Weisfelner v. Fund 1 (In re Lyondell Chemical Co.)
Weisfelner v. Fund 1 (In re Lyondell Chemical Co.)
Opinion of the Court
Chapter 11
DECISION AND ORDER ON MOTIONS TO DISMISS
Table of Contents
Facts.. .355
Discussion ... 356
I. Effect of Section 546(e) ... 358
A. Section 546(e)s Applicability to Individual Creditors State Law Claims... 358
B. Preemption.. .359
1. Express Preemption... 361
2. Field Preemption.. .361
3. Conflict Preemption... 363
(a) Conflict Preemption: the Impossibility Branch.. .363
(b) Conflict Preemption: the Obstacle Branch .. .364
(i) Conflict Preemption General Principles.. .364
(ii) The Totality of Congressional Intent...364
(iii) Section 546(e) Intent.. .369
(iv) The Barclays Decision.. .373
II. Funds to Stockholders Not Property of the Debtor?... 379
III. Conduits, Nominees, Non-beneficial Holders... 381
V. Intentional Fraudulent Transfer Claims... 385
A. Failure to Allege Fraudulent Intent on Part of Board of Directors... 386
B. Failure to Allege Which Debtor Made the Transfer.. .389
C. Facts Supporting Intent to Hinder, Delay or Defraud... 389
D. Plausibility.. .391 Conclusion .. .391
In late December 2007, Basell AF S.C.A. (“Basell”), a Luxembourg entity controlled by Leonard Blavatnik (“Blavatnik”), acquired Lyondell Chemical Company (“Lyondell”), a Delaware corporation headquartered in Houston — forming a new company after a merger (the “Merger”), LyondellBasell Industries AF S.C.A. (as used by the parties, “LBI,” or here, the “Resulting Company”),
In the first week of January 2009, less than 13 months later, a financially strapped Lyondell filed a petition for chapter 11 relief in this Court.
This adversary proceeding is one of three
Since the early days that LBOs came into common use, it has been recognized that LBOs are subject to fraudulent transfer laws, and that when an LBO renders a debtor insolvent or inadequately capitalized, a court can, subject to applicable defenses, grant injured creditors relief.
While the Movants recognize that the Bankruptcy Code says nothing about cutting off rights asserted solely under state law, or preempting them, they argue that the Code’s section 546(e) nevertheless applies, and also that state law rights are preempted by implication.
The Court cannot agree. Rather, it agrees with the recent holdings in the Tribune Company Fraudulent Conveyance Litigation'
Facts
It is unnecessary, for the purposes of this decision, to discuss the underlying allegations in the depth that would be required in the related Blavatnik action. The Creditor Trust here seeks to recover (but only from those receiving payments in excess of $100,000)
The Creditor Trust alleges that $12.5 billion in payments to former Lyondell Shareholders was made without reasonable value in return — in fact, that “the Shareholder Defendants gave nothing in return.”
Before this action was commenced, the Court confirmed Lyondell’s plan of reorganization (the “Plan”). Among other things, the Plan provided for the creation of a trust to initiate or continue litigation at one time belonging to the bankruptcy estate. The Plan also provided for certain claims that the Lyondell estate could assert on behalf of its creditors to be abandoned to another trust for the benefit of Lyondell creditors.
The Plan defined “Abandoned Claims” as “the claims and causes of action brought on behalf of the Debtors’ estates pursuant to section 544 of the Bankruptcy Code against former shareholders of Lyondell Chemical.”
On the Effective Date, the Abandoned Claims shall be discontinued by the Debtors without prejudice and the Debtors shall be deemed to have abandoned, pursuant to section 554 of the Bankruptcy Code, any and all right to further pursue Abandoned Claims. Upon the effectiveness of the aforesaid discontinuance and abandonment, each holder of Allowed 2015 Notes Claims, General Unsecured Claims, and holders of the Deficiency Claims ... shall contribute to the Creditor Trust any and all State Law Avoidance Claims. The Creditor Trust shall be authorized to prosecute the State Law Avoidance Claims that are contributed to the Creditor Trust... .15
The Creditor Trust then brought the state law avoidance claims in New York Supreme Court. One month later, a group of defendants (principally investment banking houses, brokerage firms and other financial institutions) represented by Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”), which has taken the lead in the defense of this adversary proceeding, filed a notice of removal to the district court, thereby removing this action from state court to federal court. No motion for remand was filed. The case was then referred to this Court under the district court’s standing order of reference.
Discussion
The Movants seek dismissal
*357 (1) (a) the state law fraudulent transfer claims may not be brought by reason of section 546(e) of the Bankruptcy Code, and (b) such claims are preempted by the federal Bankruptcy Code;
(2) the Creditor Trust cannot recover because the transferred funds were not property of the Debtors;
(3) many of the Shareholder Defendants were merely nominees, non-beneficial holders, or conduits;
(4) the Creditor Trust lacks standing to sue on behalf of the lenders, who must be found to have ratified the transfers in question; and
(5) the Creditor Trust has failed to satisfactorily plead its claims for intentional fraudulent transfer.
For reasons set forth below:
(1) The Court rejects the Movants’ contentions (a) that section 546(e) applies to fraudulent transfer claims brought by or on behalf of creditors under state law, and (b) that state law fraudulent transfer claims are preempted by section 546(e) or otherwise under federal law.
(2) The Court rejects the Movants’ contention that the Creditor Trust cannot recover by reason of the assertion that the transferred funds were not property of the Debtors. The Creditor Trust has satisfactorily alleged facts plausibly supporting a conclusion that the LBO (under which Lyondell incurred debt, and Lyondell assets were pledged, with the intent that loan proceeds go to Lyondell stockholders) was a unitary transaction that should be collapsed, for analytical purposes, to correspond to its economic substance and to the intent of those who allegedly structured the LBO in that fashion.
(3) The Court agrees that nominees, non-benefieial holders of Lyondell stock, and conduits through which consideration passed cannot be held liable. To the extent any defendant here was merely a conduit through which LBO proceeds passed to another, or otherwise was not an ultimate beneficial recipient of the LBO proceeds, the claims against it must be dismissed.
(4) The Court agrees with the Mov-ants’ contention that the LBO secured lenders (whose rights to avoid fraudulent transfers were also assigned to the Creditor Trust) must be deemed to have ratified the transfers here. To the extent that relief is sought here on behalf
(5) Though it disagrees with several of the Movants’ points with respect to the allegations of intentional fraudulent transfer, the Court agrees that the allegations were deficient. But as it is possible that the deficiencies may be addressed, the Court is dismissing the intentional fraudulent transfer claims with leave to replead.
I.
Effect of Section 54.6(e)
In the first of their five arguments, the Movants argue that the Creditor Trust’s state law claims must be dismissed because similar constructive fraudulent transfer claims brought under the Bankruptcy Code would have to be dismissed, by reason of the safe harbor applicable to federal constructive fraudulent transfer claims under Bankruptcy Code section 546(e). That argument is asserted at two levels. The Movants first argue that section 546(e) provides a substantive defense to the individual creditors’ purely state law claims that have been asserted here, as it would to federal claims brought under sections 544 or 548 of the Bankruptcy Code. The Movants then argue that by reason of the states’ failure to include a similar safe harbor in their own legislation, the states’ similar but not congruent constructive fraudulent transfer avoidance statutes are preempted and hence invalid. In each respect, the Court cannot agree.
A. Section 546(e)’s Applicability to Individual Creditors’ State Law Claims
The first contention requires only brief discussion. The Tribune court found section 546(e) inapplicable to state law claims brought on behalf of individual creditors, and this Court does too. As the Tribune court observed, any analysis of the extent to which section 546(e) would also proscribe state law constructive fraudulent transfer claims starts with what Congress said.
The Irving Tanning court held likewise. There, as here, a litigation trust asserted fraudulent transfer claims after a failed LBO. The trust did so in two capacities: (1) as here, as the assignee of individual creditors,
It is alleged that the Plaintiff is the Trustee under the Debtor’s Plan of Reorganization, with two hats. One, as-signee of creditors by agreement of the creditors and court approval of the Plan and, two, that the trustee, the liquidating trustee, is the successor in interest to the debtor in possession or the statutory trustee.
The Defendants would have it that these are mutually exclusive roles. I hold otherwise. I believe that the liquidating trustee, as assignee of creditors, may assert these actions, and that being so, that 546(e) does not apply.23
While the Movants spend 10 pages in their brief arguing the matter as if sections 544 and 548 — and hence section 546(e) — apply to this case, this is not a case about sections 544 and 548. The Creditor Trust’s claims are not asserted under those provisions. The claims here are not being asserted on behalf of the estate; they are asserted on behalf of individual creditors. Here there is no statutory text making section 546(e) applicable to claims brought on behalf of individual creditors, or displacing their state law rights, by plain meaning analysis or otherwise. Like the Tribune and Irving Tanning courts, this Court cannot conclude that section 546(e) covers individual creditors’ fraudulent transfer claims.
B. Preemption
The Court then turns to the Mov-ants’ contention that section 546(e) preempts state constructive fraudulent transfer laws. Consistent with the thoughtful decision in Tribune,
“As every schoolchild learns, our Constitution establishes a system of dual sovereignty between the States and the Federal Government.”
From the existence of two sovereigns— the federal government and the states— follows the possibility that state and federal laws can be in conflict or at cross-purposes.
But whether Congress has actually preempted state law is not infrequently debatable. The Supremacy Clause and the Nation’s federal system “contemplate ... a vital underlying system of state law, notwithstanding the periodic superposition of federal statutory law.”
Preemption determinations are guided by two “cornerstones” of the Supreme Court’s preemption jurisprudence.
For these reasons, the party asserting that federal law preempts state law bears the burden of establishing preemption.
The Court considers each of those three possibilities
1. “Express” Preemption
Congress may, if it chooses, identify state laws that it considers to be inconsistent with federal goals. And if it does so by statutory enactment, any such state laws must fall. “There is no doubt that Congress may withdraw specified powers from the States by enacting a statute containing an express preemption provision.”
But there is no contention in this case that Congress expressly preempted state fraudulent transfer laws in any respect that applies here.
The Court cannot find that Congress expressly preempted any state law causes of action for fraudulent transfers, or, especially, those in instances where the states’ laws were simply not congruent with federal ones.
2. “Field” Preemption
Field preemption occurs when Congress has manifested an intent to “occupy the field” in a certain area, as evidenced by “a scheme of federal regulation so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it, or where an Act of Congress touches a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject.”
Here the Court cannot make such a finding. Congress has not evidenced any intention to wholly occupy the fields of avoidance or recovery of fraudulent transfers.
States have had fraudulent conveyance avoidance and recovery statutes since the time of the Revolutionary War (when states enacted their own versions of the English Statute of 13 Elizabeth), and especially since 1918, with the proposal of the Uniform Fraudulent Conveyance Act, which was thereafter adopted in 26 states, and whose provisions were later incorporated into the Federal Bankruptcy Act.
Federal bankruptcy laws have existed, though with periods during which no federal bankruptcy statute was in place, since 1800.
As is apparent from the above, the states have regulated fraudulent transfers for far longer than the federal government has, and Congress left that regulation in place when it enacted the Chandler Act amendments to the former Bankruptcy Act in 1938. It cannot be said that there was or is any Congressional intent to occupy the fraudulent transfers remedies field — or “to preclude enforcement of state laws on the same subject.”
8. “Conflict” Preemption
Conflict preemption, by contrast, occurs when “state law ‘actually conflicts with federal law,’ including where ‘it is impossible for a private party to comply with both state and federal requirements, or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’”
(a) Conflict Preemption: the Impossibility Branch
While the Supreme Court once endorsed a narrow view of the “impossibility” branch of conflict preemption, in recent years it has applied a more expansive analysis, and “found ‘impossibility’ when ‘state law penalizes what federal law requires,’ or when state law claims ‘directly conflict’ with federal law.”
