded that the affirmative
grant of power to a named party in a section of the Code—there, the grant of power
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to the trustee in §506(c) to “surcharge” a secured creditor’s collateral for the costs
incurred by the estate in preserving the collateral—meant that no other party could
exercise that right. Hartford, 530 U.S. at 6-7 (“Where a statute names the parties
granted the right to invoke its provisions, such parties only may act.” (emphasis
added)). Nothing in Hartford supports the district court’s conclusion that the
reference to the “trustee” in §546(e) permits creditors to bring claims the Code bars
the trustee from pursuing. Section 506(c), at issue in Hartford, is a grant of power,
whereas §546(e) is a limitation of power. The analog to §506(c) is not §546(e), but
§544. Section 544 also provides the affirmative grant of power to the trustee—and
only the trustee—to bring creditor state-law fraudulent-transfer claims. The
absolute bar in §546(e) against state-law fraudulent-transfer claims aimed at
settlement payments, applicable to the one party the Code authorizes to sue (the
trustee), surely does not suggest that Congress intended to permit other parties to
bring such claims, let alone that they can do so free and clear of the safe harbor.
B.
Even If Appellants’ Claims Were Not Expressly Barred By
§546(e), They Would Be Precluded Under Settled Principles Of
Implied Conflict Preemption
Congress’s intent to bar creditor state-law claims to avoid and recover safeharbored payments is manifest on the face of the statute. But even if the Code did
not expressly bar Appellants’ claims, settled principles of implied conflict
preemption would defeat those claims all the same. Put simply, Congress’s will
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cannot be thwarted by “an impermissible ‘end run’ around [federal law].” Carrion
v. Agfa Const., Inc., 720 F.3d 382, 383 (citation omitted), reh’g denied, 733 F.3d
490 (2d Cir. 2013).
1.
State law that stands as an obstacle to the accomplishment
of Congress’s full purposes is preempted
The district court’s preemption analysis starts from the premise that state law
would recognize a claim to avoid and recover securities settlement payments that
were made by a debtor that later filed for bankruptcy, and that are safe-harbored
under the Bankruptcy Code. The district court did not explain the basis for that
premise, and it is dubious at best. No state court has allowed such a claim, and no
state court is likely to do so were the question put to it. See State Law Br. 18. But,
even if the district court were right to assume that state law would permit
Appellants to avoid and recover payments that the Bankruptcy Code protects,
Appellants’ state-law claims would then conflict with federal law and be
preempted.
Under the Supremacy Clause, state laws that interfere with federal law are
preempted. Just last year, the Supreme Court confirmed the black-letter principles
of implied conflict preemption law that apply here. Congress undoubtedly “has the
power to pre-empt state law expressly.” Hillman v. Maretta, 133 S. Ct. 1943, 1949
(2013). But state law is also “pre-empted to the extent of any conflict with a
federal statute. Such a conflict occurs … when state law stands as an obstacle to
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the accomplishment and execution of the full purposes and objectives of
Congress.” Id. at 1949-1950 (internal citations and quotation marks omitted). This
fundamental rule of constitutional law is “well-settled.” Arizona, 132 S. Ct. at
2505.28
These principles apply with special force in areas like bankruptcy, where
national uniformity is necessary. See Hines v. Davidowitz, 312 U.S. 52, 67-68
(1941). The Constitution requires, and the Bankruptcy Code implements, “a
comprehensive federal system of penalties and protections to govern the orderly
conduct of debtors’ affairs and creditors’ rights.” Eastern Equip., 236 F.3d at 120.
Accordingly, “it has been settled from an early date that state laws to the extent
that they conflict with the laws of Congress … on the subject of bankruptcies are
suspended.” Stellwagen v. Clum, 245 U.S. 605, 613 (1918). This Court and others
have recognized that implied preemption principles preclude state-law claims that
would evade or frustrate the Bankruptcy Code. See, e.g., Eastern Equip., 236 F.3d
28
The district court discussed implied conflict preemption as if it were a
disfavored doctrine that is rarely invoked, citing this Court’s recent decision in In
re MTBE Products Liability Litigation, 725 F.3d 65 (2d Cir. 2013). That case is
readily distinguishable. First, the statutory provisions on which appellants in
MTBE relied for their preemption argument “suggest[ed] a Congressional intent to
permit—not preempt—suits like th[e] one” at issue. Id. at 102. Second, those
appellants contended that federal law governing the use of the chemical MTBE
preempted state-law claims that had nothing to do with the use of MTBE. Id. at
103-104. Here, in contrast, §546(e) expressly bars the very types of claims—statelaw fraudulent-transfer claims—that Appellants seek to pursue.
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at 120-121 (state-law tort claims alleging violations of bankruptcy stay
preempted); Pereira v. United Jersey Bank, N.A., 201 B.R. 644, 676-680 (S.D.N.Y.
1996) (state-law unjust-enrichment claims to recover transfers of debtor’s property
preempted by §547(b)).
These principles govern this appeal. There is, of course, a long history of
state law on fraudulent transfer applicable where the debtor has not filed for
bankruptcy. But Tribune did file for bankruptcy, and the question is whether
§546(e) preempts contrary state law in that context. As the district court held in
Whyte, where (as here) the debtor has gone into bankruptcy, there is no
presumption against preemption because “there is a history of significant federal
presence in this area of regulation.” Whyte v. Barclays Bank PLC, 494 B.R. 196,
200 n.6 (S.D.N.Y. 2013) (citing United States v. Locke, 529 U.S. 89, 108 (2000)).
Thus, in order to demonstrate that Appellants’ state-law claims are
preempted, Appellees need only show—as the Supreme Court held last Term—that
those claims “interfere[] with Congress’ scheme” and “frustrate[] the deliberate
purpose of Congress.” Hillman, 133 S. Ct. at 1952. They do.
2.
Congress enacted §546(e) to ensure stability in the securities
markets and finality for investors
This Court has already determined the “purposes and objectives of
Congress,” Arizona, 132 S. Ct. at 2505, that animated the enactment and expansion
of the safe harbor for settlement payments: ensuring the stability of securities
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markets and the finality of securities transactions. Congress sought to “minimize
the displacement caused in the commodities and securities markets in the event of
a major bankruptcy affecting those industries.” Quebecor, 719 F.3d at 100
(quoting Enron, 651 F.3d at 334). Congress also enacted §546(e) to “promot[e]
finality … and certainty for investors,” by limiting the circumstances under which
securities transactions could be unwound years after they occurred. In re Kaiser
Steel Corp., 952 F.2d 1230, 1240 n.10, 1241 (10th Cir. 1991) (noting “Congress’
policy interests in promoting finality and ‘in promoting speed and certainty in
resolving complex financial transactions,’” and finding “that disruption in the
securities industry—an inevitable result if leveraged buy outs can freely be
unwound years after they occurred—is also a harm the statute was designed to
avoid” (quoting H.R. Rep. No. 97-420, at 1 (1982), reprinted in 1982
U.S.C.C.A.N. 583, 583)); see also AP Servs. LLP v. Silva, 483 B.R. 63, 71
(S.D.N.Y. 2012) (in Enron, this Court “took pains to point out that the application
of the safe harbor rule to preclude unwinding of long-settled leveraged buyouts
was consistent with the statute’s underlying policy of avoiding undesirable impacts
on the financial markets”), appeal dismissed, No. 12-4875 (2d Cir. Dec. 17, 2013);
In re Qimonda Richmond, LLC, 467 B.R. 318, 321-322 (Bankr. D. Del. 2012)
(“Section 546(e) shields certain securities transactions from the trustee’s avoidance
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powers for the purpose of promoting stability and finality in the securities
markets.”).
