In re: Tribune Co. Fraudulent Conveyance Litig., No. 13-3992 (2d Cir. 2016)
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Appellants, representatives of certain unsecured creditors of the Chapter 11 debtor Tribune Company, appealed the grant of a motion to dismiss their state law, constructive fraudulent conveyance claims brought against Tribune’s former shareholders. The court held that appellants are not barred by the Bankruptcy Code’s automatic stay because they have been freed from its restrictions by orders of the bankruptcy court and by the debtors’ confirmed reorganization plan. The court also held that appellants’ claims are preempted by Bankruptcy Code Section 546(e), where that section shields from avoidance proceedings brought by a bankruptcy trustee transfers by or to financial intermediaries effectuating settlement payments in securities transactions or made in connection with a securities contract, except through an intentional fraudulent conveyance claim. Accordingly, the court affirmed the judgment.
The court issued a subsequent related opinion or order on March 29, 2016.
The court issued a subsequent related opinion or order on December 19, 2019.
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13-3992-cv (L) In re: Tribune Company Fraudulent Conveyance Litigation 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2014 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 (Argued: November 5, 2014 Decided: March 24, 2016) Docket Nos. 13-3992-cv; 13-3875-cv; 13-4178-cv; 13-4196-cv - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - IN RE: TRIBUNE COMPANY FRAUDULENT CONVEYANCE LITIGATION NOTE HOLDERS, Deutsche Bank Trust Company Americas, Law Debenture Trust Company of New York, Wilmington Trust Company, INDIVIDUAL RETIREES, William A. Niese, on behalf of a putative class of Tribune Company retirees, Plaintiffs-Appellants-Cross-Appellees, MARK S. KIRSCHNER, as Litigation Trustee for the Tribune Litigation Trust, Plaintiff, TENDERING PHONES HOLDERS, Citadel Equity Fund Ltd., Camden Asset Management LLP and certain of their affiliates, Plaintiffs-Intervenors, v. LARGE PRIVATE BENEFICIAL OWNERS, FINANCIAL INSTITUTION HOLDERS, FINANCIAL INSTITUTION CONDUITS, Merrill Lynch, Pierce, Fenner & Smith, Inc., on behalf of a putative class of former Tribune Company shareholders, PENSION FUNDS, including public, private, and Taft Hartley Funds, INDIVIDUAL BENEFICIAL OWNERS, Mario J. Gabelli, on behalf of a putative class of former Tribune Company shareholders, MUTUAL FUNDS, AT-LARGE, ESTATE OF KAREN BABCOCK, PHILLIP S. BABCOCK, DOUGLAS BABCOCK, DEFENDANTS LISTED ON EXHIBIT B, Defendants-Appellees-Cross-Appellants, 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 CURRENT AND FORMER DIRECTORS AND OFFICERS, Betsy D. Holden, Christopher Reyes, Dudley S. Taft, Enrique Hernandez, Jr., Miles D. White, Robert S. Morrison, William A. Osborn, Harry Amsden, Stephen D. Carver, Dennis J. FitzSimons, Robert Gremillion, Donald C. Grenesko, David Dean Hiller, Timothy J. Landon, Thomas D. Leach, Luis E. Le, Mark Hianik, Irving Quimby, Crane Kenney, Chandler Bigelow, Daniel Kazan, Timothy Knight, Thomas Finke, SAM ZELL AND AFFILIATED ENTITIES, EGI-TRB, LLC, Equity Group Investments, LLC, Sam Investment Trust, Samuel Zell, Tower CH, LLC, Tower DC, LLC, Tower DL, LLC, Tower EH, LLC, Tower Gr, LARGE SHAREHOLDERS, Chandler Trusts and their representatives, FINANCIAL ADVISORS, Valuation Research Corporation, Duff & Phelps, LLC, Morgan Stanley & Co. Inc. and Morgan Stanley Capital Services, Inc., GreatBanc Trust Company, Citigroup Global Markets, Inc., CA PUBLIC EMPLOYEE RETIREMENT SYSTEM, CALPERS, UNIVERSITY OF CA REGENTS, T. ROWE PRICE ASSOCIATES, INC., MORGAN KEEGAN & COMPANY, INC., NTCA, DIOCESE OF TRENTON-PENSION FUND, FIRST ENERGY SERVICE COMPANY, MARYLAND STATE RETIREMENT AND PENSION SYSTEM, T BANK LCV QP, T BANK-LCV-PT, JAPAN POST INSURANCE, CO., LTD., SERVANTS OF RELIEF FOR INCURABLE CANCER (AKA DOMINICAN SISTERS OF HAWTHORNE), NEW LIFE INTERNATIONAL, NEW LIFE INTERNATIONAL TRUST, SALVATION ARMY, SOUTHERN TERRITORIAL HEADQUARTERS, CITY OF PHILADELPHIA EMPLOYEES, OHIO CARPENTERS’ MIDCAP (AKA OHIO CARPENTERS’ PENSION FUND), TILDEN H. EDWARDS, JR., MALLOY AND EVANS, INC., BEDFORD OAK PARTNERS, LP, DUFF AND PHELPS LLC, DURHAM J. MONSMA, CERTAIN TAG-ALONG DEFENDANTS, MICHAEL S. MEADOWS, WIRTZ CORPORATION, 36 for the Southern District of New York (Richard J. Sullivan, 37 Judge), of state law, constructive fraudulent conveyance claims 38 brought by creditors’ representatives against the Chapter 11 Defendants.* - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - B e f o r e: WINTER, DRONEY, Circuit Judges, and HELLERSTEIN, District Judge.** Appeal from a dismissal by the United States District Court * The Clerk of the Court is instructed to conform the caption in accordance with this opinion. ** The Honorable Alvin K. Hellerstein, of the Southern District of New York, sitting by designation. 2 1 debtor’s former shareholders, who were cashed out in an LBO. 2 district court held that plaintiffs lacked statutory standing 3 under the Bankruptcy Code. 4 statutory standing but affirm on the ground that appellants’ 5 claims are preempted by Section 546(e) of that Code. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 The We hold that appellants have ROY T. ENGLERT, JR. (Lawrence S. Robbins, Ariel N. Lavinbuk, Daniel N. Lerman, Shai D. Bronshtein, Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP, Washington, DC, Pratik A. Shah, James E. Tysse, Z.W. Julius Chen, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, David M. Zensky, Mitchell Hurley, Deborah J. Newman, Akin Gump Strauss Hauer & Feld LLP, New York, NY, Robert J. Lack & Hal Neier, Friedman Kaplan Seiler & Adelman LLP, New York, NY, Daniel M. Scott & Kevin M. Magnuson, Kelley, Wolter & Scott, P.A., Minneapolis, MN, David S. Rosner & Sheron Korpus, Kasowitz Benson Torres & Friedman LLP, New York, NY, Joseph Aronauer, Aronauer Re & Yudell, LLP, New York, NY, on the brief), Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP, Washington, DC, for PlaintiffsAppellants-Cross-Appellees Note Holders. Jay Teitelbaum, Teitelbaum & Baskin LLP, White Plains, NY, for Plaintiffs-Appellants-CrossAppellees Individual Retirees. Joel A. Feuer & Oscar Garza, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, David C. Bohan & John P. Sieger, Katten Muchin Rosenman 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 LLP, Chicago, IL, for DefendantsAppellees-Cross-Appellants Large Private Beneficial Owners. PHILIP D. ANKER (Alan E. Schoenfeld, Adriel I. Cepeda Derieux, Pablo G. Kapusta, Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, Sabin Willett & Michael C. D’Agnostino, Bingham McCutchen LLP, Boston, MA, Joel W. Millar, Washington, DC, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, for Defendants-Appellees-CrossAppellants Financial Institution Holders. Elliot Moskowitz, Davis Polk & Wardwell LLP, New York, NY, Daniel L. Cantor, O'Melveny & Myers LLP, New York, NY, Gregg M. Mashberg & Stephen L. Ratner, Proskauer Rose LLP, New York, NY, for DefendantsAppellees-Cross-Appellants Financial Institution Conduits. DOUGLAS HALLWARD-DRIEMEIER, Ropes & Gray LLP, Washington, DC, D. Ross Martin, Ropes & Gray LLP, New York, NY, Matthew L. Fornshell, Ice Miller LLP, Columbus, OH, for Defendants-Appellees-CrossAppellants Pension Funds. Andrew J. Entwistle, Entwistle & Cappucci, LLP, New York, NY, David N. Dunn, Potter Stewart, Jr. Law Offices, Brattleboro, VT, Mark A. Neubauer, Steptoe & Johnson LLP, Los Angeles, CA, for DefendantsAppellees-Cross-Appellants Individual Beneficial Owners. Michael S. Doluisio & Alexander Bilus, Dechert LLP, Philadelphia, PA, Steven R. Schoenfeld, Robinson 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 & Cole LLP, New York, NY, for Defendants-Appellees-CrossAppellants Mutual Funds. Alan J. Stone & Andrew M. LeBlanc, Milbank, Tweed, Hadley & McCloy LLP, New York, NY, for DefendantAppellee-Cross-Appellant At-Large. Gary Stein, David K. Momborquette, William H. Gussman, Jr., Schulte Roth & Zabel LLP, New York, NY, for Defendants-Appellees-CrossAppellants Defendants Listed on Exhibit B. Kevin Carroll, Securities Industry and Financial Markets Association, Washington, DC, Holly K. Kulka, NYSE Euronext, New York, NY, Marshall H. Fishman, Timothy P. Harkness, David Y. Livshiz, Freshfields Bruckhaus Deringer US LLP, New York, NY, for Amici Curiae Securities Industry and Financial Markets Association, International Swaps and Derivatives Association, Inc., and the NYSE Euronext. Michael A. Conley, John W. Avery, Tracey A. Hardin, Benjamin M. Vetter, Securities and Exchange Commission, Washington, DC, for Amicus Curiae Securities and Exchange Commission. WINTER, Circuit Judge: Representatives of certain unsecured creditors of the 41 Chapter 11 debtor Tribune Company appeal from Judge Sullivan’s 42 grant of a motion to dismiss their state law, constructive 43 fraudulent conveyance claims brought against Tribune’s former 44 shareholders. Appellants seek to recover an amount sufficient to 5 1 satisfy Tribune’s debts to them by avoiding (recovering) payments 2 by Tribune to shareholders that purchased all of its stock. 3 payments occurred in a transaction commonly called a leveraged 4 buyout (“LBO”),1 soon after which Tribune went into Chapter 11 5 bankruptcy. 6 lack of statutory standing, and appellees cross-appeal from the 7 district court’s rejection of their argument that appellants’ 8 claims are preempted.2 9 The Appellants appeal the district court’s dismissal for We address two issues: (i) whether appellants are barred by 10 the Bankruptcy Code’s automatic stay provision from bringing 11 state law, constructive fraudulent conveyance claims while 12 avoidance proceedings against the same transfers brought by a 13 party exercising the powers of a bankruptcy trustee on an 14 intentional fraud theory are ongoing; and (ii) if not, whether 15 the creditors’ state law, constructive fraudulent conveyance 16 claims are preempted by Bankruptcy Code Section 546(e). 