In MTBE, the Second Circuit could not find a conflict overcoming the presumption against preemption, and here this Court cannot find such a conflict either. Federal law does not require stockholders to sell
Importantly, the state transfer laws said to be preempted do not regulate conduct; they do not require anyone to do anything. In the LBO context, state fraudulent transfer laws do no more than attach consequences to past conduct, and grants rights of action to those — unpaid creditors — who have been injured thereby.
The Court cannot find a basis for conflict preemption under the impossibility branch here.
(b) Conflict Preemption: the Obstacle Branch
(i) Conflict Preemption General Principles
As explained by the Supreme Court in Arizona and by the Second Circuit in MTBE, the second branch of conflict preemption — the obstacle analysis — comes into play “when state law is asserted to ‘stand[ ] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”’
Importantly for the purposes of this analysis:
The burden of establishing obstacle preemption, like that of impossibility preemption, is heavy: “[t]he mere fact of ‘tension’ between federal and state law is generally not enough to establish an obstacle supporting preemption, particularly when the state law involves the exercise of traditional police power.” ... [FJederal law does not preempt state law under obstacle preemption analysis unless “the repugnance or conflict is so direct and positive that the two acts cannot be reconciled or consistently stand together.”56
Thus “the conflict between state law and federal policy must be a sharp one.”
In the Movants’ reply brief (the first in which the exact basis for their preemption contentions is fleshed out), they clarify that it is the obstacle branch on which they rely.
(ii) The Totality of Congressional Intent
Consistent with the principle that the key to preemption is the intent of Congress,
The fact (quite obvious to those in the bankruptcy community) that there are many competing concerns addressed in bankruptcy policy was recognized in Tribune. Even while noting legislative history and caselaw referring to it stating that Congress enacted Section 546(e) to “protect the nation’s financial markets from the instability caused by the reversal of settled securities transactions,”
However, Congress pursues a host of other aims through the Bankruptcy Code, not least making whole the creditors of a bankruptcy estate. It is not at all clear that Section 546(e)’s purpose with respect to securities transactions trumps all of bankruptcy’s other purposes.64
The Tribune court continued:
To the contrary, Congress has repeatedly indicated that it did not enact Section 546(e) to protect market stability to the exclusion of all other policies.65
Exemplifying this, the Tribune court pointed out that even after having been asked to do so, Congress failed to expressly preempt state law constructive fraudulent transfer claims.
Obviously, Congress has struck some balance between various policy priorities, which means that it has determined that fraudulent conveyance actions are not necessarily and in all cases “repugnant” to the interest of market stability.68
It concluded that it was “not authorized to upend Congress’ balance between the operation of state and federal law, even if
Additionally, the Tribune court made still one more powerful point. It saw that Congress had demonstrated elsewhere in the Bankruptcy Code that it knew how to — and was willing to — expressly preempt an individual creditor’s state law claims.
The Supreme Court has noted, as the Tribune court recognized, that “[t]he case for federal pre-emption is particularly weak where Congress has indicated its awareness of the operation of state law in a field of federal interest, and has nonetheless decided to stand by both concepts.”
This is powerful evidence that Congress did not intend for Section 546(e) to preempt state law.... Congress’s explicit preemption of all creditors’ state-law claims in one section of the Code undermines the suggestion that Congress intended to implicitly preempt state-law claims only two sections later.73
This Court agrees with the Tribune preemption analysis for those reasons, and others as well. In one of its leading bankruptcy opinions, the Supreme Court has reminded those considering bankruptcy issues that statutory construction is a “holistic endeavor,”
It is clear that the “starting point in every case involving construction of a statute is the language itself. But the text is only the starting point,” especially when the language is ambiguous. The Supreme Court has thus explained in interpreting other sections of the Bankruptcy Code that “we must not be guided by a single sentence or [part] of a sentence, but look to the provisions of the whole law, and to its object and policy.”77
The Second Circuit’s instructions in that regard necessarily must apply not just to construction of the Bankruptcy Code, but also to any consideration of Congressional intent. In any implied preemption analysis, one cannot properly look at the purposes of section 546(e) alone; one must also consider the remainder of the Code’s “object and policy.”
Congressional intent underlying the bulk of bankruptcy policy precedes the enactment of section 546(e) by nearly 200 years, going back to the first federal bankruptcy statute in 1800. Importantly, Congress evidenced the intent to utilize avoidance actions to protect the creditors of estates from dissipation of assets without appropriate consideration in the Chandler Act amendments to the then-existing Bankruptcy Act of 1898.
As noted in the very first chapter of Collier, speaking to an overview of the Bankruptcy Code, chapter 5 — in which avoidance actions and the section 546(e) safe harbor are both addressed — avoidance actions have an important purpose in bankruptcy:
In order to vindicate the Bankruptcy Code’s policies of ratable and equitable distribution of a debtor’s assets to and among similarly situated creditors, the Code permits the estate representative to avoid various types of transactions. Principal among these avoiding powers, found in chapter 5 of the Code, are the strong arm power of section 544, the preference provision of section 547, the fraudulent transfer provision of section 548 and setoff provision of section 553.80
As the Tribune court recognized, federal law seeks to achieve a host of federal objectives and policy priorities, as does the Bankruptcy Code itself. Federal objectives and policy priorities embodied within the Bankruptcy Code include (in addition to “making whole the creditors of a bankruptcy estate,” as noted by the Tribune court,
Those federal policies also include principles noted in Jewel Recovery, L.P. v. Gordon,
In Chapter 5 of the Bankruptcy Code, Congress determined that certain categories of transfers, otherwise permitted under non-bankruptcy law, could be avoided, and the property or its monetary value recovered by a bankruptcy trustee for the benefit of all creditors. Congress determined that a few individuals should not be allowed to benefit from transfers by an insolvent entity at the expense of the many.85
Similarly, citing Jewel Recovery and Young v. Higbee, the Adler Coleman court observed
[T]he underlying philosophy of the Bankruptcy Code and SIPA [the Security Investor Protection Act] establishes certain equitable principles and priorities designed to maximize assets available for ratable distribution to all creditors similarly situated. To this end, the rules seek to prevent unjust enrichment and to avoid placing some claims unfairly ahead of others by distinguishing transactions truly entered in good faith and for value from those somehow induced and tainted by preference, illegality or fraud.86
Thus federal policies also include — in addition to protecting markets from systemic risk — the avoidance of insolvent entities’ transfers, for the benefit of all creditors, when they come at the expense of the creditor community. As the National Bankruptcy Conference (“NBC”)
[LJongstanding bankruptcy policy — inherited by this nation at its founding and dating back to England’s Statute of Elizabeth, enacted in 1571 — that insolvent debtors should not be able to evade their financial commitments by making gifts.88
Presumably Congress could, if it wanted, determine that its interest in protecting markets (or market participants, which is not the same thing), should trump the historical priority of creditors over stockholders, and all of the other historic concerns noted above. Congress then could provide for express preemption of state law constructive fraudulent transfer claims, just as it did with respect to charitable gifts. But Congress did not do so, even though its enactment of section 544(b)(2) makes clear that it was well aware of that option.
(Hi) Section 516(e) Intent
Moreover, even if the policies underlying section 546(e) were the only federal policies to be implemented, they would not require a finding that state constructive fraudulent transfer laws are repugnant to federal law, at least in a situation like this one.
Understanding the Congressional purpose underlying the present section 546(e) requires an understanding of the concerns that led to it. No provisions protecting margin payments or settlement payments from avoidance existed under the former Bankruptcy Act.
“[I]n response” to Ira Haupt and similar caselaw,
In 1982, section 764(c) was repealed and a section 546(d) was enacted, which became section 546(e) after further amendments in 1984.
But the purposes of each — protections of the markets, and brokers and clearing organizations — were the same, as can be seen by comparing the legislative history from 1978 and 1982.
The purpose of the 1982 amendment adding protections for the securities markets — beyond the commodities markets— was the same. As stated in the 1982 House Report:
The commodities and securities markets operate through a complex system of accounts and guarantees. Because of the structure of the clearing systems in these industries and the sometimes volatile nature the markets [sic], certain protections are necessary to prevent the insolvency of one commodity or security firm from spreading to other firms and possibly threatening the collapse of the affected market.
The Bankruptcy Code now expressly provides certain protections to the commodities market to protect against such a “ripple effect.” One of the market protections presently contained in the Bankruptcy Code, for example, prevents a trustee in bankruptcy from avoiding or setting aside, as a preferential transfer, margin payments made to a commodity broker (see 11 U.S.C. Sec. 764(c)).
The thrust of several of the amendments contained in H.R. 4935 is to clarify and, in some instances, broaden the commodities market protections and expressly extend similar protections to the securities market.107
Section 546(e)’s purpose in protecting markets was recognized by the Second Circuit in its well known decision in Enron,
Constructive fraudulent transfer cases can fall in different places along the spectrum of federal concerns. At one end of the spectrum, where safe harbors are at least arguably essential, are actions against exchanges or clearing institutions, as in Ira Haupt,
At the other extreme, where safe harbors are at least arguably absurd, are LBOs and other transactions involving privately held companies where the stock is not even traded in the financial markets.
Deciding where to draw the line in balancing the needs of the markets, on the one hand, and creditors, on the other, is the job of Congress.
Protecting the financial markets is not necessarily the same thing as protecting investors in the public markets, even if they happen to be stockholders who are major investment banks. Focusing on that distinction, the NBC has advocated Congressional legislation amending the safe harbors so as to keep the safe harbors in place where necessary to protect the markets (ie., to protect the nation’s financial system from ripple effects or other systemic risk) but not go beyond that to also protect those who claim protection here — beneficial holders of securities at the end of the asset dissipation chain.
Nothing in the legislative history of the existing law evidences a desire to protect individual investors who are beneficial recipients of insolvents’ assets. The repeatedly expressed concern, by contrast, has been that of protecting market intermediaries and protecting the markets — in each case to avoid problems of “ripple effects,”
(iv) The Barclays Decision
Finally, the Movants call this Court’s attention to another district court decision in this district, Whyte v. Barclays Bank.
In the subsequent written decision, the Barclays court explained the reasons for the earlier order:
In sum, the Court, confirming its “bottom-line” Order, holds that where, as here, creditors’ claims are assigned along with Chapter 5 federal avoidance claims to a litigation trust organized pursuant to a Chapter 11 plan, the section 546(g)[125] “safe harbor” impliedly preempts state-law fraudulent conveyance actions seeking to avoid “swap transactions” as defined by the Code.126
The Movants ask this Court to regard Barclays as persuasive authority
Preliminarily, the Tribune court found Barclays “readily distinguishable”
In essence, SemGroup could not simply take off its trustee hat, put on its creditor hat, and file an avoidance claim that Section 54 6(g)prohibited the trustee from filing.131
The Tribune court contrasted its own situation:
By contrast, the Individual Creditors here, unlike SemGroup, are not creatures of a Chapter 11 plan, and they are in no way identical with the bankruptcy trustee; as a result, there is no reason why Section 546(e) should apply to them in the same way that Section 546(g) applied to SemGroup.132
Here too, Barclays is distinguishable for the reasons set forth in the italicized language.
But more fundamentally, the Court must say that it has reservations as to the correctness of the “bottom-line” judgment in Barclays, and especially the Barclays reasoning. Respectfully, the Court considers the Barclays analysis to be less thorough than that of Tribune, and considers a number of the elements of the Barclays analysis to be flawed.