Congress made a considered judgment in balancing these securities-law
policies against the policies served by bankruptcy law. By permitting only a
federal intentional fraudulent-transfer claim to escape the safe harbor, but barring
federal constructive fraudulent-transfer claims and all state-law fraudulent-transfer
claims, Congress concluded that the federal policies ensuring finality and stability
were paramount, except where the settlement payments were made within two
years of the debtor’s bankruptcy and the trustee can demonstrate actual fraud under
federal law. See Kaiser Steel, 913 F.2d at 848 (citation omitted); Contemporary
Indus. Corp. v. Frost, 564 F.3d 981, 986-987 (8th Cir. 2009); In re Hechinger Inv.
Co. of Del., 274 B.R. 71, 88 (D. Del. 2002); In re U.S. Mortg. Corp., 492 B.R. 784,
805 (Bankr. D.N.J. 2013).
The district court misconceived this balance. According to the district court,
“[i]t is not at all clear that Section 546(e)’s purpose with respect to securities
transactions trumps all of bankruptcy’s other purposes”—namely, in the district
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court’s view, “making whole the creditors of a bankruptcy estate.” SA6.29 That is
wrong; Congress’s judgment on this point is entirely clear. Congress gave the
bankruptcy trustee exclusive standing to bring creditors’ state-law fraudulenttransfer claims in bankruptcy, and it then barred the trustee from bringing such
claims to avoid settlement payments. As the Fourth Circuit put it in a case
involving another bankruptcy safe harbor, “[e]ven though an overarching policy of
the Bankruptcy Code is to provide equal distribution among creditors, in enacting
[the safe harbor for swaps], Congress intended to serve a countervailing policy of
protecting financial markets and therefore favoring an entire class of instruments
and participants.” In re Nat’l Gas Distribs., LLC, 556 F.3d 247, 259 (4th Cir.
2009) (emphasis added).
The district court erroneously reasoned that Congress’s intent not to bar
Appellants’ state-law claims was evident from the legislature’s decision “not to
extend Section 546(e) to [state-law fraudulent conveyance] claims filed before
bankruptcy or to intentional fraudulent conveyance claims brought after a
29
In similar fashion, the bankruptcy court in In re Lyondell Chemical Co., 503
B.R. 348 (Bankr. S.D.N.Y. 2014), misapprehended this Court’s holdings regarding
the safe harbor. That decision is filled with skepticism about whether and how the
safe harbor should apply. See, e.g., id. at 372 (“[S]afe harbors are at least arguably
absurd [as applied to] LBOs and other transactions involving privately held
companies where the stock is not even traded in the financial markets.”). This
Court’s case law, however, is settled and unequivocal: The safe harbor protects the
payments at issue here. See, e.g., Quebecor, 719 F.3d at 100; Enron, 651 F.3d at
336.
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bankruptcy filing.” SA7. Congress legislated in the circumstance where the threat
to the securities markets was most acute—where an issuer of securities has
defaulted and been forced to go into bankruptcy or another federal proceeding to
restructure its debts. The district court did not cite any example of fraudulenttransfer litigation seeking to set aside settlement payments (let alone billions of
dollars in such payments) where the debtor was able to avoid bankruptcy or a
comparable federal insolvency proceeding in which a similar safe harbor applies.
See 12 U.S.C. §1821(e)(8)(C), (D) (barring FDIC as receiver of a failed bank from
“avoid[ing] any transfer of money or other property in connection with,” among
other things, any “securities contract”). As to Congress’s decision not to preempt
federal intentional fraudulent-transfer claims, Congress allowed those actions to
proceed because of their exacting nature—compared to the “lesser showing” that
Appellants concede is needed for their constructive fraudulent-transfer claims.
Appellants Br. 72. It determined that, in the rare cases where a trustee could prove
that the debtor made the transfers within two years of the bankruptcy with “actual
intent to hinder, delay, or defraud” its creditors, 11 U.S.C. §548(a)(1)(A), public
policy called for such actions to proceed despite any destabilizing effects they
could have on the market.
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Because Appellants’ claims would thwart Congress’s full
purposes and objectives, they are preempted
Starting from its faulty premise as to Congress’s objectives in enacting the
safe harbor, the district court erroneously held that Appellants’ state-law
fraudulent-transfer claims could proceed consistent with §546(e). Under the
district court’s reasoning, Congress’s intent was to protect the securities markets
and the investing public from the destabilizing effects of a major bankruptcy if the
state-law fraudulent-transfer claims to recover safe-harbored transfers were
brought by a trustee suing in the creditors’ shoes, but Congress was indifferent to
the effects on those markets and investors if the bankrupt company’s creditors
themselves invoked the very same laws to avoid the very same transfers.
That proposition defies common sense. The “displacement … in the ...
securities markets,” Quebecor, 719 F.3d at 100, that would be caused by the
avoidance of securities transactions that occurred years ago, and the recovery of a
multi-billion-dollar judgment against thousands of former shareholders, would be
no less acute simply because the plaintiffs are Tribune creditors rather than their
statutory representative. Appellants’ claims jeopardize Congress’s intent to
“protect[] financial markets,” Nat’l Gas, 556 F.3d at 259, no less than would the
same claims brought by Tribune’s bankruptcy estate. Appellants seek to recover
billions of dollars in safe-harbored transfers, from thousands of individual and
institutional shareholders, years after those transfers were made to settle securities
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transactions. And they seek to do so using state fraudulent-transfer law, claims
that Appellants concede are markedly easier to prove than the exacting federal
intentional fraudulent-transfer claim that Congress purposefully excepted from the
safe harbor. Appellants’ claims thus go to the heart of Congress’s concerns in
enacting §546(e), and vindication of those claims would “interfere[] with
Congress’ scheme” and “frustrate[] the deliberate purpose of Congress.” Hillman,
133 S. Ct. at 1952.
Nothing in this Court’s (or any Circuit’s) decisions suggests that Congress’s
intent in enacting the safe harbor turned on the identity of the plaintiff—the
creditors or their statutory representative—rather than the effect that the action,
whoever brings it, would have on the securities markets and investors. Moreover,
the district court’s holding would mean that Congress achieved little, if anything,
in enacting §546(e), since the bankruptcy estate and its creditors could easily
circumvent the safe harbor by adding a few lines in a reorganization plan to forgo
the estate’s right to bring claims under state law seeking to set aside safe-harbored
transfers. Such a reading of §546(e) would be contrary to the rule that courts are
not supposed to apply federal statutes in a manner that “create[s] a loophole ... that
Congress simply did not intend,” United States v. Naftalin, 441 U.S. 768, 777
(1979), or “results in the emasculation or deletion of a provision,” Cox v. Roth, 348
U.S. 207, 209 (1955). “A decent respect for the policy of Congress must save us
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from imputing to it a self-defeating, if not disingenuous purpose.” Nardone v.
United States, 308 U.S. 338, 341 (1939).
The district court’s decision also conflicts with a string of cases holding that
§546(e) does preempt state-law claims that conflict with its purposes. In
Contemporary Industries—which, like this case, involved an LBO—the plaintiff
sought to recover settlement payments through state-law claims for unjust
enrichment and illegal shareholder distributions. Those claims did not fall within
the textual confines of §546(e): They were not claims to “avoid a transfer”
brought under §544 (or §548)—i.e., they were not fraudulent-transfer claims. But
that made no difference, the Eighth Circuit explained, because “[a]llowing
recovery on these [state law] claims would render the § 546(e) exemption
meaningless, and would wholly frustrate the purpose behind that section.” 564
F.3d at 988. The Eighth Circuit relied on Hechinger, another case involving an
LBO, in which the court also held that §546(e) preempted a state-law claim:
If the court were to entertain the Committee’s unjust enrichment
claim, a claim that effectively acts as an avoidance claim against the
shareholders … and allowed the Committee to circumvent section
546(e) by asserting a state law claim for unjust enrichment … , the
purpose of section 546(e) would be frustrated.