17 On issue (i), we hold that appellants are not barred by the 18 Code’s automatic stay because they have been freed from its 19 restrictions by orders of the bankruptcy court and by the 20 debtors’ confirmed reorganization plan. On issue (ii), the 1 In a typical LBO, a target company is acquired with a significant portion of the purchase price being paid through a loan secured by the target company’s assets. 2 Because the issue has no effect on our disposition of this matter, we do not pause to consider whether a cross-appeal was necessary for appellees to raise the preemption issues in this court, but, for convenience purposes, we sometimes refer to those issues by the term cross-appeal. 6 1 subject of appellees’ cross-appeal, we hold that appellants’ 2 claims are preempted by Section 546(e). 3 from avoidance proceedings brought by a bankruptcy trustee 4 transfers by or to financial intermediaries effectuating 5 settlement payments in securities transactions or made in 6 connection with a securities contract, except through an 7 intentional fraudulent conveyance claim. 8 We therefore affirm. 9 10 11 That Section shields BACKGROUND a) The LBO Tribune Media Company (formerly known as “Tribune Company”) 12 is a multimedia corporation that, in 2007, faced deteriorating 13 financial prospects. 14 investor, proposed to acquire Tribune through an LBO. 15 consummating the LBO, Tribune borrowed over $11 billion secured 16 by its assets. 17 million equity contribution, was used to refinance some of 18 Tribune’s pre-existing bank debt and to cash out Tribune’s 19 shareholders for over $8 billion at a premium price –- above its 20 trading range –- per share. 21 transferred the over $8 billion to a “securities clearing agency” 22 or other “financial institution,” as those terms are used in 23 Section 546(e), acting as intermediaries in the LBO transaction. 24 Those intermediaries in turn paid the funds to the shareholders Appellee Samuel Zell, a billionaire In The $11 billion plus, combined with Zell’s $315 It is undisputed that Tribune 7 1 in exchange for their shares that were then returned to Tribune. 2 Appellants seek to satisfy Tribune’s debts to them by avoiding 3 Tribune’s payments to the shareholders. 4 money from the intermediaries. 5 b) 6 Appellants do not seek See Note 8, infra. Bankruptcy Proceedings On December 8, 2008, with debt and contingent liabilities 7 exceeding its assets by more than $3 billion, Tribune and nearly 8 all of its subsidiaries filed for bankruptcy under Chapter 11 in 9 the District of Delaware. A trustee was not appointed, and 10 Tribune and its affiliates continued to operate the businesses as 11 debtors in possession. 12 limitations on a trustee . . . a debtor in possession shall have 13 all the rights . . . , and powers, and shall perform all the 14 functions and duties . . . of a trustee . . . .”). 15 the powers of a bankruptcy trustee that can be exercised by a 16 trustee or parties designated by a bankruptcy court, we shall 17 refer to the trustee or such parties as the “trustee et al.” 18 The bankruptcy court appointed an Official Committee of 19 Unsecured Creditors (the “Committee”) to exercise the powers of a 20 trustee in representing the interests of unsecured creditors. 21 November 2010, alleging that the LBO-related payments constituted 22 intentional fraudulent conveyances, the Committee commenced an 23 action under Code Section 548(a)(1)(A) against the cashed out 24 Tribune shareholders, various officers, directors, financial See 11 U.S.C. § 1107(a) (“Subject to any 8 In discussing In 1 advisors, Zell, and others alleged to have benefitted from the 2 LBO. 3 which there was “actual intent to hinder, delay, or defraud” a 4 creditor. An intentional fraudulent conveyance is defined as one in 11 U.S.C. § 548(a)(1)(A). 5 In June 2011, two subsets of unsecured creditors filed state 6 law, constructive fraudulent conveyance claims in various federal 7 and state courts. 8 were: 9 hold claims for unpaid retirement benefits and (ii) the The plaintiffs, the appellants before us, (i) the Retiree Appellants, former Tribune employees who 10 Noteholder Appellants, the successor indenture trustees for 11 Tribune’s pre-LBO senior notes and subordinated debentures. 12 constructive fraudulent conveyance is, generally speaking, a 13 transfer for less than reasonably equivalent value made when the 14 debtor was insolvent or was rendered so by the transfer. 15 Picard v. Fairfield Greenwich Ltd., 762 F.3d 199, 208-09 (2d Cir. 16 2014). 17 A See Before bringing these actions, appellants moved the 18 bankruptcy court for an order stating that: 19 expiration of the two-year statute of limitations period during 20 which the Committee was authorized to bring avoidance actions 21 under 11 U.S.C. § 546(a), eligible creditors had regained the 22 right to prosecute their creditor state law claims; and (ii) the 23 automatic stay imposed by Code Section 362(a) was lifted solely 24 to permit the immediate filing of their complaint. 9 (i) after the In support of 1 that motion, the Committee argued that, under Section 546(a), the 2 “state law constructive fraudulent conveyance transfer claims 3 ha[d] reverted to individual creditors” and that the “creditors 4 should consider taking appropriate actions to preserve those 5 claims.” 6 Creditors in Supp. of Mot. 3, In re Tribune Co., No 08-13141 7 (KJC) (Bankr. D. Del. Mar. 17, 2011). 8 9 Statement of the Official Committee of Unsecured In April 2011, the bankruptcy court lifted the Code’s automatic stay with regard to appellants’ actions. The court 10 reasoned that because the Committee had elected not to bring the 11 constructive fraudulent conveyance actions within the two-year 12 limitations period following the bankruptcy petition imposed by 13 Section 544, fully discussed infra, the unsecured creditors 14 “regained the right, if any, to prosecute [such claims].” 15 App’x at 373. 16 automatic stay “to permit the filing of any complaint by or on 17 behalf of creditors on account of such Creditor [state law 18 fraudulent conveyance] Claims.” 19 however, that it was not resolving the issues of whether the 20 individual creditors had statutory standing to bring such claims 21 or whether such claims were preempted by Section 546(e). 22 J. Therefore, the court lifted the Section 362(a) Id. The court clarified, On March 15, 2012, the bankruptcy court set an expiration 23 date of June 1, 2012 for the remaining limited stay on the state 24 law, fraudulent conveyance claims. 10 In July 2012, the bankruptcy 1 court ordered confirmation of the proposed Tribune reorganization 2 plan. 3 responsibility for prosecuting the intentional fraudulent 4 conveyance action to an entity called the Litigation Trust. 5 confirmed plan also provided that the Retiree and Noteholder 6 Appellants could pursue “any and all LBO-Related Causes of Action 7 arising under state fraudulent conveyance law,” except for the 8 federal intentional fraudulent conveyance and other LBO-related 9 claims pursued by the Litigation Trust. The plan terminated the Committee and transferred J. App’x at 643. The Under 10 the plan, the Retiree and Noteholder Appellants recovered 11 approximately 33 cents on each dollar of debt. 12 scheduled to take effect on December 31, 2012, the date on which 13 Tribune emerged from bankruptcy. 14 c) 15 The plan was District Court Proceedings Appellants’ various state law, fraudulent conveyance 16 complaints alleged that the LBO payments, made through financial 17 intermediaries as noted above, were for more than the reasonable 18 value of the shares and made when Tribune was in distressed 19 financial condition. 20 payments were avoidable by creditors under the laws of various 21 states. 22 Litigation Trust’s ongoing federal intentional fraud claims in a 23 multi-district litigation proceeding that was transferred to the Therefore, the complaints concluded, the These actions were later consolidated with the 11 1 Southern District of New York. 2 Conveyance Litig., 831 F. Supp. 2d 1371 (J.P.M.L. 2011). 3 In re: Tribune Co. Fraudulent After consolidation, the Tribune shareholders moved to 4 dismiss appellants’ claims. The district court granted the 5 motion on the ground that the Bankruptcy Code’s automatic stay 6 provision deprived appellants of statutory standing to pursue 7 their claims so long as the Litigation Trustee was pursuing the 8 avoidance of the same transfers, albeit under a different legal 9 theory. In re Tribune Co. Fraudulent Conveyance Litig., 499 B.R. 10 310, 325 (S.D.N.Y. 2013). 11 court had only “conditionally lifted the stay.” 12 The court held that the bankruptcy Id. at 314. The district court rejected appellees’ preemption argument 13 based on Section 546(e). That Section bars a trustee et al. from 14 exercising its avoidance powers under Section 544 to avoid 15 transfers by the debtor to specified financial intermediaries, 16 e.g. a “securities clearing agency” or “financial institution,” 17 that is a “settlement payment” in a securities transaction or is 18 a transfer “in connection with a securities contract.” 19 district court held that Section 546(e) did not bar appellants’ 20 actions because: 21 the designated transfers applied only to a bankruptcy trustee et 22 al., id. at 315-16; and (ii) Congress had declined to extend 23 Section 546(e) to state law, fraudulent conveyance claims brought 24 by creditors, id. at 318. The (i) Section 546(e)’s prohibition on avoiding 12 1 DISCUSSION 2 We review de novo the district court’s grant of appellees’ 3 motion to dismiss. See Mary Jo C. v. N.Y. State & Local Ret. 4 Sys., 707 F.3d 144, 151 (2d Cir. 2013). 5 undisputed for purposes of this proceeding, only issues of law 6 are before us. 7 a) The relevant facts being Statutory Standing to Bring the Claims 8 We first address the district court’s dismissal of 9 appellants’ claims on the ground that they lacked standing to 10 bring them because of Section 362(a)(1).3 11 B.R. at 325. 12 proceeding against the debtor” is automatically stayed by Section 13 362(a). 14 as the debtor,” 15 790 F.2d 206, 207 (2d Cir. 1986) (per curiam), by avoiding 16 wasteful, duplicative, individual actions by creditors seeking 17 individual recoveries from the debtor’s estate, and by ensuring 18 an equitable distribution of the debtor’s estate. 