In re: Nine West LBO Sec. Litig., No. 20-3257 (2d Cir. 2023)
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Plaintiffs-appellants Marc Kirschner, as the Litigation Trustee for the Nine West Litigation Trust representing unsecured creditors, and Wilmington Savings Fund, FSB, as successor Indenture Trustee for various notes issued by Nine West (together, the "Trustees"), brought seventeen actions in different states against Jones Group's former directors and officers for unjust enrichment and against its former public shareholders for fraudulent conveyance. Both the public shareholders and the directors and officers moved to dismiss the claims against them, arguing that payments made to them in connection with the merger are shielded by the Bankruptcy Code's Section 546(e) safe harbor. The district court granted both motions to dismiss, holding that the payments were shielded by the safe harbor. Plaintiffs appealed.
The Second Circuit affirmed in part, vacated in part, and remanded. The court explained that Congress enacted Section 546(e) safe harbor to promote finality and certainty for investors by limiting the circumstances under which securities transactions could be unwound by, for example, a successful fraudulent conveyance action. The court wrote that to further expand the scope of Section 546(e) and Section 101(22)(A) and immunize transactions in which a bank took only purely ministerial action, made no payments, and had no discretion would not further Congress's purpose. Accordingly, the court vacated the district court's judgment to the extent it dismissed the Payroll Transfer claims.
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