274 B.R. at 96-98; see also Silva, 483 B.R. at 71 (“The Court could not permit the
unjust enrichment claim to go forward without frustrating the purpose of Section
546(e).”); U.S. Bank N.A. v. Verizon Commc’ns Inc., 892 F. Supp. 2d 805, 824-825
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(N.D. Tex. 2012) (“allowing the plaintiff … to recover for the cash payments
under state unlawful dividend statute would render Section 546(e) meaningless”);
U.S. Mortg. Corp., 492 B.R. at 817 (“[C]ircumventing the provisions of §546(e) by
merely re-labeling claims but seeking essentially the same relief frustrates the
purpose of §546(e).”).
The district court distinguished these cases on the ground that, in each, the
plaintiff was the bankruptcy trustee, or other representative of the bankruptcy
estate, and was thus “explicitly bound by Section 546(e).” SA8 n.10. But that
misses the point. In Contemporary Industries, Hechinger, and the other cases,
none of the claims came within the express terms of §546(e) because they were not
fraudulent-transfer or other avoidance claims asserted under Chapter 5 of the Code.
The courts nonetheless recognized that allowing the cases to proceed would thwart
Congress’s intent. The only distinction here is that Appellants contend that their
actions do not satisfy a different requirement of §546(e): that the claim be brought
by the “trustee.” Even if Appellants were correct (and they are not for the reasons
discussed supra in Section II.A.), this would be a distinction without a difference
for purposes of implied conflict preemption.
The district court recognized as much in Whyte. There, the debtor’s plan
created a litigation trust that purported to receive the assignment of both the
bankruptcy estate’s and creditors’ avoidance claims. The litigation trustee brought
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state-law fraudulent-transfer claims seeking to avoid and recover safe-harbored
payments, but argued that the safe harbor that would otherwise apply (§546(g)) did
not bar the claims because the trustee was suing as assignee of the creditors, not
under §544(b) as the representative of the debtor’s bankruptcy estate. Citing
Hechinger, the district court rejected this “clever argument” because it would
“render section 546(g) a nullity.” Whyte, 494 B.R. at 199. That “absurd result,”
the district court held, was foreclosed “under well-established principles of federal
preemption”; “section 546(g) impliedly preempts the Trustee’s attempt to
resuscitate fraudulent avoidance claims as the assignee of certain creditors where,
as here, she would be expressly prohibited by section 546(g) from asserting those
claims as assignee of the debtor-in-possession’s rights[.]” Id.
The district court here sought to distinguish Whyte on the ground that there
the bankruptcy plan “designated one entity, the SemGroup Litigation Trust, to
serve in the capacity of both the bankruptcy trustee and the representative of
outside creditors,” whereas here the creditors are not “creatures of a Chapter 11
plan.” SA8. But it was the Tribune bankruptcy plan, as well as the bankruptcy
court’s earlier order, that gave effect to the creditors’ attempted “Work-Around” of
§546(e), by purporting to “disclaim” any estate state-law fraudulent-transfer
actions to avoid the payments to Tribune’s shareholders. A643, A650, A656,
A729, A733.
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In any event, it does not matter for purposes of implied conflict preemption
whether the creditors sue in their own name or assign their claims to a trust that
also obtains an assignment of bankruptcy estate claims. The question is whether
the state-law claims would “stand as an obstacle,” Arizona, 132 S. Ct. at 2505, to
Congress’s goals of “minimizing the displacement in the commodities and
securities markets,” Quebecor, 719 F.3d at 100, and “promot[ing] finality and …
certainty for investors,” Kaiser Steel, 952 F.2d at 1240 n.10. Just as the claims will
frustrate Congress’s purpose whether the plaintiff is a bankruptcy trustee or the
creditors themselves, so too they will frustrate Congress’s purpose whether the
plaintiff is the creditors or their assignee. Cf. Oneida Indian Nation of N.Y. v. New
York, 691 F.2d 1070, 1084 (2d Cir. 1982) (holding that claims were not timebarred, whether brought by Indian tribe or tribe’s trustee, because “the interests
sought to be protected … are the same, no matter who the plaintiff may be”
(citation omitted)). The markets and shareholders do not care who the plaintiff is;
they care that long-completed securities transactions are being unwound and
settlement payments are being avoided and recovered. Regardless of how the
creditors assert their claims—in their own names, through a bankruptcy trustee, or
through a plan assignee—avoiding safe-harbored transfers through constructive
fraudulent-transfer claims will undermine Congress’s objectives of protecting the
securities markets and the finality and certainty of securities transactions.
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Thus, in order to affirm the district court’s ruling that Appellants’ claims
could proceed notwithstanding §546(e) (were it not for their lack of standing), this
Court would have to conclude that the district court in Whyte, the Eighth Circuit in
Contemporary Industries, and the raft of lower court decisions consistent with
Whyte and Contemporary Industries are all wrong. But the courts’ reasoning in
those cases is correct. Allowing plaintiffs to bring constructive fraudulent-transfer
claims to “undo” long-settled securities transactions will destabilize the markets,
whoever the plaintiffs are and whatever their legal theory is. If anything, this
concern applies with even greater force here (and in Whyte) than in the
Contemporary Industries and Hechinger line of cases. Unlike the plaintiffs in
those cases, Appellants do not assert a state-law claim that “effectively acts” like a
fraudulent-transfer claim, Hechinger, 274 B.R. at 96; they assert a state-law claim
that is a fraudulent-transfer claim—the sort of market-destabilizing claim that
Congress intended to foreclose when it enacted §546(e).
4.
The district court’s reliance on legislative history and
§544(b)(2) was misplaced
In the district court’s view, two pieces of legislative history and one
unrelated provision of the Bankruptcy Code supported its conclusion that
Appellants’ state-law fraudulent-transfer claims were not impliedly preempted by
§546(e). None lends any support.
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First, the district court placed great weight on the fact that in 1976 CFTC
Chairman Bagley “petitioned Congress to amend Section 546(e) to expressly
preempt [state-law constructive fraudulent-transfer] claims,” SA6-SA7 (emphasis
added), and that Congress chose not to do so. That is a misreading of the
legislative history. The point of his request was to encourage Congress to enact a
safe harbor that protected margin payments from avoidance in the event a futures
commission merchant entered bankruptcy—not to draw a line between safeharbored claims brought by trustees and those brought by creditors.
Chairman Bagley’s 1976 testimony addressed a proposed legislative
override of Seligson v. New York Produce Exchange, 394 F. Supp. 125 (S.D.N.Y.
1975), a case in which the trustee of a bankrupt commodity broker sued a
commodities exchange and clearing association under state fraudulent-transfer law
to recover alleged fraudulent conveyances of margin payments. When the district
court denied the clearing association’s motion for summary judgment, it exposed
the clearing association to substantial liability—and thus potentially destabilized
the commodities markets. Chairman Bagley encouraged Congress to overrule
Seligson and ensure that “margin payments made to … any clearing house or other
futures commission merchant by the bankrupt futures commission merchant prior
to the date of bankruptcy … be protected from reversal by the trustee in
bankruptcy. Any such provision should also clearly preempt state law in this
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area.” 30 In other words, Chairman Bagley wanted an explicit safe harbor under
federal bankruptcy law barring a bankruptcy trustee from bringing the type of
fraudulent-transfer action that the trustee had brought in Seligson (i.e., a state-law
fraudulent-transfer action under §544). And that is exactly what Congress enacted
in (the predecessor to) 11 U.S.C. §546. Chairman Bagley never contemplated that
creditors would bring their own actions to circumvent §546(e), let alone propose a
fix for that unanticipated “Work-Around” that Congress rejected.