19 McMullen, 386 F.3d 320, 324 (1st Cir. 2004) (noting that Section 20 362(a)(1), among other things, “safeguard[s] the debtor estate In re Tribune, 499 When a bankruptcy action is filed, any “action or The purpose of the stay is “to protect creditors as well Ostano Commerzanstalt v. Telewide Sys., Inc., 3 See In re The term “standing” has been used to describe issues arising in bankruptcy proceedings when individual creditors sue to recover funds from third parties to satisfy amounts owed to them by the debtor, and that action is defended on the ground that the recovery seeks funds that are recoverable under the Code only by a representative of all creditors. St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 696-97 (2d Cir. 1989), disapproved of on other grounds by In re Miller, 197 B.R. 810 (W.D.N.C. 1996). The use of the term “standing” is based on the suing creditors’ need to demonstrate an injury other than one redressable under the Code only by the trustee et al. Id. at 704. 13 1 from piecemeal dissipation . . . ensur[ing] that the assets 2 remain within the exclusive jurisdiction of the bankruptcy court 3 pending their orderly and equitable distribution among the 4 creditors”). 5 third parties rather than a debtor, there is caselaw, discussed 6 infra, stating that the automatic stay applies to such actions.4 7 See In re Colonial Realty Co., 980 F.2d 125, 131 (2d Cir. 1992). 8 9 Although fraudulent conveyance actions are against The district court ruled that Section 362’s automatic stay provision deprived appellants of statutory standing to bring 10 their claims because the Litigation Trustee was still pursuing an 11 intentional fraudulent conveyance action challenging the same 12 transfers under Section 548(a)(1)(A). 13 322-23. 14 court to release parties from the automatic stay “for cause” 15 shown. 16 (quoting 11 U.S.C. § 362(d)(1)). 17 grant of relief from the automatic stay” under Section 362(d), it 18 may “press its claims outside of the bankruptcy proceeding.” 19 Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 702 20 (2d Cir. 1989), disapproved of on other grounds by In re Miller, 21 197 B.R. 810 (W.D.N.C. 1996). We disagree. In re Tribune, 499 B.R. at The Bankruptcy Code empowers a bankruptcy In re Bogdanovich, 292 F.3d 104, 110 (2d Cir. 2002) 4 Once a creditor obtains “a The implications of applying the automatic stay to fraudulent conveyance actions are discussed infra. 14 St. 1 In the present matter, the bankruptcy court granted 2 appellants relief from the automatic stay on three occasions. 3 April 25, 2011, the bankruptcy court granted appellants relief 4 “to permit the filing of any complaint by or on behalf of 5 creditors on account of such Creditor [state law fraudulent 6 conveyance] Claims.” 7 on June 28, 2011, clarified that “neither the automatic stay of 8 [Section 362] nor the provisions of the [original lift-stay 9 order]” barred the parties in the state law actions from J. App’x at 373. On A second order, entered 10 consolidating and coordinating these actions. 11 And the bankruptcy court’s third order, entered on March 15, 12 2012, set an expiration date of June 1, 2012, for the “stay 13 imposed on the state law constructive fraudulent conveyance 14 actions.” 15 filed objections to these orders. 16 J. App’x at 521. J. App’x at 376. None of the Tribune shareholders Finally, the reorganization plan, confirmed by the 17 bankruptcy court and in all pertinent respects an order of that 18 court, expressly allowed appellants to pursue “any and all 19 LBO-Related Causes of Action arising under state fraudulent 20 conveyance law.” 21 provided that “nothing in this Plan shall or is intended to 22 impair” the rights of creditors to attempt to pursue disclaimed 23 state law avoidance claims. J. App’x at 643. Section 5.8.2 of the plan J. App’x at 695. 15 1 Thus, under both the bankruptcy court’s orders and the 2 confirmed reorganization plan, if appellants had actionable state 3 law, constructive fraudulent conveyance claims, assertion of 4 those claims was no longer subject to Section 362’s automatic 5 stay. 6 15, 18 (2d Cir. 2011) (holding that the automatic stay terminates 7 at discharge); United States v. White, 466 F.3d 1241, 1244 (11th 8 Cir. 2006) (similarly recognizing that the automatic stay 9 terminates when “a discharge is granted”). 10 See, e.g., In re Heating Oil Partners, LP, 422 F. App’x For the foregoing reasons, we hold that appellants’ claims 11 are not barred by Section 362. 12 b) Section 546(e) and Preemption 13 We turn now to the issue raised by the cross-appeal: 14 whether appellants’ claims are preempted because they conflict 15 with Code Section 546(e). 16 1. Conflict-Preemption Law 17 Under the Supremacy Clause, Article VI, Clause 2 of the 18 Constitution, federal law prevails when it conflicts with state 19 law. Arizona v. United States, 132 S. Ct. 2492, 2500 (2012). 20 As discussed throughout this opinion, Section 546(e)’s 21 reference to limiting avoidance by a trustee provides appellants 22 with a plain language argument that only a trustee et al., and 23 not creditors acting on their own behalf, are barred from 24 bringing state law, constructive fraudulent avoidance claims. 16 1 However, as discussed infra, we believe that the language of 2 Section 546(e) does not necessarily have the meaning appellants 3 ascribe to it. 4 reasonable constructions of the statutory scheme, it would not 5 necessarily preclude preemption because a preemptive effect may 6 be inferred where it is not expressly provided. 7 Even if that meaning is one of multiple Under the implied preemption doctrine,5 state laws are “pre- 8 empted to the extent of any conflict with a federal statute. 9 Such a conflict occurs . . . when [] state law stands as an 10 obstacle to the accomplishment and execution of the full purposes 11 and objectives of Congress.” 12 1943, 1949-50 (2013) (citations and internal quotation marks 13 omitted); accord In re Methyl Tertiary Butyl Ether (MTBE) Prods. 14 Liab. Litig., 725 F.3d 65, 97 (2d Cir. 2013) cert. denied sub 15 nom. Exxon Mobil Corp. v. City of New York, 134 S. Ct. 1877 16 (2014) (courts will find implied preemption when “state law 17 directly conflicts with the structure and purpose of a federal 18 statute”) (citation and internal quotation marks omitted). 19 Hillman v. Maretta, 133 S. Ct. Appellants argue that a recognized presumption against 5 We see no need for a full discussion of various modes of analysis used to determine federal preemption, i.e., “express” preemption, Chamber of Commerce v. Whiting, 131 S. Ct. 1968, 1977 (2011), “field” preemption, Arizona v. United States, 132 S. Ct. 2492, 2502 (2012), or even that branch of “implied” preemption that requires a showing of “impossibility” of complying with both state and federal law, id. at 2501. The only relevant analysis in the present matter is preemption inferred from a conflict between state law and the purposes of federal law, as discussed in the text. 17 1 preemption limits the implied preemption doctrine. They argue 2 that Section 546(e) preempts creditors’ state law, fraudulent 3 conveyance claims only if the claims would do “‘major damage’ to 4 ‘clear and substantial’ federal interests.” 5 Pls.-Appellants-Cross-Appellees 45 (quoting Hillman, 133 S. Ct. 6 1943, 1950 (2013) (citation omitted)). 7 inferring preemption is premised on federalism grounds and, 8 therefore, weighs most heavily where the particular regulatory 9 area is “traditionally the domain of state law.” Resp. & Reply Br. of The presumption against Hillman, 133 S. 10 Ct. at 1950; see also Madeira v. Affordable Hous. Found., Inc., 11 469 F.3d 219, 241 (2d Cir. 2006) (“The mere fact of ‘tension’ 12 between federal and state law is generally not enough to 13 establish an obstacle supporting preemption, particularly when 14 the state law involves the exercise of traditional police 15 power.”). 16 preemption fully applies in the present context because 17 fraudulent conveyance claims are “among ‘the oldest [purposes] 18 within the ambit of the police power.’” 19 Pls.-Appellants-Cross-Appellees 36 (quoting California v. Zook, 20 336 U.S. 725, 734 (1949)). 21 According to appellants, the presumption against Resp. & Reply Br. of Preemption is always a matter of congressional intent, even 22 where that intent must be inferred. 23 Grp., Inc., 505 U.S. 504, 516 (1992) (congressional intent is the 24 “ultimate touchstone of pre-emption analysis”) (quoting Malone v. 18 See Cipollone v. Liggett 1 White Motor Corp., 435 U.S. 497, 504 (1978)) (internal quotation 2 marks omitted); N.Y. SMSA Ltd. P’ship v. Town of Clarkstown, 612 3 F.3d 97, 104 (2d Cir. 2010) (“The key to the preemption inquiry 4 is the intent of Congress.”). 5 presumption against preemption usually goes to the weight to be 6 given to the lack of an express statement overriding state law. 7 As in the present matter, the The presumption is strongest when Congress is legislating in 8 an area recognized as traditionally one of state law alone. 9 See Hillman, 133 S. Ct. at 1950 (stating that because “[t]he 10 regulation of domestic relations is traditionally the domain of 11 state law . . . [t]here is [] a presumption against pre-emption”) 12 (internal quotation marks and citation omitted). 13 present context is not such an area. 14 proposition, the regulation of creditors’ rights has “a history 15 of significant federal presence.” 16 U.S. 89, 90 (2000). 17 However, the To understate the United States v. Locke, 529 Congress’s power to enact bankruptcy laws was made explicit 18 in the Constitution as originally enacted, Art. 1, § 8, cl. 4, 19 and detailed, preemptive federal regulation of creditors’ rights 20 has, therefore, existed for over two centuries. 21 Tabb, The History of the Bankruptcy Laws in the United States, 3 22 Am. Bankr. Inst. L. Rev. 5, 7 (1995). 23 bankruptcy, the Bankruptcy Code constitutes a wholesale 24 preemption of state laws regarding creditors’ rights. 19 Charles Jordan Once a party enters See 1 Eastern Equip. and Servs. Corp. v. Factory Point Nat. Bank, 2 Bennington, 236 F.3d 117, 120 (2d Cir. 2001) (“The United States 3 Bankruptcy Code provides a comprehensive federal system of 4 penalties and protections to govern the orderly conduct of 5 debtors’ affairs and creditors’ rights.”); In re Miles, 430 F.3d 6 1083, 1091 (9th Cir. 2005) (“Congress intended the Bankruptcy 7 Code to create a whole scheme under federal control that would 8 adjust all of the rights and duties of creditors and debtors 9 alike . . . .”). 