Preliminarily, the Barclays court declined to apply the usual presumption against implied preemption
Given the elemental nature of fraudulent transfer law, however, there was no preemption intended, and states (as well as the federal government) continued to adapt parts of fraudulent transfer law for their own purposes. Fraudulent transfer law is, for example, the ancestor of many related common law and statutory doctrines we now take as blackletter law. It is, for example, one of the reason [sic] there are statutes*377 restricting when a corporation may declare dividends on its stock, and is at the root of tort concepts of successor liability. It is the direct ancestor of bulk transfer laws as well as the absolute priority rule in bankruptcy reorganizations.139
Countervailing considerations of bankruptcy policy (discussed in Tribune and above, but not addressed by the Barclays court) have likewise been elements of federal policy for far, far longer.
Then, the Barclays analysis failed to acknowledge or comply with the Supreme Court’s directive that courts considering matters of implied preemption under the “obstacle branch” consider the “full purposes and objectives of Congress,”
Then, the Barclays court appears to have accepted, without further analysis,
Looking at Barclays as a whole, it appears to be driven largely by the consequences of a legislative terrain in which there are similar, but not congruent, federal and state fraudulent transfer statutes, and the Barclays court’s recognition that state law might permit a recovery on behalf of creditors when federal law would not. Recognition of the consequences of a ruling is hardly inappropriate, but in this Court’s view, considerations of potentially different results cannot trump application of the standards articulated in Arizona, MTBE, Smokeless Tobacco and similar cases.
Thus, like the court in Tribune, the Court rules that state law constructive fraudulent transfer claims brought on behalf of individual creditors are not impliedly preempted, by section 546(e) or otherwise.
Funds to Stockholders Not Property of the Debtor?
In their second principal point, the Movants then argue that the Creditor Trust’s claims fail as a matter of law because the Creditor Trust seeks to avoid transfers of funds that “merely passed through the Debtors to the beneficial holders of the Lyondell stock and never became property of any Debtor.”
The premise of the Movants’ argument seemingly is that the transfers of cash came from the LBO lenders through their paying agent to Lyondell stockholders; did not involve the Debtors’ own, pre-existing assets; and thus “did not cause any injury to the Debtors’ creditors.”
The Creditor Trust asks this Court to initially focus on two separate “value transferring” transactions
This allegation — which must be proven, of course, but which at least seemingly is supported by the underlying transaction documents themselves — is indeed, as the Creditor Trust asserts, a garden variety application of fraudulent transfer doctrine to LBO transactions.
Collapsing is routinely used in the analysis of LBOs as fraudulent transfers. As the Second Circuit has observed:
It is well established that multilateral transactions may under appropriate circumstances be “collapsed” and treated as phases of a single transaction for analysis under the UFCA [Uniform Fraudulent Conveyance Act], This approach finds its most frequent application to lenders who have financed leveraged buyouts of companies that subsequently become insolvent. The paradigmatic scheme is similar to that alleged here: one transferee gives fair value to the debtor in exchange for the debtor’s property, and the debtor then gratuitously transfers the proceeds of the first exchange to a second transferee. The first transferee thereby receives the debtor’s property, and the second transferee receives the eonsider-ation, while the debtor retains nothing.154
The Second Circuit had noted the same principles two years earlier, in another fraudulent transfer case, Orr v. Kinderhill Corp.
Likewise, in the recent decision in this District in Tronox,
Similarly, as a consequence of the pledge of Lyondell’s assets, the Creditor Trust has at least plausibly alleged that Lyondell was truly prejudiced by a transaction that was assertedly a transfer between third parties.
The Court is also unpersuaded by the Movants’ contention that an “application of funds” provision — requiring LBO loan proceeds to be used solely for the purpose of the LBO — denied Lyondell control over the use of proceeds, precluding a finding of Debtor control over the borrowed funds. Lyondell had the control over its collateral before it pledged it to the LBO Lenders. And in any event, limits on the application of funds would be an element of the form of the transaction, which at most might be argued to a trier of fact in an effort to show that the substance was something different than that alleged by the Creditor Trust. That, of course, is a matter inappropriate for consideration under a Rule 12(b)(6) motion. In fact, the Movants’ contentions as to the use of the funds (along with the Movants’ related contention that “the Debtors would not have received the funds in the first place”)
All of this is not to say, of course, that the LBO here necessarily must be collapsed. It is to say merely that the Creditor Trust has plausibly alleged facts under which it might be. The Movants’ motion to dismiss insofar as its rests on the notion that Lyondell failed to part with value as part of the LBO is denied.
III.
Conduits, Nominees, Non-beneficial Holders
In their third principal point, the Movants seek to dismiss claims asserted against Defendants that were sued as conduits or as mere “holders,” and not beneficial owners, of Lyondell stock — with the latter including, most obviously, depositories or nominees. In this respect the Mov-ants are quite right, and the claims against any such entities must be dismissed.
In fraudulent transfer actions asserted under federal law, where recovery of transferred property or its value is sought under section 550 of the Code, recovery may be obtained from an entity
While the Court assumes that the Creditor Trust did the best it could in carving out from its list of defendants those who were not beneficial holders, it appears that the Creditor Trust was not fully successful in this regard. This Court’s experience
In instances in which recipients of LBO payments were either conduits who passed those payments on to others, or who were “holders” of the stock (e.g., as nominees or depositories) but not the beneficial owners, they cannot be held liable as recipients of fraudulent transfers. Claims against con
TV.
Ratification by LBO Lender Creditors?
The Movants’ fourth principal contention is that the Creditor Trust lacks standing to sue on behalf of the LBO Lenders, whose rights to recover on fraudulent transfer claims were likewise assigned to the Creditor Trust along with those of trade creditors and bondholders. The Movants argue principally that the LBO Lenders must be deemed to have ratified the transfers incident to the LBO as a matter of law,
As the Movants properly point out,
The Creditor Trust understandably does not dispute that defenses to claims against an assignor are also valid against an as-signee. It also does not appear to dispute the underlying legal proposition argued by the Movants — that a creditor that ratifies a fraudulent transfer cannot then argue that the fraudulent transfer should be avoided. The Creditor Trust argues, instead, that the matter of ratification is an affirmative defense
First, the fact that ratification is an affirmative defense does not mean that it can never be considered on a motion to dismiss. The Second Circuit has repeatedly noted that a complaint can be dismissed for failure to state a claim pursuant to a Rule 12(b)(6) motion raising an affirmative defense “if the defense appears on the face of the complaint.”
Then, while factual issues might exist if any LBO Lender’s participation in the financing were not apparent from the LBO documents, the Court may review and rely on the LBO documents in ruling on the sufficiency of the Complaint, since they were relied on by the Creditor Trust in drafting it.
That is more than sufficient to establish the requisite participation and ratification, which in the context here, requires no more than that knowledge. While more nuanced knowledge might be necessary to establish ratification in other contexts, it is more than sufficient here for the LBO lenders to have known — as the documents themselves establish — that they were lending for the purposes of an LBO, and that the proceeds of their loans were going to stockholders.
While most claims on behalf of creditors other than LBO Lenders survive under this Court’s rulings, claims on behalf of LBO Lenders cannot.
V
Intentional Fraudulent Transfer Claims
In their fifth and final point, the Mov-ants ask this Court to dismiss the Creditor Trust’s intentional fraudulent transfer claims. Though the Movants’ contentions are not formally broken down, they effectively assert four alleged deficiencies: (1) failure to allege fraudulent intent on the part of Lyondell’s board of directors, as contrasted to its senior management; (2) failure to allege which debtor made the transfer; (3) failure to allege facts supporting intent to hinder, delay or defraud creditors; and (4) that the claims are implausible.
For reasons discussed below, the Court does not agree with all of the Mov-ants’ contentions in this regard. But the deficiencies are sufficiently material to require that the intentional fraudulent trans
A. Failure to Allege Fraudulent Intent on Part of Board of Directors
Relying on the principal of law that corporations can merge only with the approval of their boards of directors,
It is fundamental, of course, that under the law of Delaware (under which Lyondell was organized), corporate decisions to merge or to engage in LBOs require consideration and approval by the corporation’s board of directors.
By the same token, the Court finds the Creditor Trust’s position — that under “ordinary agency principles,”
But neither of the quoted passages from James River Coal and Anchorage Marina addresses any necessary distinctions between officers and directors in instances where the distinctions matter. And the statements in James River Coal and Anchorage Marina must be read in context. In each of those cases, the issues here were not presented, and those courts did not need to focus on any applicable distinctions between officers, on the one hand, and directors, on the other. In James River Coal, the court understandably observed that “[a] corporation, being an entity created by law, is incapable of formulating or acting with intent.”
Similarly, in the other decision cited by the Creditor Trust, Anchorage Marina, the court started, as did the James River Coal court, by noting once again that “in cases such as this one in which the Debtor is a corporation[,] the intent of the controlling officers and directors is presumed to be the Debtor’s intent.”
Other cases in which a natural person’s intent was imputed to a corporate trans-feror, considered by the James River Coal court but not by either of the two sides here, likewise addressed situations in which the natural person was either a director of the corporate transferor, had the ability in fact to influence the transfer, or both.
The appropriate standard is, as the First Circuit articulated it in Roco Corp., whether the individual whose intent is to be imputed “was in a position to control the disposition of [the transferor’s] property.”
Here, however, the Creditor Trust relies on a species of automatic imputation, without the additional showing that is required
As it is possible that this deficiency may be cured, the Court grants leave to re-plead.
B. Failure to Allege Which Debtor Made the Transfer
The Movants also argue that the Complaint fails to identify the Debtor or Debtors that made the transfers — referring instead to “an amorphous ‘LyondellBasell’ ... a vaguely defined term”
This contention appears to have been addressed by the Creditor Trust, to the extent it was addressed at all, merely by speaking of the various Lyondell affiliates in the aggregate.
The Court believes, as discussed in Section II above, that collapsing doctrine could enable the Court to disregard corporate distinctions, and to look at the LBO as a whole. But the Creditor Trust must at the least identify in its Complaint the particular Debtors that are to be included as part of the collapsing analysis, and whose assets are alleged to have been transferred or subjected to liens. The Court agrees with the Movants that the intentional fraudulent transfer claim is presently deficient in these respects as well.
The intentional fraudulent transfer claim is dismissed for this additional reason. Once again, however, since it is possible that the deficiencies can be cured, leave is granted to replead.
C. Facts Supporting Intent to Hinder, Delay or Defraud
The Movants properly observe that under the law of either of the states whose
In some respects the Creditor Trust has, and in other respects it has not. The Creditor Trust has pleaded facts that, if proven, would suggest that Lyondell CEO Smith and senior management intended to secure a variety of benefits to themselves, as management and stockholders, which would result from Blavatnik’s acquisition of Lyondell, the merger of Basell and Lyondell, and the LBO from which those ends would be achieved.
The intent element of an intentional fraudulent transfer claim “may be alleged generally so long as the plaintiff alleges ‘facts that give rise to a strong inference of fraudulent intent.’ ”
“in determining whether the pleaded facts give rise to a ‘strong’ inference of scienter, the Court must take into account plausible opposing inferences,” such that “a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.”207
Generally, in intentional fraudulent transfer cases as well as securities fraud cases, a “strong inference of fraudulent intent ‘may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.’ ”
The Movants are right in contending that the Complaint is nearly entirely constructive fraudulent transfer focused, and speaks of the effect of the LBO, as contrasted to its intent. The Movants are also right in contending that the Complaint is devoid of any allegations of facts supporting an intention to actually injure creditors (and in particular, to hinder delay and defraud them), as contrasted to allegations evidencing an intention on the part of Lyondell corporate officers to enrich themselves, whatever the consequences. The Complaint
With respect to this additional asserted basis for dismissal, the facts pleaded to show motive are enough. The Complaint satisfactorily alleges a motive to commit fraud (on the part of Smith and any directors who were also stockholders), and alleges an opportunity for Smith and officers assisting him to advance the LBO process — part, but less than all, of the required showing. But the complaint would satisfactorily allege the ultimate opportunity to do the allegedly resulting damage only if influence on the Board could be shown. If (but only if) the Creditor Trust can show the requisite influence on the Board’s decision-making, discussed above, the Complaint need not be dismissed for failure to allege the requisite intent.