It is inconceivable that Congress would have carefully weighed the
competing policies of securities and bankruptcy law and enacted §546(e)
anticipating at the same time that the balance it drew could easily be overcome by
the tactic employed here. The absence of any suggestion in the legislative history
that creditor state-law fraudulent-transfer claims would be excepted from §546(e)
confirms that Congress did not intend the possibility of such a “Work-Around.”
The second piece of legislative history the district court cited illustrates the
point. In 1977, Commodity Exchange, Inc. (“Comex”) submitted testimony
supportive of the proposed safe harbor. According to Comex, it had “been
suggested that the supremacy doctrine”—i.e., implied conflict preemption—
“would prevent the application of state law inconsistent with [the] federal statute in
30
See Bankruptcy Act Revision: Hearings on H.R. 31 and H.R. 32 Before the
Subcomm. on Civil & Constitutional Rights of the H. Comm. on the Judiciary, 94th
Cong., Supp. App. pt. 4, 2406 (1976) (emphasis added).
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this area. This may be so. However, we would prefer to see the subject covered
by express language in the statute.”31 Congress decided, however, that such
express preemption was unnecessary in light of the “supremacy doctrine.” This is
thus a situation where Congress’s “failure to provide for preemption expressly”
reflects “nothing more than the settled character of implied preemption doctrine
that courts will dependably apply[.]” Crosby v. National Foreign Trade Council,
530 U.S. 363, 387-388 (2000). It therefore adds nothing to the district court’s
analysis that Congress “never added an express preemption provision” to §546(e)
despite its later amendments to the statute. SA7.
The chronology of relevant events shows the error in the district court’s
reasoning. Congress enacted the predecessor to §546(e) in 1978 and last amended
it in 2006. As of that time, there had been no case raising the preemption issue
implicated here—i.e., whether the Bankruptcy Code preempts creditors’ attempt to
31
Bankruptcy Reform Act: Hearings on S. 2266 and H.R. 8200 Before the
Subcomm. on Improvements in Judicial Machinery of the S. Comm. on the
Judiciary, 95th Cong. 1297 n.* (1978).
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advance state-law fraudulent-transfer claims free and clear of the safe harbor after
the bankruptcy trustee has “disclaimed” those claims.32
When the plaintiff advanced a similar argument against preemption of a
novel state-law claim in Wood v. General Motors Corp., 865 F.2d 395, 402 (1st
Cir. 1988), the First Circuit rejected the contention in words that are just as apt
here: “At [the time Congress enacted the relevant statute], the only kind of legal
claim which could give rise to the present dilemma … had yet to take its place in
the arsenal of the plaintiffs’ bar…. Congress simply did not anticipate the situation
that now confronts us.” See also Geier v. American Honda Motor Co., 529 U.S.
861, 885 (2000) (implied conflict preemption doctrine does not “tolerate conflicts
that … Congress[] is most unlikely to have intended”). Likewise here: Lyondell,
32
Over the years, there have been a handful of cases in which bankruptcy
estates declined to bring fraudulent-transfer cases and agreed to allow individual
creditors to do so. But none of those cases entailed an effort to circumvent §546(e)
or otherwise to allow a creditor to bring a claim that the Bankruptcy Code (or any
of its predecessors) would have barred the trustee from bringing. Rather, these
cases typically concerned potential fraudulent-transfer claims unrelated to
securities transactions and Chapter 7 estates that simply did not have the resources
to pursue the claims or that had no interest in doing so because the benefit of any
judgment would go to a particular (typically secured) creditor. See, e.g., Hatchett,
330 F.3d at 885-887.
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the first case to bring the preemption issue to the fore, was not filed until 2010, and
the first decisions on this question were not issued until 2013.33
The whole point of implied conflict preemption is that Congress cannot
predict every creative effort by the plaintiffs’ bar to use state law to circumvent
federal law or, more broadly, every conflict that might arise between a federal
statutory scheme and state law.34 The courts are therefore entrusted with
determining when state law conflicts with federal law such that it would thwart
Congress’s intent; in such cases, it is state law that must give way.
This Court recently applied this principle, explaining its reasoning in words
that fit this appeal just as well. In Carrion, plaintiffs attempted to use state
contract law to circumvent the federal ban on private rights of action under the
Davis-Bacon Act, 40 U.S.C. § 276a, et seq. The Court held that the state-law
claims were barred because they “would be inconsistent with the underlying
33
The district court was wrong that PHP Liquidating, LLC v. Robbins, 291
B.R. 603 (D. Del. 2003), aff’d, 128 F. App’x 839 (3d Cir. 2005), should have
alerted Congress to the preemption question presented here. SA7. The Delaware
district court in PHP dismissed the creditor-plaintiffs’ claims for lack of standing
and thus never addressed—or even mentioned—preemption. See id. at 611. The
Third Circuit also affirmed on standing grounds, 128 F. App’x at 846, and likewise
never mentioned preemption or §546(e).
34
See, e.g., Merrill, Preemption and Institutional Choice, 102 Nw. U. L. Rev.
727, 754 (2008) (“Congress cannot anticipate when it legislates all the situations in
which questions of displacement will arise.”); Metzger, Administrative Law as the
New Federalism, 57 Duke L.J. 2023, 2081 (2008) (“Congress simply lacks the
resources and foresight to resolve all the federalism issues that can arise in a given
regulatory scheme.”).
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purpose of the [federal] legislative scheme and would interfere with the
implementation of that scheme to the same extent as” a claim under federal law.
Carrion, 720 F.3d at 386 (citation omitted). Here, as in Carrion, Appellants’
claims “are clearly an impermissible ‘end run’ around [federal law],” id. at 383
(citation omitted)—indeed, that is the very term counsel for the Committee used to
describe the creditors’ gambit.
Second, the district court erred in concluding that the express preemption
provision in §544(b)(2) somehow bears on the question of implied preemption
under §546(e). See SA7-SA8. As the Supreme Court reiterated only two terms
ago, “the existence of an express pre-emption provision does not bar the ordinary
working of conflict pre-emption principles or impose a special burden that would
make it more difficult to establish the pre-emption of laws falling outside the
clause.” Arizona, 132 S. Ct. at 2504 (internal quotation marks and alterations
omitted).
This rule has particular force here. Section 544(b)(2) and §546(e)
accomplish the same purpose: Both statutes disable every conceivable party from
bringing the barred claims. Section 544(b)(1) grants the trustee the exclusive
power to assert virtually all creditor state-law claims. But §544(b)(2) denies the
trustee the power to avoid charitable contributions under §544(b)(1). To avoid any
implication that others could step into the void, Congress needed to specify in
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§544(b)(2) that no other party could bring such a claim. In contrast, §544(b)(2)
does not exclude the trustee’s authority to avoid settlement payments from the
trustee’s general powers. Instead, §546(e) bars any such claims.
5.