10 Consider, for example, the present proceeding. While the 11 issue before us is often described as whether Section 546(e) 12 preempts state fraudulent conveyance laws, Resp. & Reply Br. of 13 Pls.-Appellants-Cross-Appellees 33, that is a 14 mischaracterization. 15 when the Chapter 11 proceedings commenced and were not dismissed. 16 Appellants’ own arguments posit that those claims were, at the 17 very least, stayed by Code Section 362. 18 argue, they were restored in full after two years, see 11 U.S.C. 19 § 546(a)(1)(A), or by order of the bankruptcy court, see 11 20 U.S.C. § 349(b)(3), is hotly disputed. 21 restored, it was by force of federal law. 22 Appellants’ state law claims were preempted Whether, as appellants But if they were Once Tribune entered bankruptcy, the creditors’ avoidance 23 claims were vested in the federally appointed trustee et al. 24 U.S.C. § 544(b)(1). 11 A constructive fraudulent conveyance action 20 1 brought by a trustee et al. under Section 544 is a claim arising 2 under federal law. 3 579, 587 (E.D. Cal. 2014); In re Trinsum Grp., Inc., 460 B.R. 4 379, 387-88 (S.D.N.Y. 2011); In re Sunbridge Capital, Inc., 454 5 B.R. 166, 169 n.16 (Bankr. D. Kan. 2011); In re Charys Holding 6 Co., Inc., 443 B.R. 628, 635-36 (Bankr. D. Del. 2010). 7 such a claim borrows applicable state law standards regarding 8 avoiding the transfer in question, see Universal Church v. 9 Geltzer, 463 F.3d 218, 222 n.1 (2d Cir. 2006), the claim has its 10 own statute of limitations, 11 U.S.C. § 546(a)(1)(A), measure of 11 damages, see 11 U.S.C. § 550, and standards for distribution, 11 12 U.S.C. § 726. 13 extinguishes the right of creditors to bring state law, 14 fraudulent conveyance claims. 15 disapproved of on other grounds by In re Miller, 197 B.R. 810 16 (W.D.N.C. 1996) (noting that “creditors are bound by the outcome 17 of the trustee’s action”); see also In re PWS Holding Corp., 303 18 F.3d 308, 314-15 (3d Cir. 2002) (barring creditor’s state law, 19 fraudulent transfer claims after trustee released § 544 claims). 20 And, if creditors are allowed by a bankruptcy court, trustee, or, 21 as appellants argue, by the Bankruptcy Code, to bring state law 22 actions in their own name, that permission is a matter of grace 23 granted under federal authority. 24 permission, moreover, have everything to do with the Bankruptcy See In re Intelligent Direct Mktg., 518 B.R. Although A disposition of this federal law claim See St. Paul Fire, 884 F.2d at 701 21 The standards for granting that 1 Code’s balancing of debtors’ and creditors’ rights, In re Coltex 2 Loop Cent. Three Partners, L.P., 138 F.3d 39, 44 (2d Cir. 1998), 3 or rights among creditors, United States v. Ron Pair Enters, 4 Inc., 489 U.S. 235, 248 (1989), and nothing to do with the 5 vindication of state police powers. 6 We also note here, and discuss further infra, that the 7 policies reflected in Section 546(e) relate to securities 8 markets, which are subject to extensive federal regulation. 9 regulation of these markets has existed and grown for over eighty 10 11 The years and reflects very important federal concerns. In the present matter, therefore, there is no measurable 12 concern about federal intrusion into traditional state domains. 13 Our bottom line is that the issue before us is one of inferring 14 congressional intent from the Code, without any pressure from a 15 thumb on one scale weighing against a finding of preemptive 16 intent.6 17 2. The Language of Section 546(e) 18 Section 544(b) empowers a trustee et al. to avoid a 19 “transfer . . . [by] the debtor . . . voidable under applicable 20 law by a[n] [unsecured] creditor.” 21 the trustee et al. with independent federal intentional, 11 6 Section 548(a) also provides Therefore, we need not decide whether the application of a presumption against preemption would affect the result in this matter. 22 1 U.S.C. § 548(a)(1)(A), and constructive fraudulent conveyance 2 claims, 11 U.S.C. § 548(a)(1)(B). 3 Section 546(e) provides in pertinent part: 4 5 6 7 8 9 10 11 12 13 14 15 Id. § 546(e). 16 et al. from using their Section 544(b) avoidance powers and 17 (generally) Section 548 against the transfers specified in 18 Section 546(e). 19 that prohibition for claims brought by trustee et al. under 20 Section 548(a)(1)(A) that, as noted, establishes a federal 21 avoidance claim to be brought by a trustee et al. based on an 22 intentional fraud theory. 23 Trust has brought a Section 548(a)(1)(A) claim against the same 24 transfers challenged by appellants’ actions before us on this 25 appeal. 26 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 . . . stockbroker, financial institution, financial participant, or securities clearing agency, or that is a transfer made by or to (or for the benefit of) a . . . stockbroker, financial institution, financial participant, or securities clearing agency, in connection with a securities contract . . . except under section 548(a)(1)(A). . . . Section 546(e) thus expressly prohibits trustees However, Section 546(e) creates an exception to As discussed supra, the Litigation That claim is still pending. The language of Section 546(e) covers all transfers by or to 27 financial intermediaries that are “settlement payment[s]” or “in 28 connection with a securities contract.” 29 either the transferor or transferee is not such an intermediary 30 are clearly included in the language. 23 Transfers in which The Section does not 1 distinguish between kinds of transfers, e.g., settlements of 2 ordinary day-to-day trading, LBOs, or mergers in which 3 shareholders of one company are involuntarily cashed out. 4 long as the transfer sought to be avoided is within the language 5 quoted above, the Section includes avoidance proceedings in which 6 the intermediary would escape a damages judgment. 7 Lyondell Chem. Co., 503 B.R. 348, 372-73 (Bankr. S.D.N.Y. 2014), 8 as corrected (Jan. 16, 2014), that Section 546(e) does not 9 include “LBO payments to stockholders at the very end of the So But see In re 10 asset transfer chain, where the stockholders are the ultimate 11 beneficiaries of the constructively fraudulent transfers, and can 12 give the money back to injured creditors with no damage to anyone 13 but themselves.” 14 3. Appellants’ Legal Theory 15 Appellants’ state law, constructive fraudulent conveyance 16 claims purport to be brought under mainstream bankruptcy 17 procedures directly mandated by the Code. 18 examination of the Code as a whole, in contrast with an isolated 19 focus on the word “trustee” in Section 546(e), reveals that 20 appellants’ theory relies upon adhering to statutory language 21 only when opportune and resolving various ambiguities in a way 22 convenient to that theory. 23 in anomalies and inconsistencies with parts of the Code. 24 consequence of those ambiguities, anomalies, and conflicts is However, an Even then, their legal theory results 24 The 1 that a reader of Section 546(e), at the time of enactment, would 2 not have necessarily concluded that the reference only to a 3 trustee et al. meant that creditors may at some point bring state 4 law claims seeking the very relief barred to the trustee et al. 5 by Section 546(e). Its meaning, therefore, is not plain. 6 (i) Appellants’ Theory of Fraudulent Conveyance 7 Avoidance Proceedings 8 9 Appellants’ theory goes as follows. When a debtor enters bankruptcy, all “legal or equitable interests of the debtor in 10 property,” 11 U.S.C. § 541(a)(1), vest in the debtor’s bankruptcy 11 estate. 12 brought by the debtor. 13 F.3d 354, 361-62 (5th Cir. 2014) (“The phrase ‘all legal or 14 equitable interests’ includes legal claims–whether based on state 15 or federal law.”). 16 authority to represent all creditors and the Debtor’s estate and 17 with the sole responsibility of bringing actions on behalf of the 18 Debtor’s estate to marshal assets for the estate’s creditors.” 19 In re Stein, 314 B.R. 306, 311 (D.N.J. 2004). 20 fraudulent conveyance claims proceed on a theory that an 21 insolvent debtor may not make what are essentially gifts that 22 deprive creditors of assets available to pay debts. 23 Mexicano de Desarrollo S.A. v. Alliance Bond Fund, Inc., 527 U.S. 24 308, 322 (1999). 25 fraudulent conveyance claims belong to creditors rather than to This property includes legal claims that could have been See U.S. ex rel. Spicer v. Westbrook, 751 Therefore, “the Trustee is conferred with the However, See Grupo Therefore, before a bankruptcy takes place, 25 1 the debtor. 2 bankruptcy trustee may avoid “any transfer of an interest of the 3 debtor . . . that is voidable under applicable law by a creditor 4 holding an unsecured claim.” 5 responsibility of the trustee et al. is to “step into the shoes 6 of a creditor under state law and avoid any transfers such a 7 creditor could have avoided.” 8 218, 222 n.1 (2d Cir. 2006). 9 As a consequence, Section 544(b)(1) provides that a 11 U.S.C. § 544(b)(1). The Univ. Church v. Geltzer, 463 F.3d The trustee et al., however, is subject to a statute of 10 limitations that requires such claims to be brought within two 11 years of the commencement of the bankruptcy proceeding. 12 U.S.C. § 546(a)(1)(A). 13 limitations that if the trustee et al. fails to act to enforce 14 such claims during that two-year period, the claims revert to 15 creditors who may then pursue their own state law, fraudulent 16 conveyance actions. 17 Appellees 1. 18 bring such actions is clearly vested in the trustee et al. when 19 the bankruptcy proceeding begins, if the power is not exercised, 20 it returns in full flower to the creditors after the bankruptcy 21 ends or after two years. 22 See 11 Appellants infer from this statute of Resp. & Reply Br. of Pls.-Appellants-Cross- This position assumes that, although the power to Appellants’ theory also is that their fraudulent conveyance 23 claims were only stayed under Section 362(a), rather than 24 extinguished when transferred to the trustee et al. under Section 25 544, and could be asserted by them as creditors when the Section 26 1 362(a) stay was lifted. 