Enron Creditors Recovery Corp. v. Alfa, S.A.B. De C.V.
651 F.3d 329
| 2d Cir. | 2011Background
- Enron sought to avoid and recover pre-petition payments made to redeem commercial paper prior to maturity.
- Redemption occurred Oct–Nov 2001; Enron paid above market value for notes held by Alfa and ING.
- Redemption used DTC mechanism; brokers facilitated transfers and notes were extinguished in DTC system.
- Offering memoranda prohibited prepayment; redemption price included accrued interest and interest premium.
- District court held safe harbor protects such payments; bankruptcy court had held the opposite.
- This is an appeal on statutory interpretation of 11 U.S.C. §546(e) and 11 U.S.C. §741(8).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §546(e) safe harbor extends to issuer redemptions before maturity | Enron: safe harbor should not cover debt redemptions. | Alfa/ING: safe harbor covers issuer redemptions. | Yes; safe harbor extends to issuer redemption payments. |
| How to interpret 'commonly used in the securities trade' in §741(8) | Enron: modifies all terms, excluding uncommon payments. | District court: modifies only the preceding term. | Modifier limits only the 'any other similar payment' term; does not constrain other payments. |
| Whether redemption of debt constitutes a 'settlement payment' (purchase/sale not required) | Enron: no purchase/sale; not a settlement payment. | Alfa/ING: redemption is not a settlement payment because it retires debt. | Redemption completes a securities transaction; qualifies as a settlement payment. |
| Whether absence of a financial intermediary taking title defeats §546(e) protection | Enron: intermediary not required to take title; no denial of protection. | Intermediary presence not essential to safe harbor. | No requirement that a financial intermediary takes title to defeat protection. |
Key Cases Cited
- Kaiser Steel Corp. v. Charles Schwab & Co., Inc., 913 F.2d 846 (10th Cir. 1990) (definition of 'settlement' in context of securities transactions; central to interpretation of §741(8))
- In re Resorts Int'l, Inc., 181 F.3d 505 (3d Cir. 1999) (broad interpretation of settlement payments in §546(e))
- Contemporary Indus. Corp. v. Frost, 564 F.3d 981 (8th Cir. 2009) (settlement payment means completion of a securities transaction; breadth of definition)
- In re QSI Holdings, Inc., 571 F.3d 545 (6th Cir. 2009) (extremely broad interpretation of §741(8))
- In re Plassein Int'l Corp., 590 F.3d 252 (3d Cir. 2009) (courts reject purchase/sale requirement for §741(8))
- In re Comark, 971 F.2d 322 (9th Cir. 1992) (interpretation of 'settlement payment' in securities context)
- Bevill, Bresler & Schulman Asset Mgmt. Corp. v. Spencer Sav. & Loan Ass'n, 878 F.2d 742 (3d Cir. 1989) (early guidance on settlement concepts in §546(e))