If permitted to proceed, Appellants’ claims will render the
safe harbor close to a dead letter, nullifying Congress’s
intent to protect settlement payments
Few, if any, preemption cases present the sort of purposeful, choreographed
evasion of federal law that this case presents, where the bankruptcy estate
“disclaimed” its state-law fraudulent-transfer claims so that its representative,
together with Appellants, could, in their own words, “end run” §546(e). The stakes
in this appeal are high for the securities markets, investors, and the safe harbor. In
this case alone, Appellants seek to recover billions of dollars from more than 2,500
named defendants and a purported defendant class, which includes individuals and
retirees who invested in their employer’s stock, financial institutions, pension
funds, mutual funds, hedge funds, educational institutions, and charitable and other
not-for-profit organizations. The destabilizing effects on the securities
marketplace of a decision permitting Appellants’ claims here would, to say the
least, be substantial.
But as the companion appeal in Whyte illustrates, the Tribune litigation is no
aberration. After this Court and others rejected efforts by bankruptcy estates and
their creditors to limit §546(e) or circumvent it altogether—by arguing, for
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example, as in the Contemporary Industries line of cases, that the safe harbor does
not apply to unjust enrichment, unlawful dividend, or similar claims—those parties
have begun in the last few years to adopt the same stratagem as in Tribune,
purporting to have the creditors (or their assignee), not the bankruptcy trustee, their
statutory representative, bring the claims. See Merrett & Chase, Safe Harbor
Supernova, 21 J. Bankr. L. & Prac. 3 Art. 1, 12 (2012) (describing lawyers
“hunting for creative work-arounds to the broad circuit court interpretation of
section 546(e)”).
In an order that tracked the district court’s decision in this case, a bankruptcy
judge in the Southern District of New York recently held that similar creditor
claims could proceed notwithstanding §546(e). See Lyondell, 503 B.R. at 358-378.
The Lyondell litigation, like that here, concerns an LBO of a public company in
which thousands of shareholders received payment for their shares many years
ago. Recognizing that §546(e) would bar any such claims brought by the
bankruptcy estate, the Lyondell creditors’ committee insisted that the plan of
reorganization provide for the “abandonment” by the estate of any right to bring
state-law fraudulent-transfer claims and then for those claims to be deemed
assigned by the creditors to a so-called “creditor trust.” That trust is administered
by the same trustee (formerly counsel for the creditors’ committee) who is
administering a “separate” trust to which all non-abandoned estate claims—that is,
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all estate claims not barred by the safe harbor—were assigned. That single
trustee—acting as the assignee of the bankruptcy estate in one action, and as the
assignee of the debtor’s creditors in the other—has brought fraudulent-transfer
claims against the same defendants for the benefit of the same creditors, to avoid
and recover the same billions of dollars in securities payments. And in that case,
as here, the trustee proceeds on behalf of the bankruptcy estate for the one claim
that §546(e) permits (§548(a)(1)(A)), and on behalf of the creditors for the statelaw fraudulent-transfer claims that §546(e) bars.35 Other similar cases are in the
pipeline.36
As these cases illustrate, §546(e) will for all intents and purposes be
eviscerated if this Court vindicates Appellants’ approach. To be sure, the safe
harbor will technically still apply if the bankruptcy trustee brings the state
fraudulent-transfer claims. But precisely because §546(e) bars those claims, the
35
Referencing the district court’s analysis of Appellants’ standing in this case,
the bankruptcy court in Lyondell declined to determine, and afforded the parties a
further opportunity to address, whether the estate’s and the creditors’ claims could
both proceed despite having “overlapping ultimate beneficiaries, and targeting the
same transactions.” 503 B.R. at 378 n.148.
36
For example, in a fraudulent-transfer action arising from the bankruptcy of
Boston Generating, the liquidating trustee has “abandon[ed]” his §544 claims and
purports to assert fraudulent-transfer claims under New York law as assignee of
the debtors’ creditors. The $1 billion in settlement payments that the liquidating
trustee seeks to avoid—payments unquestionably protected from avoidance by
§546(e) if brought by the bankruptcy trustee—were transferred nearly seven years
ago to scores of individuals and financial institutions. See Holliday v. K Road
Power Mgmt. LLC, No. 12-01879 (Bankr. S.D.N.Y.).
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trustee will surely “disclaim” or “abandon” his right to sue, so the creditors can—
just as has happened in Tribune, Lyondell, Whyte, and Boston Generating. Indeed,
it would almost certainly be a breach of the fiduciary duty a trustee owes all
creditors for him not to do so. See, e.g., In re Smith, 400 B.R. 370, 377 (Bankr.
E.D.N.Y. 2009), aff’d, 426 B.R. 435 (E.D.N.Y. 2010); Appellants Br. 61, 66
(describing the decision of the Tribune estate representative, acting as a
“fiduciary,” to allow the Appellants to bring their claims). If Appellants’ “WorkAround” is permitted, future plaintiffs will not need to wait until a bankruptcy plan
is confirmed before asserting state-law fraudulent-transfer claims to unwind safeharbored transfers. The creditors will simply file a motion at the outset of the
bankruptcy case demanding that the estate abandon any §544 claims involving
securities transactions that would otherwise be, as Congress intended, blocked by
§546(e). Congress could not have intended to have its legislation gutted through
such a contrivance.
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CONCLUSION
The judgment of the district court should be affirmed.
Respectfully submitted.
JOEL A. FEUER
OSCAR GARZA
GIBSON, DUNN & CRUTCHER LLP
2029 Century Park East
Los Angeles, CA 90067
(310) 551-8808
Counsel for Chandler Trust No. 1 and
Chandler Trust No. 2
DAVID C. BOHAN
JOHN P. SIEGER
KATTEN MUCHIN ROSENMAN LLP
525 West Monroe Street
Chicago, IL 60661
(312) 902-5556
/s/ Philip D. Anker
PHILIP D. ANKER
ALAN E. SCHOENFELD
ADRIEL I. CEPEDA DERIEUX
PABLO G. KAPUSTA
WILMER CUTLER PICKERING
HALE AND DORR LLP
7 World Trade Center
250 Greenwich Street
New York, NY 10007
(212) 230-8800
[email protected]
Counsel for Susquehanna Capital Group,
Susquehanna Investment Group, and
Susquehanna Investment Group as custodian
of the SIG-SS CBOE Joint Account
Counsel for The Robert R. McCormick
Foundation and Cantigny Foundation
February 28, 2014
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ANDREW J. ENTWISTLE
ENTWISTLE & CAPUCCI LLP
280 Park Avenue
26th Floor West
New York, NY 10017
ELLIOT MOSKOWITZ
DAVIS POLK & WARDWELL LLP
450 Lexington Avenue
New York, NY 10017
Counsel for Bear Stearns Asset
Management, Inc.; Bear Stearns & Co.,
Inc. (n/k/a J.P. Morgan Securities
LLC); Bear Stearns Equity Strategies
RT LLC; Bear Stearns Secs Corp. (n/k/a
J.P. Morgan Clearing Corp.); Custodial
Trust Company; JPMorgan 401(k)
Savings Plan; JPMorgan Chase Bank,
N.A.; J.P. Morgan Clearing Corp.; J.P.
Morgan; J.P. Morgan Securities LLC
(formerly J.P. Morgan Securities Inc.);
J.P. Morgan Securities plc (formerly
J.P. Morgan Securities Ltd.); JPMSI
LLC (formerly J.P. Morgan Services
Inc.); JPMorgan Trust II; and J.P.
Morgan Whitefriars, Inc.