D. Plausibility
Finally, the Movants contend that “participation of the Lenders — major, sophisticated financial institutions, such as Citibank, Goldman Sachs, and Merrill Lynch — renders implausible any claim that the Merger was undertaken with knowledge that it would inevitably lead to Lyon-dell’s or Basell’s failure.”
The Court declines to dismiss the intentional fraudulent transfer claims based on asserted implausibility.
Conclusion
For the reasons set forth above:
(1) The Movants’ motion to dismiss insofar as premised on the contentions that the Creditor Trust’s constructive fraudulent transfer claims
(a) are proscribed by Bankruptcy Code section 546(e), or
(b) are preempted by section 546(e) or otherwise by federal law,
is denied.
(2) The Movants’ motion to dismiss insofar as premised on the contention that that the Creditor Trust failed satis*392 factorily to allege a transfer of property by the Debtors is denied.
(3) The Movants’ motion to dismiss insofar as claims are asserted against entities that are conduits, nominees, or other non-beneficial holders is granted.
(4) The Movants’ motion to dismiss insofar as claims are asserted against LBO Lenders is granted.
(5) The Movants’ motion to dismiss Count II, alleging intentional fraudulent transfer, is granted. Leave to replead Count II is granted.
The Court’s Chambers will set an on-the-record status conference with the parties to address what needs to be done next.
SO ORDERED.
. Acronyms make understanding difficult for readers who have not been living with a case. The Court tries to minimize their use. For readability, except where acronyms appear in quotations or have acquired obvious meaning, the Court expands the acronyms out, or substitutes terms that are more descriptive of the entity’s role in the transaction.
. Lyondell then filed along with 78 affiliates. About three months later, on April 24, 2009, the Resulting Company and another Lyondell affiliate joined them as debtors in this Court.
. Payments incident to the LBO and the Merger allegedly also cost Lyondell approximately $575 million in transaction fees and expenses, and another $337 million in payments to Lyondell officers and employees in change of control payments and other management benefits. But this action does not address them, except insofar as they are alleged to have provided a motive for the alleged intentional fraudulent transfer claims discussed in Section V below.
. In the first of the others, Weisfelner v. Blavatnik, No. 09-1375 ( "Blavatnik ”), another trust, the LB Litigation Trust (the "Litigation Trust”) asserts 21 claims for damage to Lyon-dell under state law, the laws of Luxembourg, and the Bankruptcy Code — principally against officers and directors (and the foreign equivalents of such) of Lyondell and Basell, Blavatnik, and Blavatnik entities and personnel— most significantly for breaches of fiduciary duty and aiding and abetting those breaches.
In the second of the others, Weisfelner v. Alfred R. Hoffman Charles Schwab & Co. Cust. IRA Contributory ("Hoffman ”), No. 10-5525, the Litigation Trust asserts federal fraudulent transfer claims, under section 548 of the Bankruptcy Code, against shareholders who secured LBO consideration. To the extent that any section 548 claims might otherwise lie under constructive fraudulent transfer doctrine, they may not be asserted in the Second Circuit, under the Circuit's decisions in Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V. (In re Enron Creditors Recovery Corp.), 651 F.3d 329 (2d Cir. 2011) ("Enron”), and Official Comm. of Unsecured Creditors v. American United Life Iris. Co. (In re Quebecor World (USA) Inc.), 719 F.3d 94 (2d Cir. 2013)
. The Creditor Trust has brought claims in this adversary proceeding only against those who are alleged to have received more than $100,000. Of these, about 90 are alleged to have received more than $10 million, and 10 are alleged to have received more than $100 million. See Second Am. Compl. ¶ 15, Dec. 19, 2011, ECF No. 253 (''Complaint”).
. See, e.g., United States v. Tabor Court Realty Corp., 803 F.2d 1288, 1296-97 (3d Cir. 1986) (mortgages executed in favor of lender in connection with LBO were fraudulent transfers); HBE Leasing Corp. v. Frank, 48 F.3d 623, 635 (2d Cir. 1995) (“HBE Leasing ”) (noting that it is well established that multilateral transactions may under appropriate circumstances be "collapsed” and treated as phases of a single transaction for analysis under the Uniform Fraudulent Conveyance Act, and that "[t]his approach finds its most frequent application to lenders who have financed leveraged buyouts of companies that subsequently become insolvent”); Wieboldt Stores, Inc. v. Schottenstein, 94 B.R. 488, 503 (N.D.Ill. 1988) (Holderman, J.) (“Wieboldt I") (denying motions to dismiss fraudulent transfer claims that had been asserted in connection with LBO), and 131 B.R. 655, 664-65 (N.D.Ill. 1991) (Holderman, J.) (“Wieboldt II ”) (denying later motions for summary judgment).
As explained by the Third Circuit in its later decision in Plassein International:
[Ljeveraged buyouts, in certain circumstances, can prejudice unsecured creditors of the acquired company by exchanging the equity in the acquired company for secured debt held by other creditors with priority over the claims of the unsecured creditors. Accordingly, the use of a debtor’s assets for security for a loan can impair the ability of unsecured creditors to recover their debts from the debtor. Therefore a reasonable argument can be made that, if possible, fraudulent transfer laws should not be applied to protect leveraged buyouts from being avoided as fraudulent transfers.
Brandt v. B.A. Capital Co. LP (In re Plassein Intern. Corp.), 590 F.3d 252, 256 (3d Cir. 2009) (“Plassein International’’) (citations omitted). Thus most of the LBO fraudulent transfer jurisprudence has recognized the potential viability of fraudulent transfer claims against stockholders paid off in LBOs, and has focused instead on whether the LBO actually rendered the debtor insolvent or left it with inadequate working capital, or whether the stockholders were nevertheless immunized from liability by reason of the section 546(e) safe harbor. See, e.g., id.
. In re Tribune Co. Fraudulent Conveyance Litig., 499 B.R. 310 (S.D.N.Y. 2013) (Sullivan, J.) ("Tribune ”).
. Transcript of Decision of Feb. 17, 2013, Development Specialists, Inc. v. Kaplan (In re Irving Tanning Co.), No. 12-01024 (Bankr.D.Me. Feb. 17, 2013), ECF No. 43 (Komreich, J.) ("Irving Tanning ”).
. There is no need to name them, and upon the agreement of the parties, the caption was changed to refer to the first named defendant as “Fund 1,” and to other defendants by similar generic names. Most appear to be investment banking houses, brokerage firms, or other financial institutions.
. Complaint ¶ 3.
. Id. ¶4.
. Id.
.The particular state law is not relevant to these motions, if it ever will be. State fraudulent transfer law is largely, but not entirely, the same throughout the United States; the Uniform Fraudulent Transfer Act ("UFTA”) has been enacted in 43 of the states, though two (including New York) still use the older Uniform Fraudulent Conveyance Act ("UFCA”), and five others have idiosyncratic statutes or rely on common law. See Kenneth C. Kettering, Codifying a Choice of Law Rule for Fraudulent Transfer: A Memorandum to the Uniform Law Commission, 19 Am. Bankr Inst. L.Rev. 319 (2011). All states grant creditors relief when transfers from a debtor render the debtor insolvent or with unreasonably small capital, and none have safe harbors like Bankruptcy Code section 546(e).
. Third Am. and Restated Joint Ch. 11 Plan of Reorganization for the LyondellBasell Debtors, at 2, Mar. 12, 2010, ECF No. 4418-1 ("Plan”).
. Plan at 60.
. The principles applicable to motions to dismiss under Rule 12(b)(6) need not be addressed at length here. Fed.R.Civ.P. 8(a)(2)
. See 499 B.R. at 315-16 ("To determine whether Section 546(e) also applies to the Individual Creditors, the Court ‘must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.’ ” (quoting United States v. Kozeny, 541 F.3d 166, 171 (2d Cir. 2008), which in turn had quoted United States v. Albertini, 472 U.S. 675, 680, 105 S.Ct. 2897, 86 L.Ed.2d 536 (1985))).
. 11 U.S.C. § 546(e) (2006) (emphasis added); see also Tribune, 499 B.R. at 316 (“Section 546(e) addresses its prohibition on avoiding settlement payments only to the bankruptcy trustee....”).
. Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) (“Hartford Underwriters ") ("Congress 'says in a statute what it means and means in a statute what it says there.’ ”).
. Tribune, 499 B.R. at 316.
. See Complaint at ¶ 5, Irving Tanning, No. 12-01024 (Bankr.D.Me. Nov. 25, 2012) ECF No. 1 ("Irving Tanning Complaint”) ("In addition, the Complaint asserts state law fraudu
. See Irving Tanning Complaint ¶ 5 ("This Complaint ... asserts federal law claims, to which the Trust succeeds [the Debtors], to recover fraudulent transfers under section 544(b) and applicable state law.”).
. Transcript of Decision of Feb. 17, 2013 at 6:23-7:7, Irving Tanning, No. 12-01024 (Bankr.D.Me. Feb. 17, 2013), ECF No. 43.
. Tribune, 499 B.R. at 320.
. Gregory v. Ashcroft, 501 U.S. 452, 457, 111 S.Ct. 2395, 115 L.Ed.2d 410 (1991) (“Gregory").
. Arizona v. United States,-U.S.-, 132 S.Ct. 2492, 183 L.Ed.2d 351 (2012) (“Arizona”); accord Gregory, 501 U.S. at 457, 111 S.Ct. 2395.
. Arizona, 132 S.Ct. at 2500.
. U.S. Const. art. VI, cl. 2.
. Arizona, 132 S.Ct. at 2500.
. Altria Grp., Inc. v. Good, 555 U.S. 70, 76, 129 S.Ct. 538, 172 L.Ed.2d 398 (2008) ("Altria Group ”) (quoting Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 68 L.Ed.2d 576 (1981)); Niagara Mohawk Power Corp. v. Hudson River-Black River Regulating Dist., 673 F.3d 84, 94-95 (2d Cir. 2012) ("Niagara Mohawk ") (quoting Altria Group).
. In re Methyl Tertiary Butyl Ether ("MTBE") Prods. Liab. Litig., 725 F.3d 65, 96 (2d Cir. 2013) ("MTBE").
. Madeira v. Affordable Hous. Found., Inc., 469 F.3d 219, 238 (2d Cir. 2006) (alteration in original) (quoting N.Y. Tel. Co. v. N.Y. State Dep't of Labor, 440 U.S. 519, 540, 99 S.Ct. 1328, 59 L.Ed.2d 553 (1979)).
. Wyeth v. Levine, 555 U.S. 555, 565, 129 S.Ct. 1187, 173 L.Ed.2d 51 (2009) ("Wyeth ”).
. Id. (quoting Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996) ("Lohr ”)); accord Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992); see also Niagara Mohawk, 673 F.3d at 95 ("The key to the preemption inquiry is the intent of Congress ....” (quoting N.Y. SMSA Ltd. P'ship v. Town of Clarkstown, 612 F.3d 97, 104 (2d Cir. 2010))).
. Wyeth, 555 U.S. at 565, 129 S.Ct. 1187 (alternation in original) (quoting Lohr, 518 U.S. at 485, 116 S.Ct. 2240).