2 Committee did not bring constructive fraudulent conveyance 3 actions against the LBO transfers by December 8, 2010, appellants 4 regained the right to bring their own state law actions. 5 Resp. & Reply Br. of Pls.-Appellants-Cross Appellees 6. 6 Moreover, they correctly note that Section 362’s automatic stay 7 was, as discussed supra, lifted. 8 after two years or by the bankruptcy court’s lifting of the stay 9 -- appellants assert that the right to bring state law actions 10 11 12 Accordingly, appellants argue, when the See In either case -- automatically has reverted to them. (ii) Ambiguities, Anomalies, and Conflicts When appellants’ arguments and their relation to the Code 13 are viewed, as we must view them, in their entirety, In re 14 Boodrow, 126 F.3d 43, 49 (2d Cir. 1997) (“The Supreme Court has 15 thus explained . . . ‘we must not be guided by a single sentence 16 or [part] of a sentence [of the Code], but look to the provisions 17 of the whole law, and to its object and policy.’”) (quoting Kelly 18 v. Robinson, 479 U.S. 36, 43 (1986)), they reveal material 19 ambiguities, anomalies, and outright conflicts with the purposes 20 of Code Sections 544, 362, and 548, not to mention the outright 21 conflict with Section 546(e) discussed infra. 22 A critical step in the logic of appellants’ theory finds no 23 support in the language of the Code. 24 inference that fraudulent conveyance actions revert to creditors 25 if either the two-year statute of limitations passes without an 27 In particular, the 1 exercise of the trustees’ et al. powers under Section 544 or the 2 Section 362(a) stay is lifted by the bankruptcy court has no 3 basis in the Code’s language. 4 automatic stay provision applies only to actions against “the 5 debtor.” 6 fraudulent conveyance actions brought by creditors before the 7 passing of the limitations period or lifting of the stay. 8 e.g., In re Crysen/Montenay Energy Co., 902 F.2d 1098, 1101 (2d 9 Cir. 1990). 11 U.S.C. § 362. To begin, the language of the To be sure, there are cases barring The rationales of these cases vary. See, Some rely on 10 Section 362(a) on the theory that the fraudulent conveyance 11 claims are the property of the debtors’ estate. 12 MortgageAmerica Corp., 714 F.2d 1266, 1275-76 (5th Cir. 1983); 13 Matter of Fletcher, 176 B.R. 445, 452 (Bankr. W.D. Mich. 1995), 14 rev’d and remanded on other grounds sub nom. In re Van Orden, No. 15 1:95-CV-79, 1995 WL 17903731 (W.D. Mich. Sept. 5, 1995). 16 not mention Section 362(a) and rely on the need to protect 17 trustees’ et al. powers to bring Section 544 avoidance actions. 18 See In re Van Diepen, P.A., 236 F. App’x. 498, 502-03 (11th Cir. 19 2007); In re Clark, 374 B.R. 874, 876 (Bankr. M.D. Ala. 2007); In 20 re Tessmer, 329 B.R. 776, 780 (Bankr. M.D. Ga. 2005). 21 caselaw agrees that the trustee et al.’s powers under Section 544 22 are exclusive, at least until the stay is lifted or the two-year 23 period expires. 24 25 See In re Some do All the Equally important is the fact that the inference of a reversion of fraudulent conveyance claims to creditors drawn from 28 1 Section 544's statute of limitations is not based on the language 2 of the Code, which says nothing about the reversion of claims 3 vested in the trustee et al. by Section 544. 4 limitation usually are intended to limit the assertion of stale 5 claims and to provide peace to possible defendants, Converse v. 6 Gen. Motors Corp., 893 F.2d 513, 516 (2d Cir. 1990), and not to 7 change the identity of the authorized plaintiffs without some 8 express language to that effect. 9 legal theory thus has no support in the language of the Code. 10 Statutes of A decisive part of appellants’ Even if this gap is assumed not to exist, or can be 11 otherwise traversed, appellants’ theory encounters other serious 12 problems. 13 et al., is intended to simplify proceedings, reduce the costs of 14 marshalling the debtor’s assets, and assure an equitable 15 distribution among the creditors. 16 Corp., 714 F.2d 1266, 1275-76 (5th Cir. 1983) (noting that “[t]he 17 ‘strong arm’ provision of the [Bankruptcy] Code, 11 U.S.C. § 544, 18 allows the bankruptcy trustee to step into the shoes of a 19 creditor for the purpose of asserting causes of action under 20 state fraudulent conveyance acts for the benefit of all 21 creditors, not just those who win a race to judgment” and Section 22 362 helps prevent “[a]ctions for the recovery of the debtor’s 23 property by individual creditors under state fraudulent 24 conveyance laws [that] would interfere with [the bankruptcy] 25 estate and with the equitable distribution scheme dependent upon Section 544, vesting avoidance powers in the trustee 29 See In re MortgageAmerica 1 it”). 2 process hypothesized by appellants. 3 However, these purposes are hardly consistent with the Accepting for purposes of argument appellants’ view of the 4 applicable process, Section 362, at the very least, prevented 5 appellants (for a time) from bringing their state law, fraudulent 6 conveyance claims, while Section 546(e) barred the Committee from 7 seeking to enforce or, necessarily, to settle them. 8 argument thus seems to posit that their claims are on hold until 9 the trustees et al. decide whether to bring an action they are Appellants’ 10 powerless to bring or to pass on to creditors a power they do not 11 have. 12 claims are lodged in the trustee et al. and are diminished in 13 that hand by the Code, they reemerge in undiminished form in the 14 hands of creditors after the statute of limitations governing 15 actions by the trustee et al. has run or the bankruptcy court 16 lifts the automatic stay. 17 In short, it assumes that, when creditors’ avoidance In the context of the Code, however, any such process is a 18 glaring anomaly. Section 548(a)(1)(A) vests trustees with a 19 federal claim to avoid the very transfers attacked by appellants’ 20 state law claims –- but only on an intentional fraud theory. 21 There is little apparent reason to limit trustees et al. to 22 intentional fraud claims while not extinguishing constructive 23 fraud claims but rather leaving them to be brought later by 24 individual creditors. 25 intentional fraud claim is undermined if creditors can later In particular, enforcement of the 30 1 bring state law, constructive fraudulent conveyance claims 2 involving the same transfers. 3 difficulty negotiating more than a nominal settlement in the 4 federal action if it cannot preclude state claims attacking the 5 same transfers but not requiring a showing of actual fraudulent 6 intent. 7 expend the estate’s resources on vigorously pursuing the federal 8 claim while awaiting the stayed state claims to revert and to be 9 litigated by creditors. Any trustee would have grave Unable to settle, a trustee et al. will be reluctant to As happened in the present matter, the 10 result is that the trustee et al.’s action awaits the pursuit of 11 piecemeal actions by creditors. 12 the intent of the Code’s procedures. 13 can reduce the delay by an early lifting of the automatic stay 14 with regard to constructive fraudulent conveyance actions, that 15 action would underline the anomaly of applying the stay to the 16 bringing of claims that are barred to trustees et al. 17 This is precisely opposite of While a bankruptcy court Staying ordinary state law, constructive fraudulent 18 conveyance claims by individual creditors while the trustee 19 deliberates is a rational method of avoiding piecemeal litigation 20 and ensuring an equitable distribution of assets among creditors. 21 See MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 108 (2d Cir. 2006) 22 (“The objectives of the Bankruptcy Code . . . include . . . ‘the 23 need to protect creditors and reorganiz[e] debtors from piecemeal 24 litigation . . . .’”) (quoting Ins. Co. of N. Am. v. NGC 25 Settlement Trust & Asbestos Claims Mgmt. Corp., 118 F.3d 1056, 31 1 1069 (5th Cir. 1997)). 2 appellants does not resemble this method either in simplicity or 3 in the equitable treatment of creditors. 4 However, the scheme described by To rationalize these anomalies, appellants speculate as to 5 -- more accurately, imagine -- a deliberate balancing of 6 interests by Congress. 7 balance the need for certainty and finality in securities 8 markets, recognized in Section 546(e), against the need to 9 maximize creditors’ recoveries, recognized in various other They argue that Congress wanted to 10 provisions. Congress did so, they argue, by limiting only the 11 avoidance powers of trustees et al., not those of individual 12 creditors (save for the stay), in Section 546(e) because actions 13 by trustees et al. are a greater threat to securities markets 14 than are actions by individual creditors. 15 Pls.-Appellants-Cross-Appellees 71. 16 from the fact that a trustee’s power of avoidance is funded by 17 the debtor’s estate, see 11 U.S.C. §§ 327, 330, supported by 18 national long-arm jurisdiction, see Fed. R. Bankr. P. 19 7004(d),(f), and can be used to avoid the entirety of a transfer, 20 Tronox Inc. v. Anadarko Petroleum Corp. (In re Tronox Inc.), 464 21 B.R. 606, 615-17 (Bankr. S.D.N.Y. 2012) (citing Moore v. Bay, 284 22 U.S. 4 (1931)). 23 limited by state jurisdictional rules, and can sue only for their 24 individual losses. 25 419, 428 (Bankr. C.D. Ill. 2004). Resp. & Reply Br. of That greater threat results Creditors, in turn, have no such funding, are See In re Integrated Agri, Inc., 313 B.R. 32 Therefore, appellants argue 1 that a deliberate “balance” was struck by protecting securities 2 markets from trustees’ et al. actions while subjecting them to 3 the lesser disruption individual creditors’ actions might cause 4 after a two-year stay. Resp. & Reply Br. of Pls.-Appellants- 5 Cross-Appellees 83-85. For a court to upset this delicate 6 balance would constitute judicial intrusion on policy decisions 7 rightfully left to the Congress. 8 9 However, the balance described above is an ex post explanation of a legal scheme that appellants must first 10 construct, and then justify as rational, because it is essential 11 to their claims. 12 deliberately constructed by Congress, that argument lacks any 13 support whatsoever in the legislative deliberations that led to 14 Section 546(e)’s enactment. 