MICHAEL S. DOLUISIO
ALEXANDER R. BILUS
DECHERT LLP
Cira Centre
2929 Arch Street
Philadelphia, PA 19104-2808
02/28/2014
Counsel for GAMCO Asset
Management, Inc. and The Public
Employees’ Retirement Association of
Colorado
MATTHEW L. FORNSHELL
ICE MILLER LLP
250 West Street
Columbus, OH 43215
Counsel for Illinois Municipal
Retirement Fund, School Employees
Counsel for Aegon/Transamerica Series Retirement System of Ohio, Ohio Public
Fund – TRP; Aegon/Transamerica
Employees Retirement System, Pensions
Series Trust T Rowe Price Equity
Reserve Investment Management Board
Income; Board of Trustees of the
of Massachusetts, and School
Colleges of Applied Arts and
Employees Retirement System of Ohio
Technology Pension Plan, As
Administrator of Colleges of Applied
Arts and Technology Pension Plan;
Charles Schwab & Co. Inc; Charles
Schwab & Co., Inc, as Custodian for
Brent V. Woods IRA Rollover; Charles
Schwab & Co., Inc, as Custodian of the
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George William Buck SEP-IRA DTD
04/08/93; Charles Schwab & Co., Inc,
as Custodian of the Peter Marino IRA
Rollover; Charles Schwab Investment
Management, Inc. (incorrectly named
by Plaintiffs-Appellants-CrossAppellees as “Charles Schwab Inv Mgt
Co”); Clearwater Growth Fund; DIA
MID CAP Value Portfolio; Harbor
Capital Advisors, Inc.; Harbor Capital
Group Trust for Defined Benefit Plans
(incorrectly named by PlaintiffsAppellants-Cross-Appellees as “Harbor
Capital Group Trust”); Harbor Mid
Cap Value Fund, J. Goldman & Co.,
L.P.; Jay Goldman Master Limited
Partnership (incorrectly named by
Plaintiffs-Appellants-Cross-Appellees
as “Jay Goldman Master LP”); JHF II
Equity-Income Fund; JHF II Spectrum
Income Fund; JHT New Income Trust;
John Hancock Financial Services Inc.;
John Hancock Funds II; John Hancock
Funds II (Equity-Income Fund); John
Hancock Funds II (Spectrum Income
Fund); John Hancock Variable
Insurance Trust; John Hancock
Variable Insurance Trust New Income
Trust (incorrectly named by PlaintiffsAppellants-Cross-Appellees as “John
Hancock Variable Insurance Trust
(F/K/A John Hancock Trust (New
Income Trust))”); Linda Molenda;
Manulife Asset Management (US) LLC
(Colleges of Applied Arts and Tech.
Pension Plan); Manulife Invst Ex FDS
Corp.-MIX; Manulife Mutual Funds;
Manulife U.S. Equity Fund;
MassMutual Premier Enhanced Index
Value Fund; MassMutual Premier
Funds; MassMutual Premier Main
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Page: 84
Street Small Cap Fund; MassMutual
Premier Small Company Opportunities
Fund; MassMutual Select Diversified
Value Fund; MassMutual Select Funds;
MassMutual Select Indexed Equity
Fund; MML Blend Fund; MML Equity
Income Fund; MML Series Investment
Fund; MML Series Investment Fund II;
Monumental Life Insurance Co.;
Monumental Life Insurance Co. F/K/A
Peoples Benefit Life Insurance
Company; Monumental Life Insurance
Co., as Owner of Teamsters Separate
Account (Monumental Life Insurance
Company, on Behalf of Separate
Account L-32) (incorrectly named by
Plaintiffs-Appellants-Cross-Appellees
as “Monumental Life Insurance Co., as
Owner of Teamsters Separate Account
(Monumental Life Insurance Company,
on Behalf of Separate Account L-23)”);
OFI Private Investments, Inc.;
Oppenheimer Main Street Select Fund
(formerly known as Oppenheimer Main
Street Opportunity Fund); Oppenheimer
Main Street Small & Mid-Cap Fund
(formerly known as Oppenheimer Main
Street Small Cap Fund); Oppenheimer
Variable Account Funds (doing
business as Oppenheimer Main Street
Small & Mid-Cap Fund/VA) (formerly
known as Oppenheimer Main Street
Small Cap Fund/VA);
OppenheimerFunds, Inc.;
OptionsXpress, Inc.; Pacific Select
Fund, ProShares Ultra S&P500
(incorrectly named by PlaintiffsAppellants-Cross-Appellees as “Pro
Shares Ultra S&P 500”); Russell
Investment Company; Russell
Investment Group; Russell US Core
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Equity Fund; Rydex ETF Trust
(Guggenheim S&P 500 Pure Value
ETF) (incorrectly named by PlaintiffsAppellants-Cross-Appellees as “Rydex
ETF Trust (Rydex S&P 500 Pure Value
ETF)”); Rydex ETF Trust (Guggenheim
S&P 500 Equal Weight Consumer
Discretionary ETF) (incorrectly named
by Plaintiffs-Appellants-CrossAppellees as “Rydex ETF Trust (Rydex
S&P Equal Weight Consumer
Discretionary ETF)”); Rydex ETF Trust
(Guggenheim S&P 500 Equal Weight
ETF) (incorrectly named by PlaintiffsAppellants-Cross-Appellees as “Rydex
ETF Trust (Rydex S&P Equal Weight
ETF)”); Rydex Investments; Rydex
Series Funds; Rydex Series Funds
Multi-Hedge Strategies Fund; Rydex
Series Funds S&P 500 Pure Value
Fund; Rydex Variable S&P 500 Pure
Value Fund; Rydex Variable Trust;
Rydex Variable Trust Multi-Hedge
Strategies Fund; SBL Fund Series H;
SBL Fund Series O; Schwab 1000 Index
Fund; Schwab Capital Trust; Schwab
Fundamental US Large Company Index
Fund; Schwab Investments; Schwab
S&P 500 Index Fund; Schwab S&P 500
Index Fund (F/K/A Schwab Institutional
Select S&P 500 Fund); Schwab Total
Stock Market Index Fund; Security
Global Investors-Rydex/SGI; Security
Investors, LLC; Transamerica Asset
Management, As Owner of the DIA Mid
Cap Value Portfolio; Transamerica
Blackrock Large Cap Value VP (F/K/A
Transamerica T. Rowe Price Equity
Income VP); Transamerica Partners
Mid Cap Value; Transamerica Partners
Mid Cap Value F/K/A Diversified
74
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Page: 86
Investors Portfolios; Transamerica
Partners Mid Value Portfolio (f/k/a
Transamerica Partners Mid-Cap Value
Portfolio f/k/a/ Diversified Investors
Mid-Cap Value Portfolio);
Transamerica Partners Portfolios
(F/K/A Diversified Investors
Portfolios); Transamerica Series Trust
(F/K/A Aegon/Transamerica Series
Trust); The Vanguard Group, Inc.;
Vanguard 500 Index Fund (incorrectly
named by Plaintiffs-Appellants-CrossAppellees as “Vanguard Index 500
Fund”); Vanguard Asset Allocation
Fund; Vanguard Balanced Index Fund
(incorrectly named by PlaintiffsAppellants-Cross-Appellees as
“Vanguard Balanced Index Fund (a/k/a
Vanguard Balanced Index Equity
Fund)”); Vanguard Consumer
Discretionary Index Fund; Vanguard
Equity Income Fund; Vanguard Fenway
Funds; Vanguard Fiduciary Trust
Company; Vanguard FTSE Social Index
Fund; Vanguard Growth and Income
Fund; Vanguard High Dividend Yield
Index Fund; Vanguard Index Funds;
Vanguard Institutional Index Fund
(incorrectly named by PlaintiffsAppellants-Cross-Appellees as
“Vanguard Institutional Index Funds”);
Vanguard Institutional Total Stock
Market Index Fund; Vanguard Large
Cap Index Fund; Vanguard Malvern
Funds; Vanguard Mid-Cap Index Fund;
Vanguard Mid-Cap Value Index Fund;
Vanguard Quantitative Funds;
Vanguard Scottsdale Funds; Vanguard
Structured Large-Cap Equity Fund;
Vanguard Tax-Managed Funds;
Vanguard Tax-Managed Growth &
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Income Fund; Vanguard Total Stock
Market Index Fund; Vanguard Valley
Forge Funds; Vanguard Value Index
Fund; Vanguard Variable Insurance
Fund; Vanguard Variable Insurance
Funds; Vanguard VVIF Equity Fund
Index; Vanguard VVIF Equity Income
VGI; Vanguard VVIF Midcap Index
Fund; Vanguard Whitehall Funds;
Vanguard Windsor Funds; Vanguard
Windsor II Fund; Vanguard World
Fund (f/k/a Vanguard World Funds);
VFTC - Vanguard Company Stock
Account 21; and Woodmont Investments
Ltd.