. Wyeth, 555 U.S. at 565 n.3, 129 S.Ct. 1187 (quoting Lohr, 518 U.S. at 485, 116 S.Ct. 2240); accord Bates v. Dow Agrosciences L.L.C., 544 U.S. 431, 449, 125 S.Ct. 1788, 161 L.Ed.2d 687 (2005) ("Dow Agrosciences ”) ("In areas of traditional state regulation, we assume that a federal statute has not supplanted state law unless Congress has made such an intention clear and manifest.’ ” (quoting N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995))).
. MTBE, 725 F.3d at 96; see also U.S. Smokeless Tobacco Mfg. Co. LLC v. City of N.Y., 708 F.3d 428, 432 (2d Cir. 2013) ("Smokeless Tobacco ") ("Preemption analy
. Niagara Mohawk, 673 F.3d at 95.
. The Movants' opening brief was vague as to the kind of preemption upon which they rely. They later stated, in their reply brief, that " [although conflict preemption is the most clearly applicable doctrine here given the direct conflict between the [Creditor TrustJ's state-law claims and federal law, field preemption also applies.” (Reply Mem. in Further Support of Defs.’ Mot. to Dismiss 13 n. 4, Apr. 15, 2011, ECF No. 168 ("Movants’ Reply Br.”)). They thus do not appear to contend that express preemption is applicable here, and the Court accordingly addresses express preemption only briefly.
. Arizona, 132 S.Ct. at 2500-2501.
. Congress did so in a different respect, and its decision to do so in that respect alone is significant here. See page 366 and n. 71 below.
. Niagara Mohawk, 673 F.3d at 95 (quoting English v. Gen. Elec. Co., 496 U.S. 72, 79, 110 S.Ct. 2270, 110 L.Ed.2d 65 (1990)).
. The Court does not believe that the "field” can properly be regarded as broadly as insolvency generally, at least where creditors have agreed to limit or transfer their own rights.
Nor does the Court believe that the “field" can be regarded as broadly as "proceedings” within bankruptcy, as the Movants assert in passing in a footnote of their reply brief. See Movants’ Reply Br. 13 n. 4. For that broad proposition, they quote the decision of a district judge in Official Comm, of Unsecured Creditors of Hechinger Inv. Co. of Del. v. Fleet Retail Fin. Grp. (In re Hechinger Inv. Co. of Del.), 274 B.R. 71 (D.Del. 2002) ("Hechinger ”). But the conclusion there is right or wrong as a matter of conflict preemption, not field preemption (though the court there articulated its conclusions in terms of both doctrines), and the Hechinger discussion of "proceedings” in the field preemption context appears to be based on a misunderstanding of what "proceedings” means in bankruptcy usage. As used within the bankruptcy community, “proceedings” include applications, motions, contested matters and adversary proceedings, see, e.g., Buena Vista Television v. Adelphia Commc’n Corp. (In re Adelphia Commc’n Corp.), 307 B.R. 404, 413 n.22 (Bankr.S.D.N.Y. 2004), a very large number of which arise under state law.
. See FraudulentTransfer Act Summary, Nat’l Conference of Comm’rs on Unif. State Laws, http://www.uniformlaws.org/Act Summary.aspx?title=FraudulentTransferAct (last visited Jan. 7, 2014).
. See David A. Skeel, Jr., Debt’s Dominion: A History of Bankruptcy Law in America, at 3-4 (2001) (“Debt’s Dominion ”).
. See 5 Collier on Bankruptcy (16th ed. 2013) ("Collier ”) ¶ 544.LH[2] (“Subsection (b)(1) is derived from Section 70e. It gives the trustee the rights of actual unsecured creditors under applicable law to void transfers.”).
. Of course, it is contrary to the important bankruptcy policy of equality of distribution if individual creditors suing to advance personal interests assert claims which, if otherwise ac
. See 4A Collier on Bankruptcy (14th Ed. 1978) ("Collier 14th”) ¶ 70.03[1] (showing, with italics, 1938 additions to the Bankruptcy Act as it then existed). Collier 14th is the earlier edition of Collier on Bankruptcy, which discussed the law under the former Act. It should be contrasted with the present version, in which the present Bankruptcy Code section 544 is discussed. See Collier ¶ 544.06[2] & n. 18.
. See n. 42 above.
. Niagara Mohawk, 673 F.3d at 95.
. The Court structures its discussion, and its caption headings, as the Second Circuit did in its recent decision in MTBE.
. MTBE, 725 F.3d at 97 (citation omitted).
. Id.
. MTBE, 725 F.3d at 101 (alteration in original) (quoting Arizona, 132 S.Ct. at 2505).
. Id. (quoting Mary Jo C. v. N.Y. State & Local Ret. Sys., 707 F.3d 144, 162 (2d Cir. 2013)).
. MTBE, 725 F.3d at 101-02 (first alteration in original).
. MTBE, 725 F.3d at 101 (quoting Marsh v. Rosenbloom, 499 F.3d 165, 178 (2d Cir. 2007)).
. See Movants' Reply Br. 6 ("The state-law claims here most assuredly ‘stand as an obstacle to the accomplishment and execution' of Section 546(e), and would ‘frustrate the purposes’ of that federal legislation.").
. See 499 B.R. at 316-320.
. See page 360 & n. 34 above.
. See MTBE, 725 F.3d at 102 ("To determine whether a state law (or tort judgment) poses an obstacle to accomplishing a Congressional objective, we must first ascertain those objec
. Arizona, 132 S.Ct. at 2501; MTBE, 725 F.3d at 97 (quoting Arizona) (emphasis added in each case) (internal quotation mark omitted).
. Tribune, 499 B.R. at 317 (internal quotation marks omitted) (quoting Kaiser Steel Corp. v. Charles Schwab & Co., 913 F.2d 846, 848 (10th Cir. 1990) ("Kaiser Steel ”)).
. Id. (citation omitted).
. Id. at 318.
. Id. (“For example, the Commodities Futures Trading Commission and Commodity Exchange, Inc. petitioned Congress to amend Section 546(e) to expressly preempt SLCFC [state law constructive fraudulent conveyance] claims. Nevertheless, Congress declined to do so when it enacted Section 546(e) in 1977. Moreover, on each of the eight occasions when it has amended Section 546(e), Congress has never added an express preemption provision, even after the Bankruptcy Court for the District of Delaware held that Section 546(e) permits creditors to assert SLCFC claims under the right circumstances.”) (citations and footnotes omitted).
. Id.
. Id. (emphasis added) (citing MTBE, 725 F.3d at 101-02).
. Id.
. Id.
. See 11 U.S.C. § 544(b)(2) (added by Bankruptcy — Religious Liberty and Charitable Donation Protection Act of 1998, Pub.L. No. 105-183, June 19, 1998, 112 Stat. 517) ("Any claim by any person to recover a transferred contribution described in the preceding sentence under Federal or State law in a Federal or State court shall be preempted by the commencement of the case.”) (emphasis added).
. Wyeth, 555 U.S. at 575, 129 S.Ct. 1187 (internal quotation mark omitted); see also MTBE, 725 F.3d at 101-02; Tribune, 499 B.R. at 318 (in each case citing Wyeth, and in Tribune's case citing both).
. 499 B.R. at 318-319 (citations omitted); see also Integrated Solutions, Inc. v. Svc. Support Specialties, Inc., 124 F.3d 487, 493 (3d Cir. 1997), quoted in Tribune, 499 B.R. at 319 ("The clear lack of Congressional intent to preempt state law ... is even more telling given the explicit language the Congress uses when it intends to displace state nonbankruptcy law in other provisions of the Code.” (citing 11 U.S.C. §§ 541(c)(1), 1123(a))).
. United Sav. Ass’n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988).
. See, e.g., In re WorldCom, Inc., 723 F.3d 346, 360 (2d Cir. 2013).
. Official Comm. of Unsecured Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery, 330 F.3d 548, 559 (3d Cir. 2003) (en banc).
. Capital Commc’ns Fed. Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43, 49 (2d Cir. 1997) (citation omitted) (alteration in original) (emphasis added).
. See 5 Collier ¶ 548.01[2],
. See 5 Collier ¶¶ 548.01[2], 548.12.
. 1 Collier ¶ 1.05 [5],
. Tribune, 499 B.R. at 317.
. 196 B.R. 348, 352 (N.D.Tex. 1996) (Kendall, J.) ("Jewel Recovery ”).
. Mishkin v. Ensminger (In re Adler, Coleman Clearing Corp.), 263 B.R. 406, 477 (S.D.N.Y. 2001) (Marrero, J.) ("Adler Coleman ”).
. 324 U.S. 204, 210 & 210 n. 8, 65 S.Ct. 594, 89 L.Ed. 890 (1945) ("[H]istorically one of the prime purposes of the bankruptcy law has been to bring about a ratable distribution among creditors of a bankrupt's assets; to protect the creditors from one another. And the corporate reorganization statutes look to a ratable distribution of assets among classes of stockholders as well as creditors.”).
. 196 B.R. at 352. .
. 263 B.R. at 463 (citation omitted).
. "The [NBC] was formed from a nucleus of the nation’s leading bankruptcy scholars and practitioners, who gathered informally in the 1930's at the request of Congress to assist in the drafting of major Depression-era bankruptcy law amendments, ultimately resulting in the Chandler Act of 1938. [It] was formalized in the 1940's and has been a resource to Congress on every significant piece of bankruptcy legislation since that time.” See Our Mission, http ://www.nationalbankrup toy conference.org/mission.cfm (last visited Jan. 8, 2014).
. Bankruptcy Issues in Review: The Bankruptcy Code’s Effect on Religious Freedom and a Review of the Need for Additional Bankruptcy Judgeships Before the Subcomm. on Admin. Oversight and the Courts and the Comm, on the Judiciary, 105th Cong. 1 (1997) (prepared statement of NBC). The NBC was ultimately unsuccessful in dissuading Congress from expressly preempting state fraudulent transfer laws that could avoid charitable gifts. But Congress did not then preempt state fraudulent transfer laws in any other respects. The point, of course, is not whether Congress was right or wrong when it considered charitable gifts to be sufficiently important to trump longstanding bankruptcy policy; it is that "trumping” decisions present balancing issues for Congress to decide, which Congress can do when it chooses to expressly preempt state law.
.See Northern Pac. R. Co. v. Boyd, 228 U.S. 482, 33 S.Ct. 554, 57 L.Ed. 931 (1913) ("Boyd "). As the Supreme Court then put it:
[I]f purposely or unintentionally a single creditor was not paid, or provided for in the reorganization, he could assert his superior rights against the subordinate interests of the old stockholders in the property transferred to the new company. They were in the position of insolvent debtors who could not reserve an interest as against creditors. Their original contribution to the capital stock was subject to the payment of debts. The property was a trust fund charged primarily with the payment of corporate liabilities. Any device, whether by private contract or judicial sale under consent decree, whereby stockholders were preferred before the creditor, was invalid.
Id. at 504, 33 S.Ct. 554 (emphasis added); see also Louisville Trust Co. v. Louisville, N.A. & C.R. Co. 174 U.S. 674, 683-684, 19 S.Ct. 827, 43 L.Ed. 1130 (1899)(“Louisville Trust") (in context of foreclosure proceedings affecting a railroad, “no such proceedings can be rightfully carried to consummation which recognize and preserve any interest in the stockholders without also recognizing and preserving the interests, not merely of the mortgagee, but of every creditor of the corporation.... This is based upon the familiar rule that the stockholder's interest in the property is subordinate to the rights of creditors.”).
. Boyd, 228 U.S. at 504, 33 S.Ct. 554.
. In re Iridium Operating LLC, 478 F.3d 452 (2d Cir. 2007) ("Iridium ”).
. See 5 Collier ¶ 546.LH[5].