15 Although they argue that the scheme was Moreover, appellants’ arguments understate the number of 16 creditors who would sue, if allowed, and the corresponding extent 17 of the danger to securities markets. 18 claims and various methods of aggregation can lead to billions of 19 dollars of claims, as here. 20 21 Creditors may assign their (iii) No Plain Meaning These issues reflect ambiguities as to exactly what is 22 transferred to trustees et al. by Section 544(b)(1). 23 that trustees et al. own the debtors’ estates, which include the 24 debtors’ property and legal claims. 25 (Among other things, the “estate is comprised of . . . all legal 33 It is clear See 11 U.S.C. § 541(a)(1) 1 or equitable interests of the debtor in property as of the 2 commencement of the case”); U.S. ex rel. Spicer v. Westbrook, 751 3 F.3d 354, 361-62 (5th Cir. 2014) (“The phrase ‘all legal or 4 equitable interests’ includes legal claims -- whether based on 5 state or federal law.”). 6 however, and whether they become the property of the debtors’ 7 estates is a debated, and somewhat metaphysical, issue. 8 7, infra. 9 present matter, however. Avoidance claims belong to creditors, See Note The issue does have a limited practical bearing on the If the claims asserted by appellants 10 became the property of the debtor’s estate upon Tribune’s 11 bankruptcy and were thereby limited in the hands of the 12 Committee, their reversion in an unaltered form, whether 13 occurring automatically or by act of the Committee or bankruptcy 14 court, might seem counterintuitive. 15 Appellants’ reliance on the applicability of the automatic 16 stay to their claims would arguably support the “property” view. 17 The stay is intended in part to protect the property rights of 18 the trustee et al. in the debtor’s estate. 19 actions by creditors to the stay has been supported by various 20 courts on the ground that such claims are either the property of 21 the debtor’s estate or have an equivalent legal status. 22 re MortgageAmerica Corp., 714 F.2d 1266, 1275-76 (5th Cir. 1983); 23 In re Swallen’s, Inc., 205 B.R. 879, 882 (Bankr. S.D. Ohio 1997); 24 Matter of Fletcher, 176 B.R. 445, 452 (Bankr. W.D. Mich. 1995). 34 Subjecting avoidance See In 1 Whether, and to what degree, fraudulent conveyance claims 2 become the property of a bankrupt estate was, at the time of 3 Section 546(e)’s enactment, and now, anything but clear. 4 principal Supreme Court precedent held that such claims are the 5 property of the debtor’s estate. 6 647, 649 (1880). 7 expressly overruled. 8 bountiful in contradictory statements regarding the property 9 issue. The Trimble v. Woodhead, 102 U.S. It is a very old decision but has not been Subsequent court of appeals decisions are Compare In re Cybergenics Corp., 226 F.3d 237, 241, 246 10 (3d Cir. 2000) (stating that “fraudulent transfer claims have 11 long belonged to a transferor’s creditors, whose efforts to 12 collect their debts have essentially been thwarted as a 13 consequence of the transferor’s actions” but also noting that the 14 debtor’s “‘assets’ and ‘property of the estate’ have different 15 meanings, evidenced in part by the numerous provisions in the 16 Bankruptcy Code that distinguish between property of the estate 17 and property of the debtor, or refer to one but not the other”), 18 and Picard v. Fairfield Greenwich Ltd., 762 F.3d 199, 212 (2d 19 Cir. 2014) (“Our case law is clear that assets targeted by a 20 fraudulent conveyance action do not become property of the 21 debtor’s estate under the Bankruptcy Code until the Trustee 22 obtains a favorable judgment.”), with Cumberland Oil Corp. v. 23 Thropp, 791 F.2d 1037, 1042 (2d Cir. 1986) (noting that causes of 24 action alleging violation of fraudulent conveyance laws would be 25 property of the estate), and Nat’l Tax Credit Partners v. Havlik, 35 1 20 F.3d 705, 708-09 (7th Cir. 1994) (“[T]he right to recoup a 2 fraudulent conveyance, which outside of bankruptcy may be invoked 3 by a creditor, is property of the estate that only a trustee or 4 debtor in possession may pursue once a bankruptcy is underway.”). 5 Use of the term “property” as a short-hand way of suggesting 6 exclusivity has merit, Henry E. Smith, Property and Property 7 Rules, 79 N.Y.U. L. Rev. 1719, 1770-74 (2004), but Section 8 544(b)(1) does not expressly state whether the bundle of rights 9 transferred can revert. However, we need not resolve either the 10 “property” or the reversion issues. 11 language has a plain meaning turns on whether a consensus would 12 have existed among reasonable, contemporaneous readers as to 13 meaning of that language in the particular statutory context. 14 See Pettus v. Morgenthau, 554 F.3d 293, 297 (2d Cir. 2009) (“[W]e 15 attempt to ascertain how a reasonable reader would understand the 16 statutory text, considered as a whole.”); Engine Mfrs. Ass’n v. 17 S. Coast Air Quality Mgmt. Dist., 541 U.S. 246, 252-53 (2004) 18 (noting that “[s]tatutory construction must begin with the 19 language employed by Congress and the assumption that the 20 ordinary meaning of that language accurately expresses the 21 legislative purpose”) (quoting Park ‘N Fly, Inc. v. Dollar Park & 22 Fly, Inc., 469 U.S. 189, 194 (1985)). 23 meaning were reasonable at the time of Section 546(e)’s 24 enactment, its meaning is less than plain. 25 v. Cuomo, 953 F.2d 33, 39-40 (2d Cir. 1992). 36 Whether the statutory If differing views as to See, e.g., Rodriguez 1 Appellants’ arguments on meaning rely not only on the 2 reference to a trustee’s et al. powers but equally, or more so, 3 on a claim of settled law at the time of Section 546(e)’s 4 enactment that creditors’ avoidance rights not only revert to 5 creditors but also revert in their original breadth. 6 whether fraudulent conveyance claims revert as a matter of law 7 upon a trustee’s failure to act was, both at the time Section 8 546(e) was passed as well as now, unclear, as discussed supra. 9 contemporaneous reader would not, therefore, necessarily have However, A 10 believed it plain that Section 546(e)’s reference only to a 11 trustee’s et al. avoidance claim meant that creditors could bring 12 their own claims.7 13 A contemporaneous reader would also notice that the language 14 of the automatic stay provision does not literally apply to 15 appellants’ actions and that no provision for the reversion of 16 claims vested in the trustee et al. by Section 544 exists. 17 explained supra, having to draw an inference of reversion of 18 rights from that provision’s statute of limitations might well 19 have appeared as a leap several bridges too far to such a reader. 20 Indeed, the vesting of avoidance claims in the trustee et al., 21 the lack of applicable language in the automatic stay provision, 22 and the lack of a statutory basis for reversion might well have 23 suggested to such a reader that Section 544’s vesting of 7 As Our task of determining how a contemporaneous reader would have read Section 546(e) does not depend on the caselaw of one particular circuit. 37 1 avoidance proceedings in the trustee et al. cut off creditors 2 from any avoidance rights other than a share of the proceeds in 3 bankruptcy. 4 Even passing these obstacles, the structure of the Code and 5 the relationship of its pertinent sections might have suggested 6 to a contemporaneous reader that altered rights do not revert to 7 creditors unaltered, or to put it another way, a trustee et al. 8 cannot pass on, or “allow” to revert through passivity, a right 9 the trustee et al. does not have. To be sure, contemporaneous 10 readers might have taken other views, including those of 11 appellants, but that is the very definition of ambiguity. 12 13 (iv) Conclusion We need not resolve these issues or even hold that the lack 14 of statutory support, ambiguities, anomalies, or conflicts with 15 purposes of the Code are sufficient to support a preemption 16 holding. 17 found in some discussions of these issues of a clear textual 18 basis for appellants’ theory in the Code and an overall 19 consistency with congressional purpose. 20 Co., 503 B.R. 348, 358-59 (Bankr. S.D.N.Y. 2014) as corrected 21 (Jan. 16, 2014); In re: Tribune Co. Fraudulent Conveyance Litig., 22 499 B.R. at 315. 23 fraudulent conveyance actions brought by creditors whose claims 24 are not subject to Section 546(e). 25 concludes that the purposes and history of that Section They are sufficient, however, to dispel the suggestions See In re Lyondell Chem. We also need not issue a decision that affects 38 Our ensuing discussion 1 necessarily reflect an intent to preempt the claims before us. 2 We turn now to the conflict between those claims and Section 3 546(e). 4 4. 5 As discussed supra, the meaning of Section 546(e) with Conflict with Section 546(e) 6 regard to appellants’ rights to bring the actions before us is 7 ambiguous. 8 history, and purposes to determine its effect. 9 Characters, Inc. v. Simon, 310 F.3d 280, 290 (2d Cir. 2002). We must, therefore, look to its language, legislative Marvel 10 Every congressional purpose reflected in Section 546(e), however 11 narrow or broad, is in conflict with appellants’ legal theory. 12 Their claims are, therefore, preempted. 13 Section 546(e) was intended to protect from avoidance 14 proceedings payments by and to financial intermediaries in the 15 settlement of securities transactions or the execution of 16 securities contracts. 17 intermediaries is essential to securities markets. 18 and to such intermediaries provide certainty as to each 19 transaction’s consummation, speed to allow parties to adjust the 20 transaction to market conditions, finality with regard to 21 investors’ stakes in firms, and thus stability to financial 22 markets. See H.R. Rep. No. 97-420 (1982); H.R. Rep. No. 95-595 23 (1977). Unwinding settled securities transactions by claims such 24 as appellants’ would seriously undermine -- a substantial 25 understatement -- markets in which certainty, speed, finality, The method of settlement through 39 Payments by 1 and stability are necessary to attract capital. 2 appellants’ claims to proceed, we would have to construe Section 3 546(e) as achieving the opposite of what it was intended to 4 achieve. 