DAVID N. DUNN
POTTER STEWART JR. LAW
OFFICES, P.C.
The Merchants Bank Building
205 Main Street, Suite 8
Brattleboro, VT 05301
ALAN J. STONE
ANDREW M. LEBLANC
MILBANK, TWEED, HADLEY &
MCCOY LLP
1 Chase Manhattan Plaza
New York, NY 10005
Counsel for Counsel for Ciri Gillespie,
Cara-Leigh Gillespie-Wilson, John and
Carol Jansson, Walter Lang, Joel
Marks, Steven and Susan Miller, and
George Moss
Counsel for Amalgamated Bank; Bank
of Tokyo-Mitsubishi UFJ Trust
Company; Barclays Bank PLC;
Barclays Capital Inc.; Barclays Capital
Securities Ltd.; Bessemer Trust
Company; BHF-Bank AG; BMO Nesbitt
Burns Employee Co-Investment Fund I
(U.S.), L.P.; BMO Nesbitt Burns
Employee Co-Investment Fund I
Management (U.S.), Inc.; BMO Nesbitt
Burns Inc.; BMO Nesbitt Burns Trading
Corp. S.A.; BMO Nesbitt Burns U.S.
Blocker Inc.; BNP Paribas Securities
Corp.; Brown Brothers Harriman &
Co.; Canadian Imperial Holdings, Inc.;
CIBC World Markets Corp.; CIBC
World Markets, Inc.; Commerz Markets
LLC; Commerzbank AG; Cooper Neff
76
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Advisors, Inc. n/k/a Harewood Asset
Management (US) Inc.; Credit Suisse
(USA), Inc.; Credit Suisse Securities
(Europe) Ltd.; Credit Suisse Securities
(USA) LLC; D.E. Shaw Valence
Portfolios, L.L.C.; Deutsche Bank AG;
Deutsche Bank AG, Filiale Amsterdam;
Deutsche Bank Securities Inc.; Deutsche
Investment Management Americas Inc.;
Eaton Vance Multi Cap Growth
Portfolio; Eaton Vance Tax Managed
Global Buy Write Opportunities Fund;
Eaton Vance Tax Managed Growth
Portfolio; Eaton Vance Tax Managed
Multi-Cap Growth Portfolio; Edward D.
Jones & Co., L.P.; Fidelity Advisor
Series I; Fidelity Commonwealth Trust;
Fidelity Concord Street Trust; Fidelity
Securities Fund – Leveraged Company
Stock Fund; Fidelity U.S. Equity Index
Commingled Pool; Goldman Sachs
Execution & Clearing, L.P.; Goldman
Sachs International Holdings LLC;
Goldman Sachs Variable Insurance
Trust; Goldman, Sachs & Co.; GS
Investment Strategies LLC; Liberty
Harbor Master Fund I, L.P.;
Lyxor/Canyon Value Realization Fund
Ltd.; National Financial Services LLC;
Neuberger Berman LLC; PNC Bank,
N.A.; RBC Capital Markets Arbitrage,
LLC; RBC Capital Markets, LLC; RBC
Global Asset Management, Inc.; RBC
O’Shaughnessy U.S. Value Fund; Royal
Bank of Canada; Royal Trust
Corporation of Canada; Schultze Asset
Management LLC; Scotia Capital (USA)
Inc.; Scotia Capital Inc.; SG Americas
Securities, LLC; State Street Bank and
Trust Company; State Street Bank
Luxembourg, S.A.; State Street Global
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Advisors (Japan) Co., Ltd.; State Street
Global Advisors, Inc.; State Street Trust
& Banking Co., Ltd.; SunTrust Bank;
Swiss American Corporation; Swiss
American Securities, Inc.; TD
Ameritrade Clearing, Inc.; TD Equity
Options LLC (f/k/a TD Options LLC);
The Bank of Nova Scotia; U.S. Bancorp
Investments, Inc.; U.S. Bank N.A.; UBS
AG; UBS Financial Services, Inc.; UBS
Global Asset Management (Americas)
Inc.; UBS Global Asset Management
(US) Inc.; UBS O’Connor LLC; UBS
Securities LLC; Union Bank, N.A.;
Variable Insurance Products Fund II –
Index 500 Portfolio; and Workers’
Compensation Board
DANIEL L. CANTOR
O’MELVENY & MYERS LLP
Times Square Tower
7 Times Square
New York, NY 10036
Counsel for Bank of America, N.A Bank
of America, N.A. / LaSalle Bank, N.A.;
Bank of America Corporation; Bank of
America; Bank of America Structured
Research; Banc of America Securities
LLC; Bank of America N.A.; GWIM
Trust Operations; Bank of America,
National Association as Successor-inInterest to Boatmens; BNP Paribas
Prime Brokerage, Inc.; Columbia
Management Group; Forrestal Funding
Master Trust; Merrill Lynch, Pierce,
Fenner & Smith Incorporated; Merrill
Lynch; Merrill Lynch & Co., Inc.;
Merrill Lynch Capital Corp.; Merrill
Lynch Financial Markets, Inc.; Merrill
Lynch Trust Co.; Merrill Lynch, Pierce,
STEVEN R. SCHOENFELD
ROBINSON & COLE LLP
666 Third Avenue, Twentieth Floor
New York, NY 10017
Counsel for College Retirement Equities
Fund; Teachers Insurance and Annuity
Association of America; TIAA Board of
Overseers, as Trustee; TIAA-CREF
Funds; TIAA-CREF Institutional Mutual
Funds; TIAA-CREF Investment
Management, LLC; and TIAA-CREF
Life Funds
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Fenner & Smith, Inc. – Safekeeping;
Merrill Lynch, Pierce, Fenner & Smith,
Inc.; Securities Lending; 1IA SPX1; US
Trust Co. N.A.; and U.S. Trust
Company of Delaware
GREGG M. MASHBERG
STEPHEN L. RATNER
PROSKAUER ROSE LLP
11 Times Square
New York, NY 10036
MARK A. NEUBAUER
STEPTOE & JOHNSON LLP
2121 Avenue of the Stars, Suite 2800
Los Angeles, CA 90067
Counsel for The Alfred W. Merkel
Marlowe G. Merkel Trust UA 11 Sept
Counsel for A.G. Edwards & Sons,
85; Chase L. Leavitt; Darell F.
