Akanthos Capital Management, LLC v. Compucredit Holdings Corp.
2012 U.S. App. LEXIS 8359
| 11th Cir. | 2012Background
- Plaintiffs are hedge funds holding notes issued by CompuCredit and allege Georgia UFTA claims due to alleged fraudulent transfers benefiting insiders.
- Each series of notes was issued under trust indentures containing a standard no-action clause prohibiting actions except under two stated exceptions (trustee demand and right to payment).
- Plaintiffs did not satisfy the trustee-demand or right-to-payment exceptions, and thus contended no-action clause should not bar their claims.
- District court held no-action clause generally enforceable, but found it inapplicable under the circumstances for extra-contractual UFTA claims.
- The district court certified a question of law under 28 U.S.C. § 1292(b) to determine if New York law allows Georgia UFTA claims despite the no-action clause.
- Appellants—CompuCredit, Officers, and Directors—appeal the district court’s ruling; the Eleventh Circuit reviews de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do no-action clauses bar UFTA claims, including extra-contractual claims? | Plaintiffs argue no-action clause should not bar them from pursuing extra-contractual fraudulent transfer claims. | Defendants contend the clause generally bars such actions unless exceptions apply. | No-action clause generally bars claims; exceptions are limited and not met here. |
| Can non-party directors/officers enforce the no-action clause under New York law? | Plaintiffs rely on trustee-like enforcement by non-parties to block suits. | Defendants argue no-action clause applies to all claimants, regardless of party status. | Directors and Officers may assert the no-action clause to bar the suit. |
| Does majority ownership justify excusing compliance with the no-action clause? | Plaintiffs claim majority ownership should permit suit despite the clause. | Defendants argue plain text requires satisfaction of pre-conditions; majority ownership alone is insufficient. | Majority ownership alone does not excuse compliance with the no-action clause. |
| Is the trustee-demand exception applicable where the trustee’s actions are involved or precluded? | Plaintiffs argue the trustee-demand exception should allow suit when conditions are infeasible. | Defendants contend the exception requires specific procedural steps and a Default trigger not met here. | Trustee-demand exception not satisfied; no basis to bypass the clause. |
| Does the prevention doctrine apply to excuse compliance with the trustee-demand condition? | Plaintiffs rely on prevention doctrine because dividend notice impeded sixty-day waiting. | Defendants argue the doctrine does not apply when the contract allocates risk or requires notice as a condition. | Prevention doctrine does not apply; CompuCredit complied with notice requirements. |
Key Cases Cited
- McMahan & Co. v. Wherehouse Entm't, Inc., 859 F. Supp. 743 (S.D.N.Y. 1994) (no-action clause bars fraudulent conveyance claims absent trustee misconduct)
- McMahan & Co. v. Wherehouse Entm't, Inc., 65 F.3d 1044 (2d Cir. 1995) (reaffirmed limitations on no-action clause applicability)
- Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981) (en banc adoption of pre-1981 Fifth Circuit decisions)
- Troxler v. Owens-Illinois, Inc., 717 F.2d 530 (11th Cir. 1983) (cases guiding judicial economy and argument development on appeal)