. Seligson v. New York Produce Exch., 394 F.Supp. 125 (S.D.N.Y. 1975) (“Ira Haupt").
. Id. at 136. The Ira Haupt court did, however, ultimately dismiss claims against the exchange, finding that the exchange could not be held accountable for the clearing association’s actions. Id. at 138.
. 5 Collier 11 546.LH[5] & nn. 36-37.
. 5 Collier ¶ 546.LH[5],
. 5 Collier ¶ 546.LH[5] & n. 40.
. 5 Collier ¶ 546.LH[5] & n. 42.
. See 5 Collier ¶ 546.LH[5] & n. 43. Collier there points out legislative history in 1982 that ‘‘[t]he new section 546(d) reiterates and clarifies the provision of current section 764(c), [and] also encompasses both stockbrokers and securities clearing agencies. Thus, it has been placed among the general provisions in chapter 5 of title 11, rather than among the commodity broker provisions in subchapter IV of chapter 7.” (Internal quotation marks and citation omitted). Collier further points out that section 546(d) was enacted "to clarify and, in some instances, broaden the commodities market protections and expressly extend similar protections to the securities market.” Id. (Internal quotation marks omitted).
. Compare legislative history with respect to the original (commodities focused) 1978 enactment, 124 Cong. Rec. S17403-34, at S17433 (daily ed. Oct. 6, 1978), reprinted in Collier App. Pt. 4(f)(iii) (the “1978 Legislative Interchange”), and the 1982 amendment, which expanded the earlier commodities focused safe harbor to cover the securities markets, H.R. Rep. No. 97-420 (1982), reprinted in 1982 U.S.C.C.A.N. 583 and Collier App. Pt. 41(d)(i)(A) (the "1982 House Report”).
. 124 Cong. Rec. atS17433.
. Id.
. Id.
. 1982 House Report at 1-2 (emphasis added). It later stated that the new section 546(d) would "reiterate[] the provisions of [then] current section 764(c),” and would "encompass[] both stockbrokers and securities clearing agencies.” Id. at 3.
. See n. 4 above.
. The Enron court expressed its understanding of section 546(e)’s purpose in the context of a dispute as to the interpretation of section 546(e), and section 546(e)’s cross-reference to section 741(8)’s "rather circular[]” definition of "settlement payment,” 651 F.3d at 334 — more specifically, whether “settlement payment” should be construed sufficiently broadly to cover the redemption of commercial paper before maturity. See id. at 330. The Enron court was not called upon to decide, and did not decide, any issues with respect to preemption. Likewise, the Second Circuit’s other leading 546(e) case, Quebecor, see n. 4 above, did not address preemption either.
. Enron, 651 F.3d at 334 (alteration in original) (internal quotation marks omitted) (quoting Kaiser Steel, 913 F.2d at 849, in turn quoting the 1982 House Report); see also Adler Coleman, 263 B.R. at 477 (also quoting Kaiser Steel and the 1982 House Report).
. 263 B.R. at 477 (quoting the 1982 House Report).
. See n. 95 above.
. See page 370 & nn. 98-100 above.
. See, e.g., Geltzer v. Mooney (In re MacMenamin’s Grill Ltd.), 450 B.R. 414, 419, 423 (Bankr.S.D.N.Y. 2011) (Drain, J.) (denying summary judgment sought by the three defendant stockholders who had sold their stock in a bar and grill, citing decisions noting that granting a safe harbor to a constructively fraudulent private stock sale "has little if anything to do with Congress’ stated purpose in enacting section 546(e),” and that exempting transactions like the sale of privately held stock from avoidance was "so far removed from achieving Congress’ professed intent to protect the financial markets that it would be absurd to apply” the section 546(e) safe harbor to a transaction of that character); Official Comm. of Unsecured Creditors v. Lattman (In re Norstan Apparel Shops, Inc.), 367 B.R. 68, 76 (Bankr.E.D.N.Y. 2007) (Craig, CJ.) (declining to dismiss fraudulent transfer action brought against stockholders where the action "[did] not involve publicly traded securities or otherwise implicate the public securities markets”).
. See 5 Collier ¶ 546.LH[5] ("While some courts rely on the plain meaning of section 546(e) and hold that section 546(e) does apply to private transactions, other courts have held that the statute is ambiguous and give accord to the congressional intent to only protect transactions which implicate systemic risks, as described in the legislative history of the statute.”).
. See n. 115 above.
.In its testimony to the ABI on chapter 11 reform, the NBC explained:
After studying the various types of payments protected by the safe harbor in the years since it was first enacted, the [NBC’s] Capital Markets Committee found that payments received by beneficial holders of securities, in other words, payments going beyond those made to market system participants, were being sheltered under section 546(e). The Committee concluded that avoidance recoveries from the ultimate recipients of certain transfers on securities, the beneficial owners, would not create the systemic risk the safe harbor was intended to avoid. As an unwarranted limitation on the trustee’s power to recover assets for all creditors, the Committee recommended that actions against beneficial holders for recovery of redemption payments, principal payments, dividend payments, interest pay-merits or other distributions on or in respect of securities be taken out of the safe harbor provision of section 546(e).
NBC, Statement Before American Bankruptcy Institute Commission to Study the Reform of Chapter 11, 3-4 (May 15, 2013), http:// commission.abi.org/sites/default/files/ statements/15may2013/Statement_for_ABI_ commission_May_15_2013_Vris.docx.
. See 1982 House Report at 1-2.
. Whyte v. Barclays Bank PLC, 494 B.R. 196 (S.D.N.Y. 2013) (Rakoff, J.) ("Barclays").
. In re SemCrude L.P., et al., No. 08-11525 (Bankr.D.Del.) (Shannon, J.) ("SemGroup ”).
. As alleged in the amended complaint, SemGroup was a large energy transport and storage company that filed for bankruptcy in
. Order, Barclays, No. 12 Civ. 5318 (S.D.N.Y. Nov. 7, 2012), ECF No. 32 ("The defendants’ motion to dismiss is hereby granted. However, final judgment will not be entered until the Court issues its written opinion giving the reasons for this decision.”).
. See n. 120 above.
125. Section 546(g) provides, in substance, that notwithstanding sections 544 and 548, trustees and estate representatives cannot avoid prepetition transfers in connection with swap agreements. Like section 546(e), it is subject to an exception for transfers with actual intent to hinder, delay or defraud.
. Barclays, 494 B.R. at 201.
. The Court relies on the district court decisions in Tribune and Barclays to the extent each is persuasive; neither is binding on this Court, since as this Court has noted in earlier decisions, district court decisions are not binding on bankruptcy courts except with respect to any district court mandate pursuant to an appeal. See In re Motors Liquidation Co., 486 B.R. 596, 642 n.189 (Bankr.S.D.N.Y. 2013) (Gerber, J.); see also Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 430 n.10, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996) ("If there is a federal district court standard, it must come from the Court of Appeals, not from the over 40 district court judges in the Southern District of New York, each of whom sits alone and renders decisions not binding on the others.”); Tuttle v. Buckner (In re Buckner), 218 B.R. 137, 146 n.12 (10th Cir. BAP1998) (decision of a district judge, while binding in the case from which an appeal was taken, was merely persuasive, and not binding, in another case) (citing 1B James Wm. Moore, Moore’s Federal Practice ¶ 0.402[1] (2d ed. 1996) (opinion of single judge in a multi-judge district is not binding precedent in future cases, but merely persuasive)).
. Id.
. Id. (emphasis added).
. Id. (emphasis added).
. Id. (emphasis added). Similarly, the Tribune court noted three other cases in which federal courts blocked state causes of action because of section 546(e). See 499 B.R. at 319 n.10 (citing Contemporary Indus. Corp. v. Frost, 564 F.3d 981, 988 (8th Cir. 2009); U.S. Bank N.A. v. Verizon Commc'ns Inc., 892 F.Supp.2d 805, 812, 815 (N.D.Tex. 2012); Hechinger, 274 B.R. at 95-96). But it observed that each of the cases likewise involved a successor to the bankruptcy trustee — which was expressly bound by section 546(e), and that "none of them addresse[d] whether section 546(e) should apply to individuals or entities other than the trustee.” Id.
. In one of the other respects with which the Court differs with the Barclays court (and where it appears that the Tribune court assumed, without deciding, that the Barclays court did not err in that respect), the Court does not find significance in the fact that a plaintiff litigation trust did or did not acquire its rights under a chapter 11 plan, or was a "creature” of a chapter 11 plan. See Barclays, 494 B.R. at 200.
The Barclays court cited no bankruptcy law or other authority as to why the distinction matters, and this Court can think of no reason why it would. Individuals and entities can convey choses in action by contract, and though, when they do so, the assignees are subject to defenses applicable to their assignors, see, e.g., In re KB Toys Inc., 736 F.3d 247, 250 (3d Cir. 2013), the assignees also acquire the rights of their assignors. A reorganization plan is a species of court approved contract, see, e.g., Charter Asset Corp. v. Victory Markets, Inc. (In re Victory Markets, Inc.), 221 B.R. 298, 303 (2d Cir. BAP1998) ("a confirmed plan holds the status of a binding contract as between the debtor and its creditors”), and so long as the assignment of the rights has been duly implemented, it does not matter whether that is accomplished by a standalone contract or pursuant to a plan. Section 1123 of the Code, which addresses what a plan of reorganization may contain, provides that in addition to the various enumerated matters, seesection 1123(b)(2) through (b)(5), a plan may "include any other appropriate provision not inconsistent with the applicable provisions of this title.” Section 1123(b)(6). At least as a general matter, choses in action can be assigned. See, e.g., Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 17 (2d Cir. 1997) ("Advanced Magnetics ”) ("In general, claims or choses in action may be freely transferred or assigned to others.”); Cordes Fin. Serv. v. A.G. Edwards & Sons, 502 F.3d 91, 103 (2d Cir. 2007) (same, quoting Advanced Magnetics). The assignments of claims by creditors under the plan in SemGroup and in this case were garden variety examples of this.
. See Barclays, 494 B.R. at 200 n.6 (“Because there is a history of significant federal presence in this area of regulation, the Court does not apply a presumption against preemption.” (citing United States v. Locke, 529 U.S. 89, 108, 120 S.Ct. 1135, 146 L.Ed.2d 69 (2000))). The Barclays court went on to say that even if it were to apply such a presumption, doing so would not alter its conclusión.
. See page 360 & n. 35 above.
. See page 360 & n. 37 above. Of course, neither MTBB nor Smokeless Tobacco had yet been issued as of the time that the November 2012 "bottom-line order” had been entered, and MTBE had not been issued when the written Barclays opinion was published. A lesser body of authority (though still emanating from the Supreme Court) had dictated consideration of the presumption at that time. See, e.g., Lohr, 518 U.S. at 485, 116 S.Ct. 2240.
. 494 B.R. at 200 n. 6.
.As Collier explains:
Fraudulent transfer law was first fully absorbed into federal bankruptcy law in 1938 through the various provisions of the Chandler Act. Before the Chandler Act, federal bankruptcy law only directly addressed actual intent fraudulent transfers, and then only to the extent made within four months of bankruptcy. The 1938 amendments brought the full panoply of fraudulent transfer law into federal law, including the ability to avoid constructively fraudulent transfers. At that time, noting the growing adopting of the 1918 UFCA, Congress adopted its language as federal law. In the words of one of the documents used to frame the bill that became the Chandler Act, "[w]e have condensed the provisions of the Uniform Fraudulent Conveyance Act, retaining its substance, and, as far as possible, its language.”
5 Collier ¶ 548.01 [2] (footnotes omitted).
. Id.