LLC; A.G. Edwards Private Equity
Kuenzler; Darell F. Kuenzler IRA;
Partners III, L.P.; A.G. Edwards, Inc.;
Debra A. Gastler; Denise Palmer
AG Edwards & Sons, Inc.; Baldwin
Enterprises, Inc.; The Bank of New York Revocable Trust U/A/D 10-28-1991,
Denise E. Palmer, Trustee; Durham J.
Mellon Corporation Retirement Plans
Monsma; Emil Kratochvil; Evelyn A.
Master Trust; BNY Mellon Investment
Freed Trust U/A/D 03/26/90 BrandesServicing (US) Inc. (f/k/a PFPC, Inc.);
All Cap Value; Javad Rassouli; Jeanette
BNY Mellon Trust of Delaware; BNY
Mellon, N.A., as Succesor-In-Interest to Day Family Trust U/A DTD
10/04/1994; Jennifer Merkel, Successor
Mellon Trust of New England, N.A.;
Cede & Co.; Dreyfus Index Fund, Inc.; Trustee of The Alfred W. Merkel
Dreyfus Stock Index Fund, Inc.; Equity Marlowe G. Merkel Trust UA 11 Sept
League Pension Trust Fund; Evergreen 85; Jim Hicks, as Trustee of the Jim
Hicks & Co. Employee Profit-Sharing
Asset Management Corp.; First
Plan; John Patinella; Leonidia
Clearing LLC; Iolaire Investors LLP;
Gonsalves; Mark Allen Itkin; Mary E.
Jefferies Bache Securities, LLC
Day; Miles Adrian Collet Murray;
(formerly Prudential Bache Securities,
LLC); Jefferies LLC (formerly Jefferies Monserrate Ramirez JTWROS; Muriel
S. Harris; Myrna Ramirez; Nancy
& Company, Inc.); Mellon Bank N.A.
Lobdell; OMA OPA LLC; The Peter J.
Employees Benefit Collective
Fernald Trust U/A 1/13/92; Peter J.
Investment Plan; Mellon Bank, N.A.
Employee Benefit Plan; Mellon Capital Fernald, Trustee of The Peter J. Fernald
Trust U/A 1/13/92; Posen Family
Management Corporation; New Eagle
Limited Partnership; Raymond M. Luthy
Holdings LLC; Newedge USA, LLC;
Trust; Renee H. Miller; Reichhold, Inc.;
Oppenheimer & Co., Inc.; Paper
Richard L. Goldstein; Robbie E.
Products, Miscellaneous Chauffeurs,
Monsma; Robert N. Mohr, Successor
Warehousemen, Helpers, Messengers,
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Production and Office Workers Local
27 Pension Fund; Pershing LLC;
Producer-Writers Guild of America
Pension Plan; Reed Elsevier Inc.; Reed
Elsevier U.S. Retirement Plan; Reliance
Trust Company; Strategic Funds, Inc.;
The Bank of New York Mellon; The
Bank of New York Mellon as trustee of
The Bank of New York Mellon
Employee Benefit Collective Investment
Fund Plan f/k/a Mellon Bank, N.A.
Employee Benefit Collective Investment
Fund Plan; The Bank of New York
Mellon as trustee of The Collective
Trust Of The Bank of New York; The
Bank of New York Mellon as trustee of
the PG&E Nuclear Facilities Qualified
CPUC Decommissioning Master Trust;
The Bank of New York Mellon as trustee
of the PG&E Postretirment Medical
Plan Trust; The Bank of New York
Mellon as trustee of the R.E. Ginna
Nuclear Power Plant LLC Master
Decommissioning Trust; The Bank of
New York Mellon Corporation; The
Depository Trust & Clearing
Corporation; The Depository Trust
Company; The Dreyfus Corporation;
The Dreyfus/Laurel Funds, Inc.;
Wachovia Bank, N.A.; Wells Fargo
Bank, N.A.; and Wells Fargo
Investments, LLC
02/28/2014
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Trustee to Joseph B. Mohr, as Trustee of
the J&M Trust UA Dated 07/23/1992;
Terrill F Cox & Lorraine M Cox Trust
U/A DTD 3/31/98; and William F.
Thomas
GARY STEIN
DAVID K. MOMBORQUETTE
WILLIAM H. GUSSMAN, JR.
SCHULTE ROTH & ZABEL LLP
919 Third Avenue
New York, NY 10022
(212) 756-2000
80
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Counsel for Adage Capital Advisors
Long, Adage Capital Partners LP,
Cougar Trading, LLC, Del Mar Master
Fund, Ltd., DiMaio Ahmad Capital
LLC, Emanuel E. Geduld 2005 Family
Trust, GPC LX LLC, Gryphon Hidden
Values VIII Ltd., Guggenheim Advisors,
LLC, Guggenheim Portfolio Company
XXXI, LLC, Guggenheim Portfolio LIX,
LLC, Halcyon Asset Management LLC,
Halcyon Diversified Fund LP, Halcyon
Fund, LP, Halcyon Master Fund LP,
Harvest AA Capital LP, Harvest Capital
LP, Howard Berkowitz, Hudson Bay
Fund LP, Hudson Bay Master Fund
Ltd., Hussman Econometrics Advisors,
Inc., Hussman Investment Trust,
Hussman Strategic Growth Fund, John
Splain, as Trustee of the Hussman
Investment Trust, Lispenard Street
Credit Fund LLP, Lispenard Street
Credit Master Fund, Lispenard Street
Credit Master Fund Ltd., Lockheed
Martin Corporation, Lockheed Martin
Corporation Master Retirement Trust,
New Americans LLC, Pond View Credit
(Master) LP, QVT Fund LP, Sowood
Alpha Fund LP, Stark Global
Opportunities Master Fund Ltd., Stark
Investments, Stark Master Fund Ltd.,
Swiss Re Financial Products Corp.,
TOA Reinsurance Company of
America., Towerview LLC, Twin
Securities, Inc., and Wabash/Harvest
Partners LP
81
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CERTIFICATE OF COMPLIANCE
Pursuant to Federal Rule of Appellate Procedure 32, the undersigned hereby
certifies that this brief complies with the type-volume limitation of Federal Rule of
Appellate Procedure 32(a)(7)(B)(i) and the Court’s order of November 21, 2013:
1.
Exclusive of the exempted portions of the brief, as provided in Federal
Rule of Appellate Procedure 32(a)(7)(B), the brief contains 16,443 words.
2.
The brief has been prepared in proportionally spaced typeface using
Microsoft Word 2010 in 14 point Times New Roman font. As permitted by
Federal Rule of Appellate Procedure 32(a)(7)(C), the undersigned has relied upon
the word count feature of this word processing system in preparing this certificate.
/s/ Philip D. Anker
PHILIP D. ANKER
Case: 13-3992
Document: 145
Page: 94
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CERTIFICATE OF SERVICE
The undersigned hereby certifies that on February 28, 2014, the foregoing
document was served in compliance with the requirements set forth in this Court’s
case management order dated November 21, 2013. See Doc. No. 63. Specifically,
the undersigned hereby certifies that the foregoing document was:
(1)
served via e-mail to all members of the Appellate Liaison Committee;
(2)
served via the District Court’s CM/ECF System on the defendants
listed in Exhibit D to the case management order by filing the same with the
District Court;
(3)
served via e-mail to all other defendants who did not appear in the
District Court proceedings but have provided their e-mail addresses to members of
the Appellate Liaison Committee; and
(4)
posted on the Tribune Defendants’ website, http://www.tribune-
defendants.com.
The foregoing was filed by electronic means, via the Court’s CM/ECF
System, and parties may also access this filing through that system.
.
/s/ Philip D. Anker
PHILIP D. ANKER