5 To allow Allowing creditors to bring claims barred by Section 546(e) 6 to the trustee et al. only after the trustee et al. fails to 7 exercise powers it does not have would increase the disruptive 8 effect of an unwinding by lengthening the period of uncertainty 9 for intermediaries and investors. On its very face, the idea of 10 preventing a trustee from unwinding the specified transactions 11 while allowing creditors to do so, but only later, is a policy in 12 a fruitless search of a logical rationale. 13 The narrowest purpose of Section 546(e) was to protect other 14 intermediaries from avoidance claims seeking to unwind a bankrupt 15 intermediary’s transactions that consummated transfers between 16 customers. 17 emphasized that appellants’ legal theory would clearly allow such 18 claims to be brought (later) by creditors of the bankrupt 19 intermediary. 20 thus at risk. See H.R. Rep. No. 97-420 (1982). It must be Even the narrowest purpose of Section 546(e) is 21 Some judicial and other discussions of these issues avoid 22 addressing the full effects of adopting appellants’ arguments. 23 See In re Lyondell Chem. Co., 503 B.R. 348, 359-78 (Bankr. 24 S.D.N.Y. 2014) as corrected (Jan. 16, 2014). 25 always begins by reliance on the “trustee” language, id. at 358, 40 Such analysis 1 but then narrows the scope of the transfers covered by Section 2 546(e)’s language. 3 concerns of the amicus curiae Securities and Exchange Commission 4 regarding the effect of the district court’s decision on the 5 securities markets are misplaced, because appellants are not 6 seeking money from the intermediaries.8 Resp. & Reply Br. of 7 Pls.-Appellants Cross-Appellees 78-82. In doing so, they rely 8 upon the Lyondell opinion, which, after relying on the “trustee” 9 language, held that Section 546(e) is not preemptive of state For example, appellants argue that the 10 law, fraudulent conveyance actions involving LBOs because such 11 actions do not implicate the purposes of Section 546(e). 12 B.R. at 372-73. 13 503 There is no little irony in putting lynchpin reliance on the 14 word “trustee” while ignoring the language that follows. In any 15 event, Section 546(e)’s language clearly covers payments, such as 16 those at issue here, by commercial firms to financial 17 intermediaries to purchase shares from the firm’s shareholders. 18 11 U.S.C. § 546(e) (limitations on avoidance of transfers made to 19 a financial intermediary “in connection with a securities 20 contract”). 21 by language, and analyzing all the language of a provision and A search for legislative purpose is heavily informed 8 Under the “Collapsing Doctrine,” “[c]ourts analyzing the effect of LBOs have routinely analyzed them by reference to their economic substance, ‘collapsing’ them, in many cases, to consider the overall effect of multi-step transactions.” In re Lyondell Chem. Co., 503 B.R. 348, 354, 379 (Bankr. S.D.N.Y. 2014) as corrected (Jan. 16, 2014). Monies passed through intermediaries are deemed to be the property only of the ultimate recipients, here the cashed out shareholders. 41 1 its relationship to the Code as a whole is preferable to using 2 literalness here and perceived legislative purpose (without 3 regard to language) there as needed to reach particular results. 4 See King v. Burwell, 135 S. Ct. 2480, 2489 (2015) (“[O]ftentimes 5 the meaning -- or ambiguity -- of certain words or phrases may 6 only become evident when placed in context. 7 whether the language is plain, we must read the words in their 8 context and with a view to their place in the overall statutory 9 scheme. So when deciding Our duty, after all, is to construe statutes, not 10 isolated provisions.”) (internal quotation marks and citations 11 omitted). 12 We do not dwell on this because we perceive no conflict 13 between Section 546(e)’s language and its purpose. Section 14 546(e) is simply a case of Congress perceiving a need to address 15 a particular problem within an important process or market and 16 using statutory language broader than necessary to resolve the 17 immediate problem. 18 the process or market from the entire genre of harms of which the 19 particular problem was only one symptom. 20 of Section 546(e) clearly reveals such a purpose. 21 (confirmed by the broad language adopted) reflects a concern over 22 the use of avoidance powers not only after the bankruptcy of an 23 intermediary, but also after a “customer” or “other participant” 24 in the securities markets enters bankruptcy. 25 97-420 (1982). Such broad language is intended to protect The legislative history That history See H.R. Rep. No. To be sure, the examples used by the Section’s 42 1 proponents focused on the immediate concern of creditors of 2 bankrupt brokers seeking to unwind payments by the bankrupt firm 3 to other intermediaries. 4 creating a danger of “a ripple effect,” id., a chain of 5 bankruptcies among intermediaries disrupting the securities 6 market generally. 7 have argued that when monetary damages are sought only from 8 shareholders, or an LBO is involved, the purposes of Section 9 546(e) are not implicated. Id. Such actions were perceived as From these examples, appellants, and others, See Resp. & Reply Br. of Pls.- 10 Appellants-Cross-Appellees 79; In re Lyondell, 503 B.R. at 358- 11 59. 12 a narrow literalness to the word “trustee” and disregarding the 13 rest of the Section’s language, we disagree. 14 Even apart from using the oil and water mixture of applying As courts have recognized, Congress’s intent to “minimiz[e] 15 the displacement caused in the commodities and securities markets 16 in the event of a major bankruptcy affecting those industries,” 17 In re Quebecor World (USA) Inc., 719 F.3d 94, 100 (2d Cir. 2013) 18 (quoting Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 19 651 F.3d 329, 333 (2d Cir. 2011)), reflected a larger purpose 20 memorialized in the legislative history’s mention of bankrupt 21 “customers” or “other participant[s]” and in the broad statutory 22 language defining the transactions covered. 23 was to “promot[e] finality . . . and certainty” for investors, by 24 limiting the circumstances, e.g., to cases of intentional fraud, 25 under which securities transactions could be unwound. 43 That larger purpose In re 1 Kaiser Steel Corp., 952 F.2d 1230, 1240 n.10 (10th Cir. 1991) 2 (quoting H. Rep. No. 484, 101st Cong. 2d Sess. 2 (1990), 3 reprinted in 1990 U.S.C.C.A.N. 223, 224). 4 The broad language used in Section 546(e) protects 5 transactions rather than firms, reflecting a purpose of enhancing 6 the efficiency of securities markets in order to reduce the cost 7 of capital to the American economy. 8 and Securities Brokers: 9 Monopolies and Commercial Law of the Comm. on the Judiciary, 47th See Bankruptcy of Commodity Hearings Before the Subcomm. on 10 Cong. 239 (1981) (statement of Bevis Longstreth, Commissioner, 11 SEC) (explaining that, with 546(e), the Bankruptcy Code’s 12 “preference, fraudulent transfer and stay provisions can be 13 interpreted to apply in harmful and costly ways to customary 14 methods of operation essential to the securities industry”). 15 noted, central to a highly efficient securities market are 16 methods of trading securities through intermediaries. 17 546(e)’s protection of the transactions consummated through these 18 intermediaries was not intended as protection of politically 19 favored special interests. 20 and corresponding provisions by the CFTC, see Bankruptcy Act 21 Revision: 22 Civil & Constitutional Rights of the H. Comm. on the Judiciary, 23 94th Cong., Supp. App. Pt. 4, 2406 (1976) -- in order to protect 24 investors from the disruptive effect of after-the-fact unwinding 25 of securities transactions. As Section Rather, it was sought by the SEC –- Hearings on H.R. 31 and H.R. 32 Before the Subcomm. on 44 1 A lack of protection against the unwinding of securities 2 transactions would create substantial deterrents, limited only by 3 the copious imaginations of able lawyers, to investing in the 4 securities market. 5 be akin to the effect of eliminating the limited liability of 6 investors for the debts of a corporation: 7 available to American securities markets. 8 9 The effect of appellants’ legal theory would a reduction of capital For example, all investors in public companies would face new and substantial risks, if appellants’ theory is adopted. At 10 the very least, each would have to confront a higher degree of 11 uncertainty even as to the consummation of securities transfers. 12 The risks are not confined to the consummation of securities 13 transactions. 14 institutional investors would find securities markets far more 15 risky if exposed to substantial liabilities derived from 16 investments in securities sold long ago. 17 prevail, a pension plan whose position in a firm was cashed out 18 in a merger would have to set aside reserves in case the 19 surviving firm went bankrupt and triggered avoidance actions 20 based on a claim that the cash out price exceeded the value of 21 the shares. 22 institutional investors not only to a decline in the value of 23 their current portfolios but also to claims for substantial 24 monies received from mergers during good times. Pension plans, mutual funds, and similar If appellants were to Every economic downturn would expose such 45 1 Given the occasional volatility of economic events, any 2 transaction buying out shareholders would risk being attacked as 3 a fraudulent conveyance avoidable by creditors if the firm 4 faltered. 5 who, after voting against a merger approved by other 6 shareholders, were involuntarily cashed out. 7 which almost always involve a premium above trading price, Lynn 8 A. Stout, Are Takeover Premiums Really Premiums? 9 Fair Value, and Corporate Law, 99 Yale L.J. 1235, 1235 (1990), Appellants’ legal theory would even reach investors Tender offers, Market Price, 10 would imperil cashed out shareholders if the surviving entity 11 encountered financial difficulties. 12 If appellants’ theory was adopted, individual investors 13 following a conservative buy-and-hold strategy with a diversified 14 portfolio designed to reduce risk might well decide that such a 15 strategy would actually increase the risk of crushing 16 liabilities. 17 costs of monitoring the prospects of individual companies and 18 emphasizes the offsetting of unsystematic risks by investing in 19 multiple firms. 20 1988). 