. In support of its view, the Barclays court cited United States v. Locke, 529 U.S. 89, 120 S.Ct. 1135, 146 L.Ed.2d 69 (2000) ("Locke”), though without quoting or paraphrasing it. But the Locke court stated, at the place cited by the Barclays court, that in the case then before it, "Congress has legislated in the field from the earliest days of the Republic, creating an extensive federal statutory and regulatory scheme.” Id. at 108, 120 S.Ct. 1135; see also id. at 98, 120 S.Ct. 1135 ("The State of Washington has enacted legislation in an area where the federal interest has been manifest since the beginning of our Republic and is now well established. The authority of Congress to regulate interstate navigation, without embarrassment from intervention of the separate States and resulting difficulties with foreign nations, was cited in the Federalist Papers as one of the reasons for adopting the Constitution.”) (citations to Federalist Papers omitted). That rationale would not seem to apply to safe harbor legislation first enacted by the Congress in 1990, and whose first cousins went back no earlier than 1978— especially when it is the state law that goes back to the earliest days of the Republic.
. Arizona, 132 S.Ct. at 2505 (emphasis added) (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941)) (internal quotation mark omitted). The Second Circuit reiterated that in MTBE, see 725 F.3d at 101, though after Barclays was issued. Importantly, neither the Supreme Court, in Arizona, nor the Second Circuit, in MTBE, articulated the proper standard as turning on a conflict with "any” of the purposes and objectives of Congress. Rather, each spoke of the "full” purposes, which can be read only as requiring consideration of them in their totality-
. The Barclays court also failed to address the point noted in Tribune that Congress elected to expressly preempt state law with respect to charitable contribution fraudulent transfers, but failed to expressly preempt state law in any other respects, though Congress was on notice of judicial decisions that had allowed state law constructive fraudulent transfer claims on the part of creditors to proceed. Tribune, 499 B.R. at 318 ("Congress has never added an express preemption provision, even after the Bankruptcy Court for the District of Delaware held that Section 546(e) permits creditors to assert [state-law constructive fraudulent conveyance] claims under the right circumstances.” (citing PHP Liquidating, LLC v. Robbins, 291 B.R. 603, 607 (D.Del. 2003))).
. See 494 B.R. at 200 ("The obvious purpose of section 546(g), fully confirmed by the legislative history, is to protect securities markets from the disruptive effects that unwinding such transactions would inevitably create.’’).
. Needless to say, this Court expresses no view on whether the Barclays "bottom line” might still be correct in the context of the swap transactions presented there, notwithstanding the matters discussed above and below.
. MTBE, 725 F.3d at 101-02 (internal quotation marks omitted).
. Litigants on each side of a controversy live with statutes as they find them. Defendants in avoidance action litigation have successfully relied on section 546(e) to immunize themselves from trustees’ avoidance claims even in cases not involving systemic risk; Enron and Quebecor absolve transferees from liability in such instances because the statutory language Congress employed was held to require such a result. But just as plaintiffs in avoidance actions must live with the Code as Congress drafted it when the defendants in those actions invoke the text of the Bankruptcy Code as it was written, defendants in avoidance actions must do so too. That is particularly so when the defendants in those actions wish to expand the application of the Code beyond situations involving systemic risk.
.Though the Tribune court held that the constructive fraudulent transfer claims before it were not impliedly preempted, it noted that the Committee there (effectively, an estate representative) was still pursuing its own avoidance action against the LBO beneficiaries, a matter that could raise section 362 concerns “for as long as the trustee [was] exercising its avoidance powers.” 499 B.R. at 322-23. Here the facts are similar in many respects but somewhat different in others, because acts rather similar to those that trou
. Mem. of Law in Support of Defs.' Mot. to Dismiss the Compl. 35, Jan. 11, 2011, ECF No. 72 (“Movants’ Br.”).
. Movants’ Br. 41.
. Mem. of Law in Opp. to Defs.' Mot. to Dismiss the Compl. 48, Mar. 26, 2011, ECF No. 142 ("Creditor Trust’s Br.”).
. See Creditor Trust’s Br. 49.
. See, e.g., Mellon Bank, N.A. v. Metro Commc'ns, Inc., 945 F.2d 635, 645-46 (3d Cir. 1991) ("The effect of an LBO is that a corporation’s shareholders are replaced by secured creditors. Put simply, stockholders’ equity is supplanted by corporate debt.”).
. HBE Leasing Corp. v. Frank, 48 F.3d 623, 635 (2d Cir. 1995) ("HBE Leasing ”) (citations omitted). Here the Movants assert that the Lyondell situation involves a variant of that, under which the loan proceeds were not routed through Lyondell (as a species of conduit) but instead were disbursed directly to stockholders. Assuming — as the Creditor Trust will have to prove, but now plausibly alleges — that there was the intent to engage in a unitary transaction, that distinction, to the extent there is a distinction, does not warrant different analysis. The economic effect is exactly the same. HBE Leasing stands for the proposition that in analyzing LBO transactions under fraudulent transfer law, the Second Circuit authorizes, if it does not also compel, analyzing LBO transactions in accordance with their economic substance.
. 991 F.2d 31 (2d Cir. 1993) ("Orr ”).
. 308 U.S. 295, 305, 60 S.Ct. 238, 84 L.Ed. 281 (1939).
. Orr, 991 F.2d at 35 (alteration in original).
. Id. (alteration in original).
. Tronox Inc. v. Kerr McGee Corp. (In re Tronox Inc.), No. 09-10156(ALG), 503 B.R. 239, 2013 WL 6596696 (Bankr.S.D.N.Y. Dec. 12, 2013) (Gropper, J.) ("Tronox ”).
. Tronox, 503 B.R. at 268, 2013 WL 6596696, at *16.
. Official Comm. of Unsecured Creditors of Sunbeam Corp. v. Morgan Stanley & Co. (In re Sunbeam Corp.), 284 B.R. 355, 370 (Bankr.S.D.N.Y. 2002) (Gonzalez, C.J.) ("Sunbeam ”) (“Although the concept of 'collapsing' a series of transactions and treating them as a single integrated transaction has been applied primarily when analyzing a transfer alleged to be fraudulent in the context of a failed leveraged buy-out ("LBO”), it has also been utilized in other contexts. Courts have 'collapsed' a series of transactions into one transaction when it appears that despite the formal structure erected and the labels attached, the segments, in reality, comprise a single integrated scheme when evaluated fo
. Tronox, 503 B.R. at 270, 2013 WL 6596696, at *17.
. Compare Creditor Trust’s Br. 60-61 with Movants’ Br. 36-37. For that reason, among others, the Movants’ reliance on Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177 (11th Cir. 1987) (“Chase & Sanborn ”) is misplaced. Chase & Sanbomdid not involve an LBO, nor did it involve a pledge of the debtor’s assets. In substance, the money there went into the debtor and out again, see id. at 1179-80, and in fact the Eleventh Circuit found, after noting the necessity to “look beyond the particular transfers in question to the entire circumstances of the transactions,” id. at 1181-82, that "the actual connection between the funds and the debtor was quite tangential: a two-day layover in a special account then only recently opened and soon thereafter closed.” Id. at 1182. Here, by contrast, if the Creditor Trust’s allegations are ultimately proven, the effect on Lyondell and its unsecured creditors will hardly be tangential; Lyondell's unsecured creditors, who after the LBO found themselves behind $21 billion in secured debt, were very much injured.
.Movants’ Br. 42.
. See, for example, the Texas fraudulent transfer law. Tex. Bus. & Com.Code Ann. § 24.009 (West 2013) (judgment may be entered against "the first transferee of the asset or the person for whose benefit the transfer was made.”).
. See Bonded Fin. Servs. v. European Am. Bank, 838 F.2d 890, 893 (7th Cir. 1988).
. See, e.g., Christy v. Alexander & Alexander of N.Y. Inc. (In re Finley, Rumble, Wagner, Heine, Underberg, Manley, Myerson & Casey), 130 F.3d 52, 58-59 (2d Cir. 1997) ("Finley Rumble "); Geltzer v. D’Antona (In re Cassandra Group), 312 B.R. 491, 496-97 (Bankr.S.D.N.Y. 2004) (Lifland, C.J.); Tese-Milner v. Moon (In re Moon), 385 B.R. 541, 552 (Bankr.S.D.N.Y. 2008) (Gerber, J.).
. Finley Kumble, 130 F.3d at 57.
. Id. at 58. It went on to observe that numerous bankruptcy courts, including those in the Second Circuit, had also used a mere conduit test to assess initial transferee status. Id. at 58 n. 3.
.Under Iqbal, the Court is not only permitted to draw upon its experience; it is required to do so. See n. 16 above.
. For instance, this created major problems in another case on this Court’s watch, Global Crossing Estate Representative v. Alta Partners Holdings LDC (In re Global Crossing, Ltd.), 385 B.R. 52 (Bankr.S.D.N.Y. 2008) (Gerber, J.) ("Global Crossing”). In Global Crossing, an estate representative sued recipients of a $20 million dividend that had been issued when Global Crossing was insolvent, just a few weeks before Global Crossing's chapter 11 filing. But the estate representative had initially sued only the paying agent for the dividend — a conduit — and that entity, in turn, had received the payment on behalf of many other institutions, many of whom were likewise nominees, depositories or other conduits. When the actual beneficial holders were ultimately identified, the estate representative voluntarily dismissed the conduits— and properly so, as the above cases make clear. When the earlier complaint was amended to name the actual beneficial owners only after the statute of limitations passed, the Court then had to consider whether the complaint related back.
. The Movants also seem to argue, though not at length, that the Creditor Trust lacks standing to assert claims on behalf of LBO lenders because no benefit would accrue to them. See Movants’ Br. 44. The Court cannot agree with this contention. While, unlike trade creditors and bondholders, the LBO Lenders were secured, and thus received greater distributions on their claims than other creditors, the LBO Lenders still are un-dersecured, and hold deficiency claims. While they suffered lesser injury as a consequence of the LBO than wholly unsecured creditors did, the LBO Lenders still have unpaid deficiency claims, and would be aggrieved when Lyondell funds went to more junior stockholders.
. The Court sees the Creditor Trust's standing as turning on whether there was a due assignment of assignors’ rights to the Creditor Trust (i.e., on whether the Creditor Trust “owns” the causes of action it is asserting), and on whether the assignors suffered an injury in fact. Looking at that, the Creditor Trust has the requisite standing. The real problem, as the Court sees it, is that with respect to the LBO Lenders subset of the assignors from whom the Creditor Trust took assignments of the creditors' avoidance rights, there is an additional defense.
. See Movants' Br. 45-47; Movants’ Reply Br. 31-32.
.See In re Best Products Co., 168 B.R. 35, 57 (Bankr.S.D.N.Y. 1994) (Brozman, CJ.) ("Best Products ”) ("A fraudulent transfer is not void, but voidable; thus, it can be ratified by a creditor who is then estopped from seeking its avoidance.” (citing 1 G. Glenn, Fraudulent Conveyances and Preferences, §§ 111 at 221 and 113 at 223 (1940) ("Glenn")))-, Adelphia Recovery Trust v. HSBC Bank USA, 634 F.3d 678, 691 (2d Cir. 2011) ("Adelphia ”) (same, quoting Best Products and citing Glenn); Harris v. Huff (In re Huff), 160 B.R. 256, 261 (Bankr.M.D.Ga. 1993) (Hershner, C.J.) (a trustee who had succeeded to a secured creditor’s rights under section 544 could not prosecute a fraudulent conveyance action, because the creditor had agreed not to contest the debtor’s conveyance to his mother, and hence was estopped from challenging the conveyance); see also Report and Recommendation of the Special Master, In re Refco, Inc., Sec. Litigation, 2009 WL 7242548 (S.D.N.Y. Nov. 13, 2009) (Capra, Special Master) (“Refco”), report adopted, 2010 WL 5129072 (S.D.N.Y. Jan. 12, 2010) (Rakoff, J.) (where payments were made to stockholders as part of a tender offer, and the funds used by the debtor to fund the tender offer had come from a lender that had extended the loan to the debtor for that purpose, a trustee could not seek to recover the payments to the stockholders for the benefit of that lender).
. See, e.g., Refco, where the Special Master, in a report and recommendation that was thereafter adopted by the district judge, stated:
Any realistic assessment of the inferences raised by [certain paragraphs in the complaint] leads to the conclusion that Refco was heavily involved in structuring the transaction for the purchase of PlusFunds shares.... Refco's intimate involvement in the transaction for assertedly worthless shares is more than enough to disqualify Refco as a legitimate creditor of the Suffolk estate....
... The Credit Agreement provides that the funds from Refco could be used only for the purchase of PlusFunds shares, and could only be disbursed with the permission of Refco. Refco was thus intimately involved with and voluntarily participated in what the Plaintiff readily asserts was a fraudulent transaction.
... Therefore, Refco cannot be the triggering creditor, because it was a material participant in the alleged fraudulent transaction.
2009 WL 7242548, at *11 (footnote omitted).
. See Creditor Trust’s Br. 63.
. See Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 74 (2d Cir. 1998) ("Pani ’’) (“An affirmative defense may be raised by a pre-answer motion to dismiss under Rule 12(b)(6), without resort to summary judgment procedure, if the defense appears on the face of the complaint.”); Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 158 (2d Cir. 2003) (same, quoting Pani); Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d Cir. 2008) (same).
. See Creditor Trust’s Br. 63 (citing Landau v. American Int'l Grp., No. 97 Civ. 3465, 1997 U.S. Dist. LEXIS 14325, at *9, 1997 WL 590854, at *3 (S.D.N.Y. Sept. 23, 1997) (McKenna, J,)).
. See Highland Capital Mgt., L.P. v. UBS Sec. LLC (In re Lyondell Chemical Co.), 491 B.R. 41, 50 n.42 (Bankr.S.D.N.Y.2011)(“Lyondell-Highland ”).
. See id. at 50 nn. 43-47 (“a complaint is ‘deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference.’ And the Court may also consider, on a motion
. The Creditor Trust is on stronger ground when it argues in its response that the Mov-ants "leave unsaid what they would have this Court do at this juncture in the proceedings.” Creditor Trust’s Br. 64. The Court is inclined to view the Creditor Trust’s claims as being an amalgam of the claims of many individual creditors — some of which (e.g., trade creditors and bondholders) that still would have claims, and others (LBO Lenders) that would not. If numbers put forward by the litigants in their briefs are accurate, this ruling might have substantial practical importance — as the LBO Lenders’ aggregate claims (including those against smaller stockholder recipients of LBO payments who are not defendants in this action) are said to constitute in excess of $10 billion, and the remaining creditors’ claims are said to total "less than a quarter of that amount.” Movants’ Reply Br. 32. The Court has ruled that only non-LBO Lender creditors may have claims, and that the Creditor Trust can sue only on their behalf. But it is also at least arguable that any stockholder that is a defendant here would have to return the entire LBO payment it received until the claims of qualifying creditors were fully satisfied. Because the Court well understands the importance of this ruling, it will give the two sides a full opportunity to brief and argue its consequences — including, among other things, an opportunity to argue that there are ways to look at the implications of this in ways different from the Court’s initial view.
. See Movants' Reply Br. 39 ("Under applicable law, the Merger could not have been consummated without the board’s approval. Thus it is the board's — and not merely Smith's or anyone else’s — intent that matters.” (footnote omitted)).
. See, e.g., Complaint ¶¶ 144, 145, 162, 172, 173.
. See Movants' Br. 56 ("There are no allegations that Lyondell's board of 11 directors, which included 10 directors in addition to Smith, acted with intent to defraud Lyondell’s creditors in approving the Merger.”); see also Movants' Reply Br. 40 ("The Trustee has not alleged that any of the other directors acted with intent to defraud Lyondell’s creditors.”). The Movants' argument does not further drill down on what the rule of law should be if some, but less than all, of the directors have the required intent, and in light of the Court’s rulings in this area, the Court does not now have to address that question.
. Smith, it should be remembered, was a director too.
. See Del.Code Ann. tit. 8, § 251(b) (2013) ("The board of directors of each corporation which desires to merge or consolidate shall adopt a resolution approving an agreement of merger or consolidation and declaring its advisability.”).
. Creditor Trust's Br. 70 n. 59.
. Brief of Creditor Trust at 19, Blavatnik, No. 09-1375 (Bankr.S.D.N.Y. Nov. 24, 2010), ECF No. 458 ("Creditor Trust Blavatnik
. James River Coal, 360 B.R. at 161.
. Anchorage Marina, 93 B.R. at 691.
. Id. (emphasis added).
. Id. (emphasis added in each instance).
. See id. at 687 ("Defendants Robert B. Hart and Arnold Ketterling were Anchorage shareholders and directors”); accord id. at 688 ("All three shareholders became directors of the corporation.”).
. Id. at 691.
.See Consove v. Cohen (In re Roco Corp.), 701 F.2d 978, 980, 984 (1st Cir. 1983) ("Roco Corp.’’) ("We may impute any fraudulent intent of Consove to the transferor Roco because, as the company’s president, director, and sole shareholder, he was in a position to control the disposition of its property.”); Forman v. Jeffrey Matthews Pin. Grp., LLC (In re Halpert & Co.), 254 B.R. 104, 110, 121 (Bankr.D.N.J. 1999) (Gambardella, J.) (president of a small brokerage firm transferred all of the assets of his company to another brokerage firm and to his wife, having obtained the written consent of the debtor's board of directors, though by means not fleshed out in the opinion, and where the president’s influence appears to have been undisputed); Wilson v. RHS & Assocs. (In re Blazo Corp.), 1994 Bankr.LEXIS 322, at *10, 1994 WL 92405, at *4 (Bankr.N.D. Ohio Feb. 25, 1994) (Williams, J.) ("Blazo Corp.’’) (An individual who was chairman of the board of directors, president and chief executive officer of debt- or, a lower power television network that also produced and aired television commercials and programs, ran an alleged Ponzi scheme. The Blazo Corp. court denied summary judgment sought by a transferee defendant, concluding that as there was no evidence that the Board attempted to oust him, he was acting within the scope of his authority, and his intent should be imputed to the debtor corporation); Freehling v. Nielson (In re F & C Servs., Inc.), 44 B.R. 863, 871 & 871 n.7 (Bankr.S.D.Fla. 1984) (Weaver, J.) (Chairman of the board of directors of the debtor, an insurance agency, caused the transfer of substantially all of the debtor’s assets to a new corporation he formed. While minutes of a board meeting purportedly authorizing the transaction existed, another board member— and perhaps the only other board member— testified that he never attended the board meetings reflected in the corporate minutes, and no directors meetings would have occurred without his knowledge).
. The Court is also unpersuaded by arguments presented in one form or another by each of the two sides here that principles underlying the Wagoner Rule line of cases, see Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 117 (2d Cir. 1991), imputing insiders’ wrongful conduct to deny standing to estate representatives suing third parties, and in cases imputing knowledge or wrongful conduct under the doctrine of in pari delicto, see Kirschner v. KPMG LLP, 15 N.Y.3d 446, 912 N.Y.S.2d 508, 938 N.E.2d 941, 951-52 (2010), should be applied in this case. While all have their underpinnings in agency law (some of which have been aptly described as employing "fictions,” see Ernst & Young v. Bankr. Servs., Inc. (In re CBI Holding Co.), 311 B.R. 350, 369, 370 (S.D.N.Y. 2004) (Wood, C J.)), matters involving actions with a legally required level of intent are not necessarily the same as those involving notice or knowledge. If intent is to be meaningful, it must have some causal effect on the underlying offense. It is better, in the Court’s view, to employ the standard articulated by the First Circuit in Roco Corp., which effectively does not utilize fictions, and instead requires a nexus between the alleged wrongful intent and the resulting injury.
.The Creditor Trust additionally sirgues, in footnotes, that "there are in any case allegations in the Complaint concerning the knowledge of the outside members of the Board of Directors, for example that they should have known that the earnings projections upon which the Merger financial case was being based were unsupportable in light of prior projections that they had reviewed....” Creditor Trust’s Br. 70 n. 59; accord Creditor Trust Blavatnik Br. 19 n. 8 ("the Lyondell board of directors knew or should have known that the refreshed numbers were inflated, unreasonable, and unachievable.”) (emphasis added in each case). Whatever the relevance that such allegations may have to duty of care claims asserted against other board members, allegations of that character — -“should have known,” which effectively impose a negligence standard — are unhelpful with respect to intentional fraudulent transfer claims, which require an actual intent to hinder, delay or defraud. See, e.g., United States v. Finkelstein, 229 F.3d 90, 95 (2d Cir. 2000) ("the should-have-known alternative connotes a concept more akin to negligence than to knowledge.”); United States v. Bader, 956 F.2d 708, 710 (7th Cir. 1992) ("What the defendant should have known is not knowledge.”).
. Movants' Br. 55.
. Movants’ Reply Br. 35.
. See Complaint ¶ 1.
. The Complaint alleges, e.g., that for Smith the LBO represented an opportunity to "cash out with an enormous personal fortune,” Complaint ¶ 132, and that he ultimately "walked away with over $100 million.” Id. ¶5.
. Pereira v. Grecogas Ltd. (In re Saba Enters.), 421 B.R. 626, 642 (Bankr.S.D.N.Y. 2009) (Gonzalez, J.) (citations omitted).
. In re Bear Stearns Cos., Sec., Derivative, and ERISA Litig., 763 F.Supp.2d 423, 499 (S.D.N.Y. 2011) (Sweet, J.).
.The Responsible Person of Musicland Holding Corp. v. Best Buy Co. (In re Musicland Holding Corp.), 398 B.R. 761, 774 (Bankr.S.D.N.Y. 2008) (Bernstein, C.J.); see also Adelphia Recovery Trust v. Bank of America, N.A., 624 F.Supp.2d 292, 308 (S.D.N.Y. 2009) (McKenna, J.). As recognized by Judge Lifland and the cases cited here, "[t]his two-prong test is commonly applied to analyze scienter in securities fraud actions, but the ‘same standard has been applied in [the Second] Circuit to non-securities fraud claims.' ” In re Bernard L. Madoff Inv. Sec. LLC, 445 B.R. 206, 222 n.14 (Bankr.S.D.N.Y. 2011) (Lifland, J.) (second alteration in original).
. Movants' Br. 57.
. See n. 16 above.
. The Court’s experience is not merely its own. As stated in Debt’s Dominion:
Corporate takeovers frequently take the form of a leveraged buyout.... The buyout is referred to as "leveraged” because the bidder causes the target firm to incur enormous amounts of new debt (the "leverage”) to help pay for the acquisition.... If all goes well, the bidder then uses revenues generated by the target corporation to repay the debt incurred to finance the takeover.
If all does not go well, however, the firm can quickly end up in bankruptcy.... If the bidder overpays, or if some unexpected change — anything from an increase in the cost of oil to a downturn in sales — cuts into the firm's revenues, the firm will default on its debt obligations. After a takeover, there often is very little margin for error.
Debt’s Dominion at 214.
Reference
- Full Case Name
- IN RE: LYONDELL CHEMICAL COMPANY, Debtors. Edward S. Weisfelner, as Litigation Trustee of the LB Creditor Trust v. Fund 1.
- Cited By
- 22 cases
- Status
- Published