21 constant monitoring by investors to rid their portfolios of 22 investments in firms that might, under then-current 23 circumstances, be subject to mergers, stock buy-backs, or tender 24 offers (and would otherwise be good investments). Such a strategy is adopted because it involves low See Leigh v. Engle, 858 F.2d 361, 368 (7th Cir. Appellants’ legal theory might well require costly and 46 Investing in 1 multiple companies, the essence of diversification, would 2 increase the danger of avoidance liability. 3 The threat to investors is not simply losing a lawsuit. 4 Given the costliness of defending such legal actions and the long 5 delay in learning their outcome, exposing investors to even very 6 weak lawsuits involving millions of dollars would be a 7 substantial deterrent to investing in securities. 8 set aside reserves to meet the costs of litigation -- not to 9 mention costs of losing -- would suck money from capital markets. 10 As noted, concern has been expressed that LBOs are different 11 from other transactions in ways pertinent to the Bankruptcy Code. 12 In re Lyondell Chem. Co., 503 B.R. 348, 354, 358-59 (Bankr. 13 S.D.N.Y. 2014), as corrected (Jan. 16, 2014). 14 language of Section 546(e) does not exempt from its protection 15 payments by firms to intermediaries to fund ensuing payments to 16 shareholders for stock. 17 The need to However, the Moreover, securities markets are heavily regulated by state 18 and federal governments. The statutory supplements used in law 19 school securities regulation courses are thick enough to rival 20 Kevlar in stopping bullets. 21 the most regulated transactions. 22 U.S.C.A. §§ 78m(d)-(e), 78n(d). 23 federal regulation is designed to protect investors in such 24 transactions. 25 the payout to shareholders cashed out in a merger, see, e.g., Mergers and tender offers are among See, e.g., Williams Act, 15 Much of the content of state and Much of that content is also designed to maximize 47 1 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 2 182 (Del. 1986); Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 3 946, 955-56 (Del. 1985), or accepting a tender offer, see 4 Williams Act, 15 U.S.C.A. §§ 78m(d)-(e), 78n(d). 5 legal theory would allow creditors to seek to portray that 6 maximization as evidence supporting a crushing liability. 7 legal rule substantially undermining those goals of state and 8 federal regulation –- again, one akin to eliminating limited 9 liability –- is a systemic risk. 10 Appellants’ A It is also argued that the Bankruptcy Code has many 11 different purposes and that Section 546(e) does not clearly 12 “trump[] all [the] other[s].” 13 Conveyance Litig., 499 B.R. 310, 317 (S.D.N.Y. 2013). 14 pertinent -- and “trumping” -- “other” purpose of the Code is 15 said to be the maximization of assets available to creditors. 16 Id. 17 tension with one another where the principal purpose of each is 18 attainable by limiting each in achieving secondary goals. 19 e.g., In re Colonial Realty Co., 980 F.2d 125, 132 (2d Cir. 20 1992). 21 of maximizing the assets available to creditors. 22 to protect a national, heavily regulated market by limiting 23 creditors’ rights. 24 giving value with the right hand and taking it away with the 25 left. In re Tribune Co. Fraudulent The Courts customarily accommodate statutory provisions in See, However, Section 546(e) is in full conflict with the goal Its purpose is Conflicting goals are not accommodated by Section 546(e) cannot be trumped by the Code’s goal of 48 1 maximizing the return to creditors without thwarting the 2 Section’s purposes. 3 5. Congressional Intent 4 We therefore conclude that Congress intended to protect from 5 constructive fraudulent conveyance avoidance proceedings 6 transfers by a debtor in bankruptcy that fall within Section 7 546(e)’s terms. 8 the ambiguous use of the word “trustee,” has no basis in the 9 language of the Code, leads to substantial anomalies, ambiguities As discussed supra, appellants’ theory hangs on 10 and conflicts with the Code’s procedures, and, most importantly, 11 is in irreconcilable conflict with the purposes of Section 12 546(e). 13 which prohibits avoidance of a transfer to a charitable 14 contribution by a trustee but also expressly preempts state law 15 claims by creditors. 16 recover a transferred contribution described in the preceding 17 sentence under Federal or State law in a Federal or StateMarch 18 14, 2016 court shall be preempted by the commencement of the 19 case.” 20 provision to argue that, while Congress knew how to explicitly 21 preempt state law in the Bankruptcy Code, it chose not to do so 22 in the context of Section 546(e). 23 In this regard, we do not ignore Section 544(b)(2), It states: 11 U.S.C. § 544(b)(2). “Any claim by any person to Appellants rely heavily upon this Appellants’ argument suffers from a fatal flaw, however. In 24 Arizona v. United States, the Supreme Court made clear that “the 25 existence of an express pre-emption provisio[n] does not bar the 49 1 ordinary working of conflict pre-emption principles or impose a 2 special burden that would make it more difficult to establish the 3 preemption of laws falling outside the clause.” 4 2504-05 (2012) (quotation marks and citations omitted); see also 5 Hillman, 133 S. Ct. at 1954 (“[W]e have made clear that the 6 existence of a separate pre-emption provision does not bar the 7 ordinary working of conflict pre-emption principles.”) (internal 8 quotation marks and citations omitted). 9 not, therefore, undermine our conclusion as to Congress’s intent. 10 132 S. Ct. 2492, Section 544(b)(2) does Next, appellants argue that Congress’s failure to amend 11 Section 546(e) over the years that it has existed in pertinent 12 form reflects a congressional intent to allow their actions to 13 proceed. 14 amendment by the Chair of the CFTC and by Comex, see Bankruptcy 15 Act Revision: 16 Subcomm. on Civil & Constitutional Rights of the H. Comm. on the 17 Judiciary, 94th Cong., Supp. App. Pt. 4, 2406 (1976); Bankruptcy 18 Reform Act: 19 Subcomm. on Improvements in Judicial Machinery of the S. Comm. on 20 the Judiciary, 95th Cong. 1297 (1978), the enactment of Section 21 544(b)(2) with an express preemption provision, and a decision in 22 the District of Delaware, PHP Liquidating, LLC v. Robbins, 291 23 B.R. 603, 607 (D. Del. 2003), aff’d sub nom. In re PHP Healthcare 24 Corp., 128 F. App’x 839 (3d Cir. 2005). In support, they point only to requests for an Hearings on H.R. 31 and H.R. 32 Before the Hearings on S. 2266 and H.R. 8000 Before the 50 1 To be sure, a history of relevant practice may support an 2 inference of congressional acquiescence. See, e.g., Fiero v. 3 Fin. Indus. Regulatory Auth., 660 F.3d 569, 577 (2d Cir. 2011) 4 (noting that FINRA’s “longstanding reliance” on enforcement 5 mechanisms other than fines -- and Congress’s failure to alter 6 FINRA’s enforcement powers -- “indicates that FINRA is not 7 authorized to enforce the collection of its fines through the 8 courts”); Am. Tel. & Tel. Co. v. M/V Cape Fear, 967 F.2d 864, 872 9 (3d Cir. 1992) (“The Supreme Court in the past has implied 10 private causes of action where Congress, after a ‘consensus of 11 opinion concerning the existence of a private cause of action’ 12 had developed in the federal courts, has amended a statute 13 without mentioning a private remedy.”) (quoting Merrill Lynch, 14 Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 380 15 (1982)). 16 be gleaned from isolated requests for more protective, but 17 possibly redundant, legislation. 18 is discussed immediately above and need not be repeated here. 19 However, the effect or meaning of legislation is not to The impact of Section 544(b)(2) Finally, the failure of Congress to respond to court 20 decisions is of interpretive significance only when the decisions 21 are large in number and universally, or almost so, followed. 22 Merrill Lynch, 456 U.S. at 379 (holding that congressional 23 amendment of the Commodity Exchange Act that was silent on the 24 subject of private judicial remedies did not overturn federal 25 court decisions routinely and consistently [] recogniz[ing] an 51 See 1 implied private cause of action”) (emphasis added); see also 2 Touche Ross & Co. v. Redington, 442 U.S. 560, 577 n.19 (1979) 3 (holding that the Supreme Court’s implication of a private right 4 of action under § 10(b) of the Securities and Exchange Act of 5 1934 was simply acquiescence in “the 25-year-old acceptance by 6 the lower federal courts of an implied action”). 7 decision is far from a departure from a generally accepted 8 understanding. 9 the bankruptcy court decision in Lyondell are in fact the sole The present The district court decision in this very case and 10 extensive judicial discussions of the issue. 11 decision does not even constitute a split among the circuits. 12 or more telling with regard to the existence of a general 13 understanding or a need for action, we find no history of the use 14 of state law, constructive fraudulent conveyance actions to 15 unwind settled securities transactions, either after a bankruptcy 16 or in its absence. 17 Indeed, our present As The Constitution’s establishment of two legislative branches 18 that must act jointly and with the executive’s approval was 19 designed to render hasty action possible only in circumstances of 20 widely perceived need. 21 in that context, and reliance upon an inference of satisfaction 22 with the status quo must at least be based on evidence of a long- 23 standing and recognized status quo. 24 cannot draw the suggested inference on the basis of the skimpy Congress’s failure to act must be viewed 52 In the present matter, we 1 evidence submitted while the inference of a preemptive intent is 2 easily drawn. 3 CONCLUSION 4 For the reasons stated, we affirm the dismissal of the 5 complaint, on preemption rather than standing grounds. We 6 resolve no issues regarding the rights of creditors to bring 7 state law, fraudulent conveyance claims not limited in the hands 8 of a trustee et al. by Code Section 546(e) or by similar 9 provisions such as Section 546(g) which is at issue in an appeal 10 heard in tandem with the present matter, see Whyte v. Barclays 